What You Need to Know
- Eighty percent of investors surveyed said advisors should focus on minimizing their tax obligations.
- Advisors who approach tax management via tax-loss harvesting portfolios once at year-end miss out on major opportunities.
- While 66% of advisors believe outsourcing diminishes their value in clients’ eyes, 90% of investors prefer an advisor who leverages other experts' knowledge.
Eighty percent of investors in a recent survey commissioned by Orion Advisor Solutions said advisors should focus on minimizing their tax obligations, and 90% said taxes can erode their portfolio over time.
But Orion cited research from Cerulli Associates showing that only 20% of advisors employ ongoing, automated tax management.
It said other advisors are more likely to adopt an ad hoc approach to tax management by tax-loss harvesting portfolios once at year-end. Thus, they miss out on major opportunities, such as those in the most volatile days of 2020, Orion said.
“Advisors used to warn investors, ‘Don’t let the tax tail wag the dog,’” Andy Rosenberger, head of Orion’s tax managed solution, said in a statement. “Those days are long past us.
“Investors need help transitioning out of concentrated stock positions into more tax-efficient portfolios, and they want to be ready for any tax changes that may impact their long-term financial goals.”
For its study, Orion commissioned online surveys involving some 2,000 investors and advisors, and conducted in-depth interviews with dozens of them.
Advisors surveyed recognize the importance of year-round tax management for investors and understand this can help grow their business.
Seventy-eight percent of respondents agreed that strong asset allocation and tax management are two important ways to add alpha to a client’s portfolio.
Seventy-six percent said it is easier to explain the benefits of effective tax management or tax alpha to clients than the benefits of outperforming the market.