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Most advisors know that taxes are one of the two largest lifetime expenses their clients will ever face. Housing and taxes — one and two — always, regardless of net worth. And yet, in practice, tax strategy is too often treated like a checklist: maximize the 401(k), coordinate with the CPA around year-end, and harvest a few losses when the market dips.
Check, check, check. Move on.
That approach isn't wrong; it's just incomplete. And the cost of incomplete is real. The gap between what advisors are doing and what's now possible in tax-aware portfolio management has never been wider. The tools have outpaced the practice.
Advisors who haven't closed that gap are leaving measurable after-tax value on the table for their clients, and, over time, a meaningful opportunity to differentiate themselves in an increasingly commoditized business.
Here's where I see advisors falling short, and what to do about it.
Mistake #1: Skipping the Basics
The most common mistake isn't sophisticated; it's failing to do the fundamentals consistently. I call it "dotting i's and crossing t's." It sounds unglamorous, but I've seen its absence cost clients real money.
Maxing out 401(k) matches. Funding HSAs. Funding 529s. Making sure idle cash is actually working. These aren't exotic strategies. A junior team member can own most of this execution. But they require a systematic process and someone with accountability for them. At too many practices, that accountability is diffuse or simply absent.
Cash management is a perfect example. It sounds easy, but it's actually harder than it looks to execute consistently across a book of clients. Money lands in an account. Life gets busy. A week passes, then a month. That cash is sitting there losing purchasing power in real terms because inflation is positive and the account isn't optimized.
Getting an extra 10 basis points of yield at similar risk parameters doesn't sound like a headline, but across a client's lifetime and across a full book, it adds up.
Start here. Not because it's sexy, but because it's important and because you control it.
Mistake #2: Not Knowing Available Tax Strategies
The second mistake is more consequential as the industry evolves: Advisors simply aren't staying current on what the market now offers.
Wall Street is doing what it always does — taking institutional strategies and democratizing them. What was once available only to large endowments and family offices is increasingly accessible to the mass affluent. That's genuinely good for clients. But advisors who aren't fluent in these tools can't deploy them.
The baseline today is direct indexing. Firms like Parametric have been leading this charge for years. Instead of buying SPY, you own 200 or 300 of the S&P 500's constituents. Some of those positions go down while the index goes up. You harvest those losses, replace the holding with something similar in risk characteristics, and stay in the market while generating tax alpha.
Done well, you can defer taxes indefinitely, all the way to a step-up in basis at death — passing the benefit to the next generation.
On many technology platforms today, tax-loss harvesting is as simple as checking a box and paying six additional basis points. That's table stakes now. If your clients aren't getting it, you should have a clear reason why not.
But beyond direct indexing, there's a newer generation of tools worth understanding. Long/short tax extensions from firms like AQR, Brooklyn, and Quantinno give advisors additional tools to generate losses without giving up market exposure. Exchange fund structures — including newer vehicles from firms like Calamos, Cache, and others — create paths to diversify concentrated positions without triggering immediate gains.
These aren't appropriate for every client or every portfolio, but they need to be part of your vocabulary. You can't deploy what you don't understand. The advisors I work with who are doing this well have made it a practice to stay current — not because every new product is right for their clients, but because their job is to know what's on the shelf.
Mistake #3: Not Thinking in After-Tax Terms
The third mistake is a framing problem, and it affects both how advisors evaluate their own portfolios and how they communicate with clients. Gross returns are a distraction. What matters is the net after-tax, after-fee number. Advisors who don't reframe conversations around that figure are setting their clients up for bad decisions.
Consider a private credit manager generating 16% gross returns, paid out mostly as income. Run it through a 2% management fee, 20% performance fee and a high-bracket tax rate, and you're down to roughly 8% in the investor's pocket. Now compare that to the S&P 500 at 8%–10% gross, where the only taxable drag is a 1.5%–2% dividend yield.
On a pure yield basis, these products might look equivalent, but their characteristics are very different. The point isn't which is better; it's that you can't make that determination without looking at the true net numbers side by side.
The same logic applies to municipal bonds. Most advisors run a model that includes munis in taxable accounts and excludes them in tax-advantaged ones. That's a reasonable default, but it's not the full picture.
Munis are priced off the highest marginal bracket. A retiree with significant assets but a low effective tax rate may not benefit the way a high earner in New York or California does.
Whether munis are attractive depends on where they're trading versus taxable equivalents, who owns them, and what state they live in. That's a more nuanced conversation, but it's the right conversation.
Clients who learn to think in after-tax terms become better partners in the investment process. They stop fixating on gross returns or fee headlines and start asking the right question: What am I actually keeping?
Where This Is All Headed
We're approaching an inflection point. Tax-aware investing isn't yet at the saturation level that alternatives have reached — you're not hearing about it at every industry conference — but the groundswell is building from a different direction: client experience.
The conversation is going to happen on the golf course. One client will mention that their effective tax rate dropped five percentage points last year, and that they saved $85,000. The three people they're playing with are going to go back to their advisors and ask why they don't have that. That's when this becomes a standard expectation.
The advisors who will be in a strong position when that happens are the ones building these capabilities now. Focus on two things. First, understand the new products entering the market — exchange funds, long/short tax extensions, and whatever comes next. Know what they are and how they work.
Second, pay attention to technology. The tech stack is what makes tax integration scalable. AI and improved portfolio management platforms are going to make it possible to customize at a level that isn't manually feasible today, adjusting muni allocations dynamically based on a client's state of residence, income, and how munis are priced relative to alternatives at any given moment.
The advisors who thrive in this environment will be those who've made tax integration a core competency — not an annual event, not a checklist, but an ongoing discipline embedded in how they build and manage portfolios every day.
The cost of not doing it is a persistent drag on after-tax returns. The reward for doing it is clients who stay, grow, and tell their friends.
Joe Halpern is Managing Partner and CIO of Obsidian CIO, an outsourced investment management firm supporting RIAs. To learn more about Obsidian's approach to tax integration, visit obsidiancio.com.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.