Advisors should look beyond traditional loss harvesting (which seeks to reduce the negative impact of taxes after gains have already been realized in an actively-managed portfolio) and instead work proactively with the client at the beginning of each year to determine a strategy for gains and losses to realize over the course of that year.

For most advisory firms, an integrated platform will offer savings in time and expense over a series of single point solutions cobbled together. To deliver the most value to clients, advisors will want to find an integrated solution which can run the gamut of tax management functions such as limiting the realized gains and losses to those that deliver the greatest value from a tax management standpoint while minimizing performance deviation from the investment manager’s model, incorporating gains and losses generated outside of the portfolio and linking multiple accounts together. The result is an unparalleled ability for clients and their advisors to proactively manage tax liability while still realizing much of the returns generated by their selected portfolio managers.

Active tax management is an excellent example of a premium service that reinforces and expands the value proposition of the advisor, generating additional revenue in the process. Most notably, it does so without additional expense and/or overhead while the client experiences a higher level of personalized portfolio management. Active tax management can play a critical role in an advisor’s efforts to enhance the value of his/her advisory service and in defending or expanding revenue generated on client assets.

Flexibility and Service

Building a successful advisory business requires a flexible operating model capable of rapid evolution. Most importantly it requires an organizational ability to take advantage of the technology and outsourcing solutions available in the highly-networked financial services industry. 

It is our opinion that firms that manage their service delivery model on an active, ongoing basis will not only be well-positioned to respond to the impact of fee compression, but will also thrive in a market environment that demands flexibility and continuous improvement in scalability.

Richard Dion is executive vice president and head of strategic partnerships with Envestnet Inc. Dion is a 30-year veteran of the financial services industry; having been successful in start-up endeavors as well as corporate executive roles in sales, product development and corporate strategy.

Craig Iskowitz is chief executive officer and zen master of Ezra Group LLC. Iskowitz is a technology and business strategy consultant providing innovative solutions to the wealth management industry.

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