During periods of market volatility, advisors typically recognize that rebalancing and tax-loss harvesting strategies are important for their clients. The ultimate goal is to maintain their clients’ target allocation and realize tax savings at the end of the year.
Both of the previously mentioned strategies provide value to clients in difficult situations. But before advisors begin this process, they should focus on identifying opportunities to set clients up for success in the long term.
To be clear, tax-loss harvesting strategies result in short-term tax savings—within a particular tax year. On the other hand, asset location strategies provide long-term gains, playing out over a 10-20-year time horizon. These strategies are not mutually exclusive and can (and should) be run in tandem.
Leveraging technology to think long term
Using LifeYield’s Taxficient Score®, advisors gain an understanding of the tax efficiency of each client’s household-level portfolio. Our technology looks at all of a client’s accounts at once—including 401(k)s, IRA rollovers, Roth IRAs, brokerage accounts and more—to see whether each asset is located in the optimal place. Overall, it is an easy-to-understand measurement of long-term tax efficiency.
Running a LifeYield optimization is extremely helpful to advisors during periods of market volatility. Advisors are selling positions for clients and rebalancing anyway. This situation gives advisors the ability to choose investment products that will maximize their client’s tax efficiency over the long term. It also gives advisors something positive to talk about with clients that can soften the blow of bad news related to performance.
Setting clients up for success
Recently, Bill Martin, CFA Chief Investment Officer at InTrust Bank wrote on LinkedIn, “active tax management turns the market’s lemons into lemonade.”
He’s right. While uncertain market conditions make life very challenging for both investors and advisors, advisors still have the chance to set clients up for long-term success by focusing on tax efficiency. We have all worked hard to help our clients make decisions and change behaviors so they can improve their financial wellness. We have put our fiduciary hat on and showcased that we are putting their best interests first. As uncertainty becomes the new norm, it is not the time to shy away from these driving principals. It’s time to double down, steer our clients towards success and keep them from crying uncle. Now is the time to shine.
So, keep calm and carry on—knowing that you’re improving outcomes for your clients for the next 15+ years. For more information about the LifeYield Taxficient Score, click here or book a demo with our Advisor Success team.
Watch our webinar with SmartAsset, where we disscussed how to grow your practice in volatile markets and guide conversations to positive topics you can control.