Envestnet is deepening its tax-management capabilities through an expanded relationship with Vanguard, folding the leading asset manager's Advisor's Alpha framework and model portfolios into Envestnet's wealth management platform.
The move announced Thursday gives financial advisors on the platform a more structured path to deliver tax-aware, personalized outcomes for clients without building the infrastructure themselves.
The collaboration pairs Advisor's Alpha with the Envestnet's tax-aware portfolio management technology, giving advisors a way to better track and articulate after-tax performance to clients.
Envestnet has spent more than a year building out fee waivers and asset-manager partnerships aimed at making tax overlay services standard rather than premium, and Vanguard's involvement adds one of the industry's largest model-portfolio providers to that push.
Historically, tax management has been treated as a year-end effort rather than a continuing exercise. Dana D'Auria, co-CIO and group president of Solutions for Envestnet, argues that's no longer the case.
"Advisors increasingly need solutions that help them manage tax implications throughout the year while keeping their portfolios aligned with their clients' long-term goals," D'Auria said in the announcement Thursday. "We're helping advisors more clearly demonstrate their value and deliver more personalized, tax-efficient outcomes for clients."
Envestnet's tax-aware technology is designed to evaluate the tax consequences of portfolio changes on an ongoing basis, weighing the cost of trading against the benefit of staying aligned with a given model's strategy.
Vanguard's role centers on its Advisor's Alpha framework, a body of research spanning more than two decades on how advisors add measurable value beyond simple asset selection, with tax optimization identified as one of the more durable sources of that value.
Eve Cout, head of advisor solutions for Vanguard's Financial Advisor Services, framed the arrangement as building on that research by pairing it with distribution scale, noting the collaboration underscores "the meaningful value financial advisors can bring to client outcomes."
Last November, Envestnet launched its Fund Strategist Tax Management Advantage program, under which participating asset managers agreed to help cover the cost of tax-overlay services so advisors could offer them to clients without an added fee.
At the time, Erik Preus, then Envestnet's group head of investment solutions, framed the FSTM Advantage program as a way to "[empower] advisors to deliver better tax-managed outcomes for end clients" within the firm's managed account business.
At the time, Envestnet named a roster of asset managers participating in its Fund Strategist Tax Management service, including Fidelity Investments, Goldman Sachs Asset Management, JPMorgan, T. Rowe Price and State Street, among more than a dozen others.
Under the fee-waiving FSTM Advantage program, advisors using Fund Strategist Portfolios can select a tax-sensitivity level – Moderate, High or Very High – that determines how much a portfolio is allowed to drift from its model in pursuit of better after-tax results.
Vanguard's addition brings its Active-Passive model portfolios into that same no-added-cost structure, meaning advisors can now apply ongoing tax optimization to Vanguard-based models without a separate fee eating into the benefit.
A November data report from Cerulli found that four in 10 outsourcer advisors – those who rely on model portfolios without modification – rate advanced planning techniques such as tax management as very valuable, with an additional 41% calling them somewhat valuable.
The same research found outsourcer advisors spend just 10.6% of their time on investment management, freeing up capacity that Cerulli's analysts say is increasingly redirected toward financial planning and tax strategy services prized by more affluent and high-net-worth clients.
"In many cases, broker/dealer (B/D) training programs have done a good job educating up-and-coming junior advisors on the benefits of leveraging model portfolios," Cerulli said. "They are more likely to feel comfortable and confident relying on financial planning and, increasingly, tax management as the primary pillars of their competitive positioning."
More than 87% of outsourcer advisors view competitive product information and access to portfolio managers or product specialists as at least somewhat valuable – support functions that platforms like Envestnet position as complementary to the tax tools themselves.
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