As platform sponsors seek differentiation from competitors, tax optimization tools have become a focal point of development efforts as they aim to improve advisor efficiency and client outcomes. Platforms that cannot make significant headway in these efforts could find themselves at risk of reduced inflows and advisor attrition, according to the latest Cerulli Edge—U.S. Managed Accounts Edition.

As more investors demand tax planning and savings strategies and platforms seek opportunities for differentiation, interest in tax optimization schema is on the rise. Underlying this interest is the movement many managed accounts sponsors have made toward a unified managed household (UMH) approach, which allows advisors to implement investment strategies holistically.

“There are a few development areas crucial to progressing toward a UMH future that should allow clients access to the best available tax outcomes,” says Scott Smith, senior director. The research cites tax-efficient transition tools, asset location tools, and improvements to tax-loss harvesting as key features needed to facilitate this type of program.

“Tax-loss harvesting is by no means a new offering, but it is continuously evolving to provide improved benefits to both advisors and clients,” says Smith. Currently, most platforms handle tax-loss harvesting through automation (72%), with just 24% still reliant on manual processes at their firms. Automation of tax-efficient transitions (48%), tax-smart withdrawals (44%), and asset location (36%) lag but are at least in the planning stages on all respondents’ platforms.

Overall, platform firms have widely embraced a comprehensive goals-based approach to client engagement, but most still have significant room for improvement in assisting advisors with portfolio tax optimization efforts. “Insufficient support for these efforts undermines advisors’ ability to truly deliver on the comprehensive wealth management approach advertised by providers and expected by clients,” says Smith. “To maintain their position as leaders in the wealth management space, platforms must be willing to prioritize the automation of their tax optimization suite—or face eroding satisfaction and loyalty of both their advisors and clients,” he concludes.