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Tax-Efficient Planning Can Win You Business

April 8, 2015

Tax liability is on every investor’s mind this time of year, and financial advisors who can rejigger a portfolio to reduce or eliminate taxes stand to gain new clients, The Wall Street Journal reports. It doesn’t hurt if they can lower asset-management fees at the same time.

Investors who are otherwise satisfied with their advisors’ performance nonetheless appreciate a lower tax bill at the end of the year. That hands a competitive advantage to firms — even smaller ones — that can address investors’ long-term growth objectives while keeping a sharp eye on tax efficiency. The latter is particularly important in portfolios earmarked for retirement. “Why pay taxes on money you’re not using?” Anthony LoCascio of Anthony LoCascio Consulting rhetorically asks the Journal.

LoCascio tells the newspaper of a woman with a $500,000 taxable account who consulted him for a second opinion, even though she was on the whole pleased with her existing FA’s performance. Between appreciation and dividends, the Journal reports, her actively managed portfolio was generating $48,000 a year. But she was paying hefty capital-gains taxes plus the Medicare surtax — on top of the $4,500 a year her existing advisor charged to manage her money.

LoCascio suggested the client put $300,000 of the portfolio into ETFs and the balance into a deferred annuity with no management fees, according to the Journal. She liked the idea so much she moved the account over to him. The newspaper says her investment-management fees fell to $1,500. It’s not clear whether or not that includes LoCascio’s. Still, he tells the Journal, tax savings alone can have a big impact on a good-size portfolio, and the advisor who can find them adds a lot of value.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here if you have a paid subscription.