The pandemic has been brutal for all of us, but it’s also spurred people to look at things from a new perspective
During the pandemic, I wrote a book, "Authentic and Ethical Persuasion," turned its lessons into remote teaching for Babson College MBA and undergrad students, and launched a podcast that’s logged 4,000 listeners.
This unusual time taught me this: You often already have what you need if you take a fresh look and have the courage to act.
My colleague Harry Bartle, a 20-year veteran of financial services, had a similar “aha!” moment about the topics he talks about daily — financial technology, tax efficiency and unified managed accounts. Harry, who’s executive vice president of enterprise solutions at LifeYield, is keen on what his insight can do for our industry and investors — and relatively simply and inexpensively.
Harry, like me, has spent much time evangelizing about the benefits of comprehensive multi-account management, sometimes referred to as the unified managed household.
“I was doing my umpteenth presentation when a client said, ‘Stop talking about UMH. Everything in our industry is UMA,’” Harry told me recently. “But when I began to talk about using UMA platforms to coordinate and manage multiple household accounts, the lightbulbs went on and heads began to nod.”
Firms built UMA platforms — at considerable expense — to produce better after-tax returns for clients and bring in more net new assets for advisers and firms.
Connect a few more dots, Harry said, and firms can apply a tax overlay using easy-to-implement APIs to multi-account UMAs and generate tax alpha that far exceeds what was possible with only tax harvesting.
According to an independent EY study, using multiple tax-smart practices can improve investor outcomes by up to 33%. That's more money for investors to enjoy and more assets that advisers and firms retain under management.
The industry has, for 40 years, developed and marketed products to support and accelerate the accumulation of wealth — first mutual funds and ETFs, then separately managed accounts and eventually UMAs. Today, investors are hearing the siren call of direct indexing.
The ascendance of financial advice has also led to the development of financial planning tools that are the best route for advisers to collect investors’ information and develop plans to help clients reach their goals.
“Financial planning does a great job assessing clients’ investing timelines, goals and risk tolerance. From there, advisers today look to implement investment models that suit clients’ needs,” Harry said.
During the implementation of a financial plan, a tax overlay acts as an “air traffic controller” that can guide investments into specific accounts for maximum tax efficiency — the practice of asset location, which studies have shown is the best way to improve tax efficiency by 40, 50, even 60 basis points.
Advisers often use UMAs to deliver what investors want: diversified, hyper-personalized portfolios. Since UMAs can be taxable accounts or tax-advantaged accounts, advisers can set up multiple UMAs for an investor.
Take it a step further, and adding a tax overlay to multiple UMAs allows advisers to generate tax alpha through APIs that identify, recommend, and quantify the benefits of tax-smart trades and sales through:
• Tax harvesting
• Transitions
• Multi-account rebalancing and
• Tax-smart decumulation
… applied to every sleeve in the UMAs.
In other words, Harry said, “Firms don’t have to rip out the plumbing they built with their UMA platforms. They add a tax overlay and dramatically increase the value they provide to investors.”
A tax overlay on top of multi-account UMAs solves for decumulation, too — a service that’s in growing demand, with the number of people reaching age 65 peaking in two years at 12,000 a day.
Behind those baby boomers are millions of other workers with a goal not of retiring but of achieving financial independence, according to Franklin Templeton’s latest Voice of the American Worker Survey.
“You don’t want a second decumulation planning system,” Harry said he tells his clients. “It could contradict what your financial planning system suggests. I say to people, ‘You don’t use Waze to get to your destination and then MapQuest to get back.’”
“A tax overlay applied to multiple UMAs effectively achieves household portfolio management with the assurance that you’ll help your clients to achieve their goals,” he says.
Jack Sharry is executive vice president and chief growth officer at LifeYield.
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