How Wealth Managers Can Optimize Tax Management All Year Long

Michael Pass is President of Maxit, a BetaNXT business, which provides data, technology and insight that empower better investment decisions and engagement. Prior to joining BetaNXT, Pass served as chief technology officer at technology firms such as CircleBlack, a modern cloud-based software firm, and Scivantage, where he developed an enterprise platform for transforming complex information and processes into intuitive user experiences.

Russ Alan Prince: With tax season upon us, what are some of the biggest pain points for wealth managers when it comes to tax? And how is Maxit solving those issues?
 
Michael Pass: For most wealth managers, tax is a forgotten element and has become an end-of-year pain. They tend to ignore it throughout the year until September, October, November, when they now need to take a look at client portfolios and make adjustments before year end. As a result, many of these wealth managers have boxed themselves into a corner in terms of what they can sell for clients to balance out the gains they’ve earned.

If you’re not watching for investment opportunities at the most tax-beneficial moment all year long, then you’re missing out on opportunities to sell advantageously, and you’re forced to liquidate what you could have otherwise held. Because now, in the new year, is when clients begin to call and ask, “I have to meet with my accountant. What do I tell him?”

Where we come in through our tax optimization and reporting tools. We enable wealth managers to monitor where client portfolios stand from a tax perspective all year long so that they can make the most advantageous trades at the right time. We have developed algorithms that curate recommendations for tax-loss harvesting and present them to wealth managers at their preferred frequency.

Maxit delivers a four-pronged approach: cost-basis reporting, tax information reporting, tax optimization and managed services. These components can be delivered holistically or individually as standalone offerings and can be supplemented with managed services to streamline processes.

Prince: The ongoing digitization of the wealth management industry keeps expanding the possibilities for more efficient business operations and better client experiences. How is tax being affected by this trend?

Pass: Portfolio management and rebalancing used to be done by spreadsheets, which required them to look at every portfolio and took a lot of time. Today, algorithms in solutions like ours enable money managers to rebalance in bulk, even as much as 30,000 accounts or more at once, and find the best trading opportunities from a tax perspective in each client portfolio, in a matter of minutes, all year long, and not just in the months leading up to the end of the year. That is the power and scale of digitization.

Also, the amount of information and data available at our fingertips in today’s world only continues to refine the algorithms that help wealth managers make better rebalancing decisions for tax-loss harvesting.  

When clients know: 1) they don’t have to wait until the beginning of the year to think about taxes on their investments, and 2) their advisor or wealth manager is on the ball and will offset gains in ways that help rather than harm their overall portfolios, that takes a tremendous burden off their shoulders. Peace of mind goes a very long way in strengthening client relationships.  

Prince: Is AI something you are paying attention to? If so, tell me how you are using it.

Pass: Absolutely! AI is making a big impact on every aspect of investing and wealth management. We are actually using AI in our recommendation algorithms. What we find particularly exciting is how AI can be utilized for real-time market analysis and execution of trades based on a specific portfolio strategy.

Algorithmic trading, which has been around for years, has made it possible to rebalance tens of thousands of accounts in minutes, but it is not efficient in today’s terms. The time it takes for the algorithm to review every account, flag a certain opportunity to an advisor, and execute the trade, could be 30 minutes or more. The meme stock event in 2021 taught us just how quickly a stock price can change. A stock can move up or down by 10% during that half-hour or more.

What AI can do is move our industry to the point where you can rebalance portfolios on the fly with permission, so you can put forward the best trades based on a portfolio strategy and execute them on demand without having to wait.

Source: Financial Advisor

Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.

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