Are you and your clients celebrating Tax Day?
On Tax Day1, will you be a tax hero? Or a tax goat?2
Will you get to take a well deserved bow in recognition of the exemplary tax management work you’ve done all year? Will your clients take note that you’ve saved them more in taxes than you charge in fees? Do you expect that Tax Day will result in a surge in wallet share as clients compare your performance to that of your competitors?
Or will you have to endure painful calls with clients upset about the amount they’re paying in taxes?
Is the difference really so stark? In our experience, yes. We saw this in March 2020, when our clients were able to leverage volatility to generate large realized losses with no detriment to pre-tax returns — and in consequence they saw a surge in wallet share. One of our clients commented that “For the first half of this year, our net flows from existing clients was greater than the previous 18 months. That was during all the early pandemic craziness.” (See How Smartleaf Can Help You Grow Your Business and Crisis Case Study: The Power of Rebalancing Automation).
These firms used direct indexes and SMA models in place of less tax-efficient mutual funds and ETFs. And, of course, they leveraged our system to implement year-round tax-loss harvesting and gains deferral. Their competition was not so skilled.
On Tax Day, we’re pretty confident that Smartleaf clients will be in an enviable position. Last year they saved their clients an average of 2.44% of portfolio value through active tax management.
We think it’s heroic. And a good reason to celebrate Tax Day.
1 Normally, April 15th; this year May 17th.
2 The origin of the expression “will you be a hero or a goat?” is a bit obscure. My favorite explanation is that it harks back to an ancient Greek ritual of honoring heroes by sacrificing goats. In such a ceremony, there were two centers of attention, the hero...and the goat.