Jeff Levine Calls Tax-Planning Gap Report an 'Indictment' of Advisor Industry

While all these shortcomings are problematic, Levine said, the significant value being left on the table around tax-aware rebalancing is clear.

"Look, I get that the tax tail shouldn't wag the investment dog, but if you rebalance without understanding its potential tax impact on a client, you can easily phase them out of valuable credits or deductions, trigger surtaxes, increase Medicare premiums, turn what would have been tax-free long-term gains into taxable income... and the list goes on," Levine wrote.

Without exercising appropriate due diligence, Levine argued, any potential investment benefits of a rebalance can be outweighed by additional tax (and related) costs.

"With the tools and technology available today, making tax-aware decisions as part of the investment and overall financial plan is more achievable than ever before," he said. "There's just no reason that, as an industry, we shouldn't have that percentage MUCH closer to 100% in the near future."

Speaking to ThinkAdvisor about his post, Levine said he was disappointed by the BlackRock survey but not necessarily surprised.

"We often say there is no free lunch in investing, and you have to take risk to get reward," Levine said. "Tax planning is different, in a sense, because you are either doing it or you are not. And unlike investments, which can potentially rebound after a loss if you hold on, missed tax-planning opportunities are permanently lost."

Levine, who was closely involved in developing the American College of Financial Services' new tax-planning specialist curriculum, said he often speaks with advisory firm leaders about their deficiencies in tax planning.

"Some of it is a lack of education and some of it is a lack of resources," Levine said. "But a lot of it, candidly, is more a matter of compliance departments and other business leaders just not wanting to take what they see as additional risk. Many feel their people aren't quite ready to get into tax planning, but I think that will change as the competition increases and other trailblazers show what is possible."

A number of online commenters agreed with Levine's interpretation of the BlackRock data, including Marla Sofer, the founder and CEO of Knomee, a behavioral intelligence firm.

"What's striking is that this isn't a tooling problem anymore," Sofer wrote. "The technology exists. The data exists. The real bottleneck is process, incentives, and follow-through."

If the industry is serious about holistic advice, Sofer said, "tax awareness can't be optional — it has to be embedded in the investment workflow. Otherwise, we're optimizing in one dimension while unintentionally breaking another."

Other commenters pushed back slightly on Levine's arguments, including Steven Smith, principal at RightPath Investments and Financial Planning, Inc.

"Asset location and tax aware rebalancing are a double edged sword," Smith wrote. "If you try to keep equities (mostly) in the taxable account, that's where the gains will be and rebalancing is going to present some tax challenges. Of course, it's better to do the rebalancing yourself than have the market do it for you."

J.R. Robinson, founder of Financial Planning Hawaii, likewise "respectfully disagreed" with a few items.

"While there are plenty of folks who tout tax-loss harvesting and rebalancing as 'alpha-adds,' academic research on the value of both of these strategies is mixed at best," Robinson said. "As for tax-exempt investments, I first built my business by cold-calling with muni bonds in the late 1980s and early 1990s when tax brackets were very different from today. When I run the taxable equivalent yields against CDs or treasuries for most of my clients, taxable wins out."

Hawaii has a high state income tax, Robinson noted, so Treasurys are often "the after-tax winner in taxable accounts."

However, Robinson said, he has no disagreement over the importance of prioritizing tax-efficient investments, nor with monitoring (or avoiding) capital gains distributions or embracing tax-efficient asset allocation techniques.