Russell Survey: Advisors Say Tax-Aware Investment Strategies Not Top-of-Mind for Investors, Despite Their Strong Desire for Lower Taxes

Disconnect highlights opportunity for financial advisors to add significant value to client relationships by making tax-aware investing a key part of financial planning discussions

Business Wire


While 35 percent of financial advisors say that clients ask about strategies to reduce or avoid taxes, only 18 percent of advisors say that clients proactively want to discuss tax implications of investment strategies, according to the Financial Professional Outlook (FPO), a quarterly survey of U.S. financial advisors from global asset manager Russell Investments. In tandem with new federal tax laws taking effect in 2014, the survey findings point to a clear opportunity for advisors to engage clients in deeper planning discussions that include tax-aware investment strategies, as well as to connect with their clients’ CPAs or tax attorneys to provide integrated advice and planning.

“As more investors build wealth, tax sensitivity becomes an even more prominent issue because taxes can detract in a meaningful way from an investment portfolio’s return if not managed effectively,” said Frank Pape, director of consulting for Russell’s U.S. advisor-sold business in a report on the survey results. “The topic will clearly gain even more attention this year as advisors aim to understand – and communicate with clients about – the increase in taxable distributions from many mutual funds and the full impact of the new tax laws.”

Eighty-six percent of advisors recognize the importance of tax-managed strategies, saying that they are important – or critical – to their businesses. Among survey respondents, 11 percent of advisors are what Russell calls ‘Experts.’ These advisors are fully engaged on the subject, have a firm grasp of tax-aware strategies and how to implement them effectively, and likely have a greater number of high net-worth clients interested in the topic. Seventy-five percent are ‘Believers’ who make tax-managed investments available to most clients and are interested in learning more about tax-aware investing.

“We believe that advisors who can move along the continuum from Believers to Experts will reap the greatest rewards for their businesses, while also providing a valuable service to their clients,” said Pape. “Making this shift requires advisors to learn more about tax-aware investing, communicate more actively with clients on the topic, and develop stronger relationships with clients’ CPAs and tax attorneys in an effort to help clients reduce future tax bills and retain more after-tax wealth.”

Top tax-aware products favored by advisors

Advisors use a variety of products to try and gain tax-efficiency for their clients, with the most typical being tax-advantaged mutual funds (31 percent), municipal bonds (25 percent) and separately managed accounts (16 percent). Surprisingly, relatively few (10 percent) use or recommend passive investments through index funds or ETFs as a tax-managed strategy.

“Beyond the new tax laws, last year’s big equity market gains with increased distributions and bond market underperformance are likely driving the increased need for tax-aware investment solutions,” explained Pape. “Investors may have begun 2014 with their taxable portfolios out of balance from their target allocations. For these taxable accounts, rebalancing has the potential to be costly as equity gains are realized (and taxed) and those assets are then reallocated to fixed income investments.”

More than half (51 percent) of the advisors surveyed reported that portfolio rebalancing was the most common conversation topic initiated with clients during the prior three months.

Calculating after-tax returns

An open-ended survey question asking advisors how they calculate after-tax returns yielded a broad range of responses and prompted development of a Helping Advisors Blog post entitled Do you know how to calculate after-tax returns? The blog post covers some of the basic information that advisors need to know about their clients’ tax status and outlines the necessary steps in calculating after-tax returns, including the importance of focusing the calculation on the actual distribution for that year, not the rate of return.

“We believe that developing a strong understanding of how after-tax returns are calculated is a worthwhile exercise and one that many advisors might not be approaching in an optimal way, or at least not with confidence,” said Pape. “After-tax return information is powerful to know and share in client reviews, particularly with high net-worth investors.”

More about Russell’s Financial Professional Outlook

The current iteration of the FPO survey includes responses from 173 financial advisors working in nearly 100 national, regional and independent advisory firms nationwide. The survey was fielded between February 27, 2014 and March 7, 2014.

More information about the FPO survey, as well as a full report of findings, can be found at:

About Russell Investments

Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. Russell stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, portfolio construction, portfolio implementation and indexes to help each achieve their desired investment outcomes.

Russell has more than $259 billion in assets under management (as of 3/31/2014) and works with over 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 6/30/2013). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.6 trillion in 2013 through its implementation services business. Russell also calculates approximately 700,000 benchmarks daily covering 98% of the investable market globally, including more than 80 countries and more than 10,000 securities. Approximately $5.2 trillion in assets are benchmarked (as of 12/31/2013) to the Russell Indexes, which have provided investors with 30 years of smarter beta.

Headquartered in Seattle, Washington, Russell operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Sydney, Melbourne, Auckland, Singapore, Seoul, Tokyo, Beijing, Toronto, Chicago, San Diego, Milwaukee and Edinburgh. For more information about how Russell helps to improve financial security for people, visit or follow @Russell_News.

The Russell Financial Professional Outlook is a product of Russell Investments, produced independently of Russell Investments and manager research services. Advisors surveyed do not necessarily use Russell products.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Financial professionals and investors are in the most appropriate position to determine the suitability and fitness of any investment strategies, asset allocations or securities purchases or sales decisions. Russell Investments does not create, endorse or provide investment advice.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

This is not an offer, solicitation, or recommendation to purchase any security or the services of any organization.

Stock/Equity investors should carefully consider risks such as market risk when investing. There are no guarantees when it comes to individual stocks. Any stock may go bankrupt, in which case your investment may be worth nothing.

Russell Investment Group, a Washington, USA corporation, operates through subsidiaries worldwide including Russell Investments. Russell Investment Group is a subsidiary of The Northwestern Mutual Life Insurance Company.

Russell Investments is the owner of the trademarks, service marks and copyrights related to its indexes.

Russell Financial Services, Inc., member FINRA, 1301 Second Avenue, 18th Floor, Seattle, WA 98101, part of Russell Investments.

Copyright 2014


For Russell Investments
Kate Stouffer, 206-505-1858
Natalia Krepak, 718-875-7269
For real-time news updates, follow @Russell_News on Twitter.

View Comments (0)