As advisors move beyond portfolio selection as their primary offering, many of the outside firms that help them provide managed accounts to clients are setting a priority on tax services.
The research firm Cerulli Associates released a report last week suggesting that just over three-quarters of firms that specialize in providing managed accounts to advisors and clients are making tax optimization an emphasis. Asked in a Cerulli industry survey to name their top priorities for their managed account business in 2025, account providers ranked improving their tax-management services over both adding alternative assets like private equity and credit and taking steps to simplify the ways they provide services.
Unlike mutual funds and other funds giving investors access to the same basket of investments, managed accounts are custom-built to suit individual clients or groups of clients. Many go beyond providing access to diverse assets like stocks, bonds and alternatives by offering tax planning and other services.
Scott Smith, a senior director at Cerulli, said one advantage of tax planning is the obvious and almost immediate benefits it has for client portfolios. Taxes are generally considered one of the heaviest but also most avoidable of factors that can weigh on investment returns.
"While security selection is encumbered by the reality that 'past performance is no indicator of future returns,' tax optimization capabilities are a much more reliable source of post-tax alpha," Smith said in a statement.
Tax-loss harvesting is no longer enough
One form of tax optimization that has become common is tax-loss harvesting. This generally refers to selling stock that has lost value to offset capital gains taxes on shares that have risen.
But Scott Bishop, a partner and managing director at Presidio Wealth Partners in Houston, said tax-loss harvesting is "only one lever in a much broader, multiyear planning process."
Long-term financial planning now often involves finding ways to lower tax bills generated from decisions to move assets in or out of retirement accounts, give to charity, take money out of overly concentrated stock investments and business sales or employee stock plans. Bishop said outside firms can provide services to help lower clients' taxes in all of these scenarios.
But advisors should always be the ones guiding the decisions, since they are the ones best suited to have an understanding of "the client's complete financial picture." Because of the demand for tax services, Presidio Wealth Partners employs three certified public accountants and works regularly with clients' own CPAs, tax attorneys and estate-planning attorneys.
"The next competitive frontier is not simply a more tax-efficient account — it is an advisory process that coordinates every account and major financial decision around a unified, multiyear tax plan," Bishop said.
Tax-loss harvesting is also the tax-related service that advisors are most likely to have found a way to automate, according to Cerulli's survey. Nearly 80% of the respondents to Cerulli's poll offer an automated system for taking advantage of tax losses, whereas only 43% have the same for moving clients out of concentrated stock positions and 39% for reporting tax savings to investors.
Third-party portfolio managers respond to the demand
Providers of separately managed accounts and similar investment options are well aware of the demand. Firms like JPMorgan, Morgan Stanley and Cetera have sought to bolster their tax expertise in part through acquisitions of outside specialists. Others, meanwhile, are seeking to do more through partnerships with third-party firms.
The financial tech company Envestnet, for instance, is building on its longstanding partnership with the asset management giant Vanguard and bolstering its tax offerings in a couple of new ways. Vanguard's Advisor's Alpha, which helps advisors with everything from portfolio management to tax planning, is now available to advisors who work with Envestnet through its wealth management division. Vanguard meanwhile is joining other asset managers in what Envestnet calls its Fund Strategist Tax Management Advantage program, which lets participating advisors provide various tax services to their clients free of charge.
Erik Preus, Envestnet group head of investment solutions, said money managers who participate in the program agree to offset the part of the fees clients typically pay to cover the cost of tax planning. Envestnet then waives the rest.
"If the client is uncomfortable paying a fee for something that is going to be in their best interest, we wanted to work with the asset management community to mitigate that headwind, if you will, and be able to offer this fund strategist tax management at no fee," Preus said.
The need for year-round tax help
Preus said tax-loss harvesting is one of the most popular services on offer. With the stock market in the midst of a more-than-three-year bull run, clients need ways to take in some of the gains they've made without encumbering themselves with huge tax bills. Many clients will hesitate to follow an advisors' recommendations if one of the side-effects is $50,000 owed to the IRS, Preus said.
"Ultimately, we're helping the client really focus on the after-tax performance of their account and helping the advisor scale their practice by outsourcing to third-party manager models," he said.
Another goal is to provide tax planning throughout the year rather than only in the spring when the IRS comes calling.
"Advisors frequently just wait till the end of the calendar year … but that's not always the best time to do it," Preus said. "Oftentimes, there's a year-end market rally, and so you're not capturing the losses from earlier."
Separate from Envestnet, the managed-portfolio provider and wealth manager AssetMark similarly is adding tax-optimization strategies through its unified managed accounts, which bring together various separately managed accounts and other investments into one central place. AssetMark said the additions will let more investors take advantage of tax planning and similar services.
AssetMark announced Monday that the assets overseen through its Tax Management Services offering increased by 130% over the past year to top $10 billion. The average rate of tax savings provided through the service rose from 1.29% in 2024 to 1.42% last year.
"No two clients have the same financial goals, tax considerations or investment preferences, and their portfolios should reflect those differences," David McNatt, chief wealth solutions officer at AssetMark, said in a statement.
Keeping up with the competition on taxes
Cerulli's report suggests that tax planning is only going to become more essential as advisors work with asset managers to move more clients into separately managed accounts, or SMAs. Cerulli reported that just over $1 trillion flowed into SMAs last year and that the accounts would go from holding more than $16 trillion now to more than $20 trillion by 2027.
Smith of Cerulli said advisors who have not arranged to provide advanced tax planning to clients risk falling behind competitors.
"Firms in this situation must assess their current situation and implement a platform development strategy immediately before advisors and clients begin to move their assets to providers that allow them to realize their maximum net assets post-tax," Smith said.
