An increased focus on taxes has created some new opportunities for financial advisors.

According to an SEI poll of more than 170 advisors, 69% of advisors surveyed say their clients are asking more tax-related questions. The survey also indicated that 81% of advisors take tax management into consideration when advising clients on investment decisions.

“Taxes have become a major focus in the aftermath of the fiscal cliff and while most advisors take tax management into consideration when advising clients, there are more opportunities to demonstrate expertise and add value in light of recent tax changes,” says Dean Mioli, director of investment planning for the SEI Advisor Network, in a statement. “With clients asking more tax-related questions than ever before, advisors should proactively offer tax-related advice and implement tax-driven strategies throughout the year. By making taxes top-of-mind advisors can differentiate themselves and gain mindshare in a competitive environment.”

Here are some ways advisors have been able to help clients navigate this year's tax season.


In 2012, advisors to the ultra-affluent had a deluge of estate tax opportunities resulting from the fear that the $5 million-plus estate and gift tax exemptions would expire. That all changed at the last minute, however, with the government extending these exemptions (with inflation adjustments) indefinitely. Steven Lockshin, chairman at Convergent Wealth Advisors, says his clients have been largely focused on opportunities in the generation-skipping and estate tax exemptions. “Good estate planning will always trump good investing,” he claims.


Another focus among his clients, whose average assets under advisement is roughly $50 million, are income taxes. "I've seen greater focus on income tax planning in California given the retroactive tax increase in 2012 of almost 30% in income taxes for those earning more than $1 million annually,” Lockshin says.


"Many of our clients -- because they invest in illiquid hedge funds, which require K-1’s -- are forced to file extensions," says Lockshin. These partnerships or limited liability companies typically report late, causing investors to file final returns in October."


Advisors note that a tax-enhanced indexing strategy is one way to help clients plan for tax day all year round. "I think across the board, this is a great way to minimize taxes, " says Timothy McGrath, managing partner at Riverpoint Wealth Management. "With my clients, I make sure I'm using ETFs across the board with multiple segments of their investments."


Given the increased focus on taxes, SEI’s study has identified the following five steps that every advisor can use to help their clients increase tax savings.

  1. Utilize Multiple “Tax Buckets” "When planning, advisors need to be aware of the attributes and benefits of the strategies in each bucket and execute an appropriate mix in seeking to enhance client returns while reducing their tax burdens," SEI advised. 
  2. Focus on Asset Allocation. Advisors must consider where assets are located within a portfolio to optimize the different tax treatments that different types of investments receive when placed in certain accounts.
  3. Don’t Overlook Income Shifting. "While gifting strategies have always been a part of the planning process, they are more important than ever in light of recent tax changes," SEI noted, adding that advisors should avoid overlooking shifting income to a family member in a lower tax bracket or deferring income to the next year to gain tax benefits. "Opt for gifting appreciated securities, such as low basis stocks, instead of cash. Look to defer investment from one year to the next to lower the amount of taxable investment income for the current year."
  4. Consider All Roth Conversions. There are many different ways a Roth strategy can be implemented, including a partial conversion, generational arbitrage, and converting a non-deductible IRA to a Roth IRA. SEI suggests that advisors should seek to tactically pair the Roth conversion with other tax strategies, such as increasing charitable contributions or released suspended passive losses, to potentially increase the tax savings even further. 
  5. Maximize Loss Harvesting. "Look to harvest losses regularly throughout the year to find opportunities to offset future gains," SEI stated. "By looking to harvest losses only at the end of the year, valuable opportunities may be missed to strategically sell stocks at a loss and create an 'asset' that can offset gains to lower client tax liability."

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