Advisers will need to start putting in the hard yards to show true value to their clients when it comes to fund comparisons.
For the first time, Russell Investment’s After-Tax Survey shows four quarters’ worth of after-tax results. What the results show is that there is a greater difference between pre-tax and after-tax returns than most advisers and investors think, says Raewyn Williams, Russell’s director of after-tax strategies.
“There has been, I think, this unspoken assumption to date that the difference between pre-tax investment outcomes and after-tax investment outcomes is not meaningful, it’s not mature and it’s not worth focusing on, but nobody has really bothered to measure that or check whether that underlying premise is correct,” says Williams.
She says that the survey has proved that assumption wrong, and if advisers want a better set of data that’s more accurate to clients’ needs, then they need to base decisions on after-tax return outcomes.
Advisers are well placed to do this work because they generally have to understand the tax profile of their client, and apply that profile to different investment strategies to get better outcomes. Williams says that matching those two is better practise for advisers and not something that is always done at the moment.
It is not necessarily the fault of advisers however, as fund managers don’t typically make after-tax investment returns available, and it may take a bit of work from advisers to push managers for the better information. Williams encourages advisers to seek out those that are prepared to provide the right numbers.
“There are the ones that dumb down the issue or push back completely on it. From the advisers’ perspective they shouldn’t think that that’s the only option. There are a few fund managers out there, as this survey shows, that are willing to work with these advisers.”
And whether the tax side of things will fall under TASA is still a pertinent issue, says Williams, but she says that most advisers have probably formulated their own position as to what they can advise on or not.
“My understanding is that a large number of those financial advisers see that they really have to give the tax advice as well as the financial advice – it doesn’t make sense to carve that out – and if they’ve done that, as most of them will have, then licensing doesn’t come into it. This is just a way of making sure they practise fully what they’re licensed to do across the full opportunity set for their investor.”
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