9 key takeaways from our second annual tax-aware survey

Our latest edition of Russell Investments’ Financial Professional Outlook survey takes a close look at how advisors are approaching tax-aware investing. It was fielded from May 12 to May 22, 2015, and features the opinions of 295 financial advisors working for 194 national, regional and independent advisory firms across the country.

This quarter we’re offering readers more ways to consume our content. Now you can read the full report, or just browse my CliffsNotes® version below. We think you’ll find some useful insights whichever form you choose.

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9 key takeaways from our second annual tax-aware survey

  1. Advisor sentiment declines. Advisor sentiment (70% optimistic) has been trending down since peaking in February 2014, while advisor pessimism (16%) is increasing. We believe this is likely due to 6 consecutive years of positive equity returns and advisors’ anticipation of a Fed rate hike. Advisors said investor sentiment remains largely unchanged at 51% uncertain.
  1. Opportunities in conversation trends. Government policy and market volatility have been investor obsessions for years. Advisors can counter these concerns by explaining how a tax-managed approach can use market volatility to balance losses against gains. What’s more, an investor’s personal tax policy is far easier to control than a government policy.
  1. Taxes went up for most investors. 53% of advisors said their clients faced a larger tax burden in 2014 versus 2013. We believe this rise will likely continue, creating more opportunities for advisors to develop their tax-managed expertise and help clients achieve greater after-tax wealth.
  1. Investors care about after-tax returns. 81% of advisors believe maximizing after-tax returns is a concern for many of their clients. We couldn’t agree more. If investors care, advisors should care, too. We believe advisors could be doing more and should consider reaffirming their commitment to tax-aware investing.
  1. Nearly 37% of taxable assets are held away. Tax-smart advisors have a real advantage over those who don’t focus on the topic. By leveraging tax-managed strategies, advisors may open the door to assets held-away. That’s because the whole portfolio must be considered when developing a tax-aware plan.
  1. Advisors need more education and support. 32% of respondents said they were not satisfied and 25% were not sure about the education and support they receive from asset managers on tax-managed investing. There is work to be done here and hopefully these findings may help the industry move forward.
  1. Myths persist, but can be debunked. There’s more to tax-aware investing than muni bonds and index funds. As advisors gain a better understanding of the range and ability or the products available, they’ll see that tax-aware investing can help investors in the middle tax brackets – as well as the top – achieve greater after-tax wealth. This opportunity isn’t just for clients in top tax bracket.
  1. Top tax-efficient products. For 2015, 52% of advisors said they use a combination of tax-efficient products. This contrasts with the 31% of advisors who chose tax-managed mutual funds as their top product last year. Only 7% of advisors selected tax-managed mutual funds for 2015 as the only option. Another 10% of advisors chose municipal bonds this year versus 25% in 2014. We believe that municipal bonds are likely included in the combination of products.
  1. Create a culture of tax-aware investing. Advisors who make a conscious decision to weave a tax-aware approach into every aspect of their practices stand to potentially help their clients increase their fair share of after-tax wealth, as well as potentially increasing their share of client assets under management.

The bottom line

Weaving a tax-aware investing approach throughout your entire practice can provide opportunities for you and your clients.

Russell Financial Professional Outlook is a product of Russell Investments, produced independently of Russell’s investment and manager research services.

The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness cannot be guaranteed.

The information, analysis and opinions expressed herein result from surveys of persons outside Russell Investments and may not represent the opinion of Russell Investments, its affiliates or subsidiaries. This report is provided for general information only and is not intended to provide specific advice or recommendations for any individual or entity. This is not an offer, solicitation or recommendation to purchase any security or the services of any organization.

CliffsNotes® is a registered trademark of Houghton Mifflin Harcourt.

Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange Group.

Copyright© Russell Investments 2015. All rights reserved.

Russell Financial Services, Inc., member FINRA, part of Russell Investments.

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