BlackRock: Advisors to HNW Clients Should Offer More Tax Services
Executive Summary:
92% of advisors surveyed say HNW clients ask about tax planning
Only 17% of advisors surveyed viewed taxes as the primary driver in financial planning
Proactive tax planning is one of the top ways to attract and retain HNW clients
You can read BlackRock's full write up HERE
Taxes are the biggest expense for many HNW retirees. Advisors can differentiate from their peers by incorporating proactive tax planning. Below are 3 nuggets from top advisors!
351 Exchanges - Highly concentrated stock position(s) have traditionally been a risk or a ticking tax bomb without viable options. Companies like Alpha Architect have become a savior for these situations. They'll convert the highly concentrated stock in a tax-deferred exchange to a client-specific ETF that tracks the S&P. This allow clients to diversify without the tax implications.
Direct Indexing - For HNW clients with large non-qualified accounts, direct indexing can be a great tool for tax alpha. Rather than buying an ETF or Mutual Fund that tracks the S&P, direct indexing allows you to buy the individual stocks within the S&P to enhance tax-loss harvesting opportunities.
Asset Location (not to be confused with asset allocation) - In simple terms, a moderate portfolio should have a majority of its bonds and annuities in tax-deferred accounts, dividend stocks in taxable accounts, and growth stocks in ROTH accounts.
Here's an example of tax implications from a $100k distribution on a LT growth stock:
Growth stock in IRA - $37,000 owed in taxes if taxed at the highest tax bracket
Growth stock in taxable - Only gains are taxed at 20% if taxed at the highest tax bracket
Growth stock in ROTH - tax free
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