Risk-smart, Tax-smart Multiple Account and Product Optimization could be the Next Big Thing

The typical household has five or six accounts spread among two or three advisors.  As these families look toward the future, they want to know how to maximize after-tax returns and income to power their retirement.

There are three ways to improve investor outcomes:  1) beat the market over time; 2) reduce costs; and/or, 3) reduce taxes.  We haven’t met many who can beat the market consistently; and of course, the industry is already in a race to the bottom on costs. The last frontier – and the next big thing – is reducing taxes through the management of multiple household accounts.

In fact, studies from both Morningstar and Ernst & Young (EY) have found that a coordinated household approach to portfolio management yields significant returns. Morningstar found that this strategy can produce an additional 100–200 basis points per year in enhanced returns, while EY determined that investors can improve after-tax returns and income by as much as 45 percent over an investor’s lifetime.

Managing an investor’s entire household portfolio can not only add hundreds of thousands of dollars in improved after-tax returns and income, but enables advisors to differentiate themselves in the market place.

Morgan Stanley serves as the most advanced example of how a firm has invested in and integrated digitally enhanced advice technology to ensure their advisors are more productive and effective in improving household outcomes. The firm’s goals-based wealth management platform combines advanced software systems and leverages algorithms to create risk-smart, tax-smart, comprehensive and coordinated portfolios for the optimal management of all accounts and products in a household from accumulation through withdrawal. These solutions are designed to include individual products – ETFs, SMAs UMAs, mutual funds, annuities – that at one time were what advisors sold as “the solution,” but go a step further in offering strategies that optimize asset location to avoid paying unnecessary taxes and benefit an entire household’s investment holdings.

When tools, products, models, income sourcing and data are interconnected and flow through the ecosystem, advisors can provide optimal guidance and decision making across the household portfolio. When applied over the course of a portfolio’s lifetime, the efficiency gained across investment management means more assets and ultimately, assets to pass to more lifetimes.

Mark Hoffman
Mark Hoffman
Mark Hoffman is CEO and Co-Founder of LifeYield, a software company that enables financial firms, advisors and investors to manage their assets holistically and in a tax-advantaged way. Mark previously helped found two other successful financial software firms: Lattice Trading, an alternative trading platform purchased by State Street Global Advisors and Upstream Technologies, a unified managed account (UMA) and trading solutions platform purchased by Fiserv.

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