WEALTHTECH INSIDER: 3 Surprises From Orion’s Tax Management Survey


By Andy Rosenberger, CFA

There is a growing disconnect between what investors want from their advisors, and how advisors feel they should use their time. Recently, Orion surveyed both groups to uncover potential opportunities for advisors to close the gap and stand out in the marketplace.

Today’s investors appreciate that taxes can actually represent a larger drag on their returns than fees or trading costs. In fact, nearly 90% of investors agree that taxes can eat at their portfolio the same way volatility can. Investors also believe (79%)  their advisors should be focused on reducing their tax obligations.

Investors have a specific vision for tax-smart service

While it isn’t surprising that investors want to improve the performance of their wealth, it’s important to note that “tax-efficient” is a broad, vague category. An advisor can perform tax-loss harvesting once a year and make a claim at tax-efficient investing for their clients. But that isn’t exactly what their clients have in mind.

In fact, 79% of investors appreciate the benefits of proactive tax management, including the advisor’s ability to:

• Plan transitions over a specific time frame based on the tax impact they may have

• Proactively make adjustments to the portfolio to minimize tax implications

• Minimize capital gains when buying/selling within my portfolio

People are more conscious about the impact of taxes on performance

The majority of investors not only like the concept of active tax management but want their advisors to use it and personalize it to their needs. Looking at the generations, Gen X and Millennials especially find this concept appealing—with 84% and 90%, respectively, saying this concept appeals to them.

For many high-net-worth investors, taxes can represent a drag on portfolio performance—and the alpha generated isn’t large enough to cover their clients’ taxes. As a result, taxes have a major impact on the long-term growth of a portfolio. Research from the CFA Institute has shown that advisors who can not only effectively manage tax-loss harvesting, but can also make proactive tax-based decisions throughout the year, may actually be able to generate 1-2% excess return each year. No wonder the majority of investors believe that ongoing tax management would have a positive impact on their portfolios.

Advisors underestimate the power of tax management tech

With these numbers, the big surprise is the use of proactive, tech-enabled tax management is not more widespread. Orion’s research found that while 80% of advisors agree on the importance of proactive tax management—and 92% of them would be interested in it—only 37% of them are employing it.

One reason may be that advisors often believe their value is tied to doing everything themselves (and may not have the specialized knowledge to do so). However, investors don’t see it that way. Across all generations, 90% of investors agree that advisors should “leverage the resources, knowledge, and support of external experts to help with research, strategy, investment planning and management.”

In other words, investors care about meeting their financial goals more than whether elements of their investment strategies are handled in-house or in collaboration with expert partners. And finding the right partners can create valuable bandwidth for advisors to offer more sophisticated, high-touch service. Marty Bicknell, CEO of Mariner Wealth Advisers, recently said that his firm sets a goal for 80% of an advisor’s time going to client-facing activity. The industry average, according to Cerulli research, is closer to 50%.

In a competitive environment, it is understandable that advisors may hesitate at the idea of outsourcing. Anything an advisor does on their own is, by default, unique. But investors are overwhelmingly clear about their demand for year-round tax management and asset location – and advances in technology have made it easier for advisors to rise to the challenge.

Andy Rosenberger, CFA, is Head of Tax Managed SoluAndy Rosenberger, CFA, is Head of Orion’s Tax Managed Solution.