A New Standard in Wealth Management
In today’s wealth management landscape, delivering strong pre-tax performance is no longer enough. Investors, especially high-net-worth individuals and those in high-tax jurisdictions, are increasingly prioritizing after-tax outcomes. Advisors who fail to integrate tax-managed investing into their offerings risk falling behind both client expectations and competitor capabilities.
The Cost of Tax Drag Over Time
The market backdrop has shifted. As portfolios grow and tax rates remain elevated, even modest levels of tax inefficiency can have a meaningful impact on wealth accumulation over time. According to Great Lakes Advisors, the cumulative effect of tax drag can cost investors up to 2% annually in returns.
That may seem negligible in a single year, but over a decade, it can erode hundreds of thousands of dollars in a $1 million portfolio. Conversely, even a modest 1% improvement in after-tax performance can compound into six-figure gains, benefits that resonate with clients looking for tangible outcomes from their advisor relationships.
Broadening the Reach of Tax Management
This growing awareness has moved tax management from a secondary concern to a front-and-center priority. It is no longer the exclusive domain of ultra-wealthy investors with complex estates. Increasingly, mass affluent investors, retirees, and clients transitioning out of concentrated positions are recognizing the impact of tax efficiency and seeking advisors who can deliver it.
Understanding who benefits most from these strategies is essential. Clients with legacy stock holdings, especially those with low-cost basis positions, are often unable to diversify without triggering significant capital gains. Others may hold self-directed taxable accounts that could benefit from professional oversight, especially when transitioning into retirement or adjusting to new tax realities. Still others may be in high federal and state tax brackets where even routine rebalancing activity can generate material tax liabilities.
Why Conventional Tools Fall Short
Yet the tools traditionally used to support tax efficiency often fall short. ETFs, while tax-advantaged in their structure, do not offer the customization or precision that clients increasingly demand. Their benefits are largely limited to fund-level deferrals and cannot accommodate individual cost basis, ESG preferences, or concentrated holdings.
Direct indexing, by contrast, offers more flexibility and the ability to harvest losses, but it can be constrained by tracking error, lacks robust transition capabilities, and generally does not seek to outperform an index, missing an opportunity to drive both alpha and tax savings.
A Holistic, Active Approach to Tax Management
That’s where active tax-managed portfolios step in as a more holistic solution. They combine the flexibility of direct indexing with the performance potential of actively managed strategies.
At Great Lakes Advisors, this approach incorporates systematic year-round tax-loss harvesting, thoughtful security selection, and real-time portfolio monitoring to ensure that both risk-adjusted return and tax considerations are continuously optimized.
Customization That Adds Client Value
Importantly, the value proposition extends beyond investment outcomes. Advisors leveraging active tax-managed strategies are able to deepen relationships with clients by offering highly personalized portfolios aligned with their individual financial goals and values.
Capital gains can be budgeted in advance to accommodate income planning. ESG overlays can be applied without sacrificing tax efficiency. And legacy positions can be incorporated in a way that manages risk without triggering undue tax consequences.
Why Advisors Choose Great Lakes Advisors
Great Lakes Advisors has built its tax-managed investment capabilities over more than two decades, managing over $1.2 billion in assets across a broad client base. Their disciplined equity process was designed specifically for taxable accounts, and their proprietary Transition Analysis tool gives advisors a clear and immediate way to show clients the value of switching to a tax-managed strategy right from day one.
Turning Tax Efficiency Into a Differentiator
For investment advisors who want to differentiate themselves, tax efficiency represents an underutilized but highly visible lever. It not only offers the opportunity to enhance portfolio outcomes but also creates compelling talking points with both prospects and existing clients. In an environment where market returns are increasingly commoditized, the ability to manage after-tax performance can be a key source of advisor alpha.
Ultimately, clients want outcomes that are not only strong on paper but real in their pockets. Tax-managed investing delivers on that promise—and forward-looking advisors are already making it a core part of their strategy.
To explore how you can make tax-managed investing a differentiator in your practice, download The Advisor’s Guide to Tax-Managed Investing.
