Packaging tax preparation with wealth management is how a digital wealth management provider will gain a competitive advantage in an increasingly crowded market.

That's the premise in Blucora's new partnership with Legg Mason's robo advice platform Financial Guard, says John Clendening, president and chief executive at Blucora.

"We are engaging the consumer in that one time of year when everyone is paying attention to their money," Clendening says.

"The incumbents in wealth management don’t have the capacity to do it. But we can focus on taxes and the planning side in a holistic way."

The deal will provide Blucora’s TaxAct customers with access to Financial Guard for the upcoming tax season, and at a later date to the tax advisers in Blucora's HD Vest Financial Services network.

Blucora invited a number of wealth management firms to consider a partnership with its offering, Clendening says, adding there was a cultural fit with Financial Guard and Legg Mason.

Legg Mason is the latest asset manager to invest in automated advice platform. Image: Bloomberg News
The partnership with Blucora bolsters Legg Mason's online offering, which it acquired in July.

“Innovation in technology is redefining investor expectations, and they want comprehensive, accessible, secure advice solutions at a reasonable cost,” said Cary Jenkins, Chief Innovation Officer of Financial Guard, in a statement.

One of the key features, Clendening says, is that TaxAct users will have the option to open an IRA account and direct their tax refund into the IRA with a few keystrokes.

"We believe the more seamless and effortless we make this, the more adoption we're going to achieve," he says.

Account minimums will be $1,000, he says, and investment portfolios will be built from indexed funds. Fees have not been determined, though Clendening stresses affordability is central to the offering.

"It does need to be a good value," he says, adding that the firm is still defining the universe of eligible funds for the offering, but it would not be stocked with Legg Mason funds.

The deal was designed not to require HD Vest advisers or TaxAct to use Legg Mason funds in client portfolios, notes Roger Paradiso, head of alternative distribution strategies at Legg Mason.

"Customization is ultimately what the client wants, and to accomplish that we wanted to be as flexible as possible," Paradiso says.

Paradiso adds the partnership bolsters Legg Mason's online offering which it acquired in July, joining a line of asset management firms that have entered the digital wealth realm.

"At first [robo advice] was viewed as a threat to advisers, when in reality they are very complimentary," Paradiso says. "People have got to understand how it will work to make the adviser channel more efficient, and help it expand out from its existing client base to a younger client base."

The partnership is the latest to broaden online wealth offerings to encompass tax planning and strategy for clients.

On the opposite spectrum, startup Hedgeable introduced a feature on its platform called 'Tax Samurai,' run by an AI bot called 'Katana' for the high-net-worth client.

For 30 basis points, the service will work for client accounts with a minimum of $1 million to analyze their securities, aggregate all of their financial data, create tax efficient transfers, apply automated downside protection on any current holdings, and perform tax efficient trading and tax-loss harvesting.

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Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.