Advisors debate asset allocation, manager selection and market outlooks every day, but far fewer are asking how much of their clients’ return quietly disappears to taxes, according to Brian Jacobs, CFA.
The portfolio manager and investment strategist at Aptus Capital Advisors says that this represents one of the clearest opportunities in portfolio construction today. He’s been telling InvestmentNews that many portfolios are leaking meaningful performance each year to avoidable tax drag.
“Most advisors are doing some level of tax-loss harvesting,” Jacobs says. “But far fewer are consistently prioritizing tax-efficient vehicles in taxable accounts. That disconnect between strategy and execution is where a lot of the opportunity lies.”
He points to industry data cited in his recent research suggesting that while tax awareness has improved, implementation often lags. In his view, the issue is not philosophical, but structural.
“Advisors will spend hours debating active versus passive or domestic versus international,” Jacobs says. “At the same time, 1% to 2% of annual return can quietly leak out of a portfolio because of how it’s built and where assets are located. That drag compounds, and it’s largely avoidable.”
To illustrate the impact, Jacobs points to a straightforward example. A $100,000 investment earning 5% annually and taxed each year grows to roughly $253,558 over 30 years. The same 5% return deferred and taxed at the end grows to about $365,755.
“The difference isn’t driven by better stock picking,” Jacobs says. “It’s driven by structure and the ability to defer distributions. When you allow capital to compound without interruption, the math works in your favor.”
In his view, too much of the industry conversation still centers on gross returns rather than what clients actually keep.
“We’re seeing the conversation shift from chasing gross alpha to managing after-tax outcomes,” Jacobs says. “Clients don’t spend gross returns. They spend net returns.”
Jacobs argues that this shift is elevating the importance of investment vehicle design, particularly in taxable accounts.
“ETF structure has become central to improving after-tax results,” Jacobs says. “The ability to manage capital gains distributions inside the vehicle, rather than pushing them out to shareholders every year, is a structural advantage.”
While many advisors understand the concept at a high level, Jacobs believes it is not consistently reflected in portfolio construction decisions.
“Tax-loss harvesting is episodic,” he says. “Vehicle selection is ongoing. If you’re not thinking about the tax profile of the wrapper itself, you’re leaving part of the job unfinished.”
That lens extends beyond equities. Jacobs contends that traditional bond exposure in taxable accounts often creates recurring tax friction that advisors may underestimate.
“Traditional bond funds can generate ordinary income year after year,” Jacobs says. “In a taxable account, that income is immediately subject to tax. You’re creating a headwind that compounds over time.”
Jacobs frames the issue not as a radical reinvention of portfolios, but as a refinement of implementation.
“This isn’t about swinging for the fences,” he says. “It’s about tightening up the details that affect after-tax outcomes. Asset location, vehicle choice, distribution management—those are controllable factors.”
He believes advisors who focus on the “net” client experience may have a measurable edge heading into 2026.
“If you can add 100 to 200 basis points of after-tax value through structure and discipline, that’s meaningful,” Jacobs says. “And it doesn’t rely on predicting markets.”
In a competitive advisory landscape, that kind of incremental improvement can compound just as powerfully as any investment thesis.
“Markets are uncertain,” Jacobs says. “Taxes are not. If we know there’s friction in the system, and we have tools to reduce it, that’s low-hanging fruit.”
For Jacobs, the takeaway is simple: the next frontier of portfolio construction is not necessarily about finding the next outperformer. It is about ensuring clients keep more of what they earn.
“The industry has spent decades optimizing for gross returns,” Jacobs says. “The advisors who win from here are going to be the ones who optimize for what clients actually take home.”
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