Tax-smart portfolio rebalancing

Introduction

Investors have had a rough year as rollercoaster-like market volatility put the S&P 500 down nearly 20% for 2022, marking the worst performance in 14 years. But investment advisors have a rare chance to make the best of the situation with tax-smart rebalancing – a major value-add, year-round opportunity to help clients reduce or eliminate their tax consequences.

Offering value-added services focused on estate and tax planning have become more important for advisors to remain competitive and grow their businesses. A staggering 80% of investors believe that their financial advisors should focus on minimizing their taxes, and 90% believe that taxes can erode the growth of their investment accounts over time.¹

Portfolio rebalancing can help advisors harvest losses and limit capital gains since it combines well with tax planning, reevaluating, adjusting risk tolerances, and resetting financial goals. Asset location optimization, target overrides, capital gains budgeting, and custom thresholds on unlimited sets of tax rules are other powerful ways to meet clients’ specific tax strategies and control their annual tax burdens at the individual or household level.

However, 42% of advisors still need to use rebalancing technology² and are likely missing opportunities to upmarket their service strategies, scale to meet the needs of a growing client base and gain operational efficiencies. Advisors that do use it may not have the capabilities to meet their clients’ tax goals.

Here is why offering tax-smart rebalancing is key to your value proposition and six key ways to leverage it as part of your growth strategy.

1. “Why Most Financial Advisors Do Not Provide Valuable Tax Planning,” Forbes, March 14, 2022:https://www.forbes.com/sites/davidrae/2022/03/14/why-most-financial-advisors-do-not-provide-valuable-tax-planning/

2. Cerulli: U.S. Advisor Metrics 2021 Client Acquisition in the Digital Age: https://www.cerulli.com/reports/us-advisor-metrics-2021