7 Sources of Assets That Could Benefit From a Tax-Managed Approach

You will never get the answer if you don’t ask the question.

When we talk with financial advisors about business solutions and business challenges, the discussion often leads to individual retirement accounts (IRAs), 401(k) and 403(b) rollovers, and other items related to tax-advantaged or tax-deferred qualified accounts. Too often, this is the primary and sometimes only focus of a financial practice. I will start by asking a question: Is this really the best way to help your clients and grow your business?

The reality is that non-qualified assets—where the investment income is taxed annually—are arguably the biggest opportunity for growth that you may have. Just looking at the mutual fund universe, the split of assets between qualified and non-qualified is nearly even. You can see the details in the chart below: out of the $23.9 trillion invested in open-ended mutual funds today in the U.S., $11.2 trillion is classified as taxable/non-qualified assets.

Mutual fund assets by tax status

This is your core opportunity. But there is more.

What about other investor holdings that are directly held securities like separately managed accounts (SMAs), savings accounts, certificates of deposit (CDs) and direct bond holdings? When you start considering the total picture of holdings and assets by investors, you can very quickly conclude that non-qualified assets arguably make up the majority of investor assets.

Why is this the case? Well, it’s simple. Most advisors are generally comfortable managing rollovers, working with IRAs and other qualified accounts. But not all advisors are comfortable addressing non-qualified—or taxable—accounts. These accounts and the questions the clients may ask about them may seem daunting at first glance but shouldn’t be. Gaining expertise in this area can help you grow your assets under management and differentiate your value proposition.