3 Ways to Deliver Tax Efficient Investment Solutions

This post is a summary of a session from the FRA’s 8th Annual Managed Accounts Summit. The speaker for this session was Randy Bullard, Executive VP, Institutional Business Development, Placemark Investments.

Randy began by listing the three main areas where tax efficiency can be achieved:

  • Asset Placement – trust & estate planning, asset allocation and income management
  • Tax Efficient Products – low turnover strategies, passive products, insurance products, tax-deferred accounts, utilizing products that are tuned to different registrations.
  • Portfolio Customization – gain/loss matching, risk/tax trade-off management via portfolio optimization.

The goal of the tax management process is to match pre-tax returns and improve after-tax returns, Randy explained. Placemark does this with a quantitative, optimization-based overlay management process.

Since it’s ultimately the client that must pay the taxes on their accounts, managers should assess the tax alpha that can be derived based on a client’s circumstances to improve their after-tax return, Randy said.

“Managers don’t pay taxes, clients pay taxes,” he noted.  However, Randy pointed out that it’s impossible for an individual manager to meet a collective tax objective when managing their little slice of a client’s portfolio. That’s why a competent overlay portfolio manager is a critical component of of a tax efficient solution.

We may be in a moderate return environment for a while and if the Bush Era tax cuts are allowed to expire, the gap between short- and long-term gains rates is going to increase. That means the value-add opportunity for a tax optimization process also increases, Randy noted. Every time that delta between capital gain rates and income rates grows the value add opportunity goes up quite a bit.



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 craig@ezragroupllc.com