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Start 2024 Strong by Being an After-Tax Advisor

By Eaton Vance Advisor Institute

A financial advisor's success in today's highly competitive market is dependent on high-touch, personalized services that make wealthy investors' goals more attainable. The three tenets of The After-Tax Advisor are a guide to deliver the added planning value your clients are looking for to achieve their financial goals.

Tenet 1: Taxes can be a client's easiest "investment fee" to reduce.

Tax rates are far higher than advisory fees. Working with an After-Tax Advisor can therefore lower clients' taxes and help you to demonstrate the value of the fees you charge. January is a great time to quantify the tax fees you helped clients avoid with tax-efficient strategies over the last year and discuss additional tax-forward strategies that could be used in the coming year.

Consider asking: What do you think detracts more from investment performance: Fees or taxes?

Tenet 2: Asset location can be as important as asset allocation.

While what you invest in will determine your pre-tax return, where you hold those investments will determine your after-tax return. Highly-taxed forms of investment income may be better suited where they won't be taxed, as in a Roth or traditional retirement plan. Investment income that is subject to little or no tax may be better suited for a fully taxable brokerage accounts.

Long-term capital gains are a special category. Gains that are distributed annually, as in a 40-Act mutual fund, may be best located in a tax-deferred retirement account. On the other hand, gains that can be timed and offset with realized losses may be better suited for a fully taxable account where they can enjoy the offset.

Consider asking: Do you make use of both tax-exempt and tax-deferred accounts? How do you invest inside them?

Tenet 3: Uncle Sam can be a coach, not simply a referee.

Coaches instruct players on how to apply the rules to win the game, while referees enforce the rules and penalize players who don't follow them. Appreciating Uncle Sam as a coach requires recognizing the tax code for what it is: a set of rules designed to encourage some behaviors and discourage others.

Being an After-Tax Advisor requires understanding the tax consequences of investment decisions and thinking in terms of after-tax returns. Consider using tools like systematic tax-loss harvesting* and charitable giving with appreciated securities to help your clients benefit from Uncle Sam's rules.

Consider asking: Are you charitably inclined? How much to you give to charity each year? In what form?

Bottom Line: The three tenets of The After-Tax Advisor can help you set yourself apart from the competition with tax-forward strategies that improve your clients' after-tax returns.