Defining Tax Management

In the most recent edition of my Managed Accounts Newsletter (MA Monitor, Feb 2009), I compared different recommendations of the minimum value for a managed account that is required in order for tax management to be effective. The values ranged from $0 (no minimum) up to $1,000,000:

I have since received a few updates, including one from Joe Mrak who wanted to amend his comments:

I actually agree with Dale from M3 that an account should be at least $1 MM for “tax optimization” vs what I was think for the $200K account “tax treatment”.

This raises a semantic issue since there is no standard definit0n of tax management as well as a lot of overlap between the many terms currently in use.  Here are a few tax management terms that I have found:

  • tax optimization
  • tax treatment
  • tax aware
  • tax sensitive
  • tax efficient
  • tax managed
  • tax centric

Joe’s update includes a good definition of tax optimization in his clarification of a minimum account value:

Just to clarify that point…my thought has always been that most accounts can benefit from some tax rules (don’t allow a ST gain etc.), but the more involved tax optimization of an account where you are doing much more algorithmic logic to determine the trade-offs of alpha, risk and tax only makes sense on accounts with $1 MM or more. No sense in working that hard on a $200K account that will see little to no benefit to that extra effort.

He also added:

I want to be more tax aware than tax optimized. I believe that only a handful of advisors can understand the value proposition of all-out tax optimization.

As a follow-up, I asked Joe if he could also provide his definitions for tax aware versus tax treatment:

Tax Aware – The system is constantly seeking to offset gains and losses at any time of the year and all investment decision takes into account tax.

Tactical Tax Treatment – Tactical gain/loss management based on a request or done on an annual basis.  So tax is considered, but only ad-hoc by request or specific action.

IMO, this definition of tax treatment sounds a lot like tax harvesting, which is a feature of some Separately Managed Account (SMA) programs.  Although, there is also a difference between manual and automated tax harvesting.

Now that I’ve opened a can of worms related to the many definitions of tax management, I’ll be continuing to delve into more detail on the many different terms in future posts.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at