TAX PLANNING
model portfolio. Many advisors already have the internal mechanisms and marketing materials in place for loss harvesting, but they can’ t typically offer the other important elements of a holistic tax approach. As a result, they would need to expand their existing tax management operations and resources to incorporate taxes more holistically in the design.
To do this effectively, advisors need to be thinking about tax management even before they take the client on. The initial conversation with a prospect should focus on the fact that the advisor will not just provide investment advice but after-tax investment advice— that they are not just
managing taxable accounts but structuring the portfolios differently( using tools such as tax overlays and direct indexing strategies) to maximize after-tax wealth.
How To Begin The Conversation
There are plenty of yes / no and openended questions about taxes that advisors can ask people when they’ re still just in the prospect stage. Some advisors may feel intimidated by the tax subject because they think they lack the necessary expertise with the U. S. Internal Revenue Code. But all they really need to show prospects and clients is that they are thinking about the after-tax wealth experience.
They can introduce tax management into the conversation— and discuss the holistic, proactive strategies they deploy throughout the year— with some simple questions that grab the prospect’ s attention:
•“ When you’ ve filed your taxes, have you ever been surprised by the amount of additional income you’ ve generated through your investments? Have you ever been surprised by how much your investment portfolio contributes to your taxes?”
•“ Have you ever been surprised when you have to write a check to the IRS because of mutual fund distributions?”
•“ Do you want to obtain greater clarity into the amount of capital gains your portfolio generates every year so you can better predict your tax exposure?”
The simplest question to ask at the outset of a client relationship is,“ What tax bracket are you in?” In my experience, the natural response from clients is often,“ Why do you ask?” That gives you an opportunity to explain how capital gains can undermine after-tax performance, and how your approach can help clients keep more of what they make.
Another simple question you can put to
There are plenty of yes / no and open-ended questions about taxes that advisors can ask people when they’ re still just in the prospect stage.
them:“ Would you like to pay more tax instead of less tax?”
Being“ tax-sensitive” or“ tax-aware” involves more than just allocating a client’ s fixed income to a municipal manager instead of a taxable manager. That helps, but to truly improve a client’ s after-tax investment and wealth outcomes, an advisor has to look at the client’ s entire taxable portfolio and think of taxes for the client’ s entire picture, not just as something done at the account level.
After all, accounts don’ t pay taxes. Investors do.
To show clients how they can pay less( and demonstrate that you look at that entire financial picture), you can ask,“ Do you have other investment accounts or assets held elsewhere, and if so, do you know what they contribute in terms of realized gains?” This is where advisors can demonstrate greater value and deepen trust.
The Biggest Changes Advisors Can Make Now
The most scalable way for advisors to incorporate tax management into all taxable accounts is to outsource to a wealthtech provider with comprehensive holistic tax overlay services. If advisors invest in technology solutions that they use themselves, that leaves less time for them to have holistic wealth management conversations with clients or engage directly with clients on other value-added matters.
Of course, advisors’ common objection to outsourcing is that they would be giving up control of security selection. While that may stem from a well-meaning dedication to clients and advisory practice value, it misses the big picture. What clients care about most is the amount of capital-gain realization taking place in their accounts, not which specific security is creating that capital gain.
A holistic tax overlay service can allow advisors to set a hard and fast tax budget that dictates the amount of gains each client realizes. That service can also determine which specific securities and tax lots to sell to minimize portfolio risk while adhering to the client’ s set capitalgains guidelines.
But a comprehensive tax overlay means the best thing advisors can do is give up that control over security selection, which means outsourcing to a direct indexing manager or a provider of holistic tax overlay services.
The growth in available tax-smart solutions in today’ s wealth management marketplace has increased the discussion about tax management, prompting advisors to become more comfortable incorporating this differentiator into their value propositions. Taxes are something that advisors and their clients should be thinking about all year long, not just in the months before April 15.
When advisors take steps to incorporate tax management into their holistic wealth management offerings, using a proactive strategy for all taxable accounts instead of offering it merely as an optional service, they can help clients and their families keep more of what they earn. That is something you can’ t put a price tag on, and it inspires stronger client loyalty.
ERIK PREUS, CFA, is group head at Investment Solutions at Envestnet.
48 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2026 WWW. FA-MAG. COM