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A Tax Management Face Off

 Wealthfront recently asserted that their tax loss harvesting algorithm was better than Schwab's...

Wealthfront V Schwab Fighting Fish.jpg

Wealthfront recently asserted that their tax loss harvesting algorithm was better than Schwab's. They based this assertion on the results of an experiment: they funded two accounts, one at each firm, on April 1st and then compared the results six months later. Schwab countered that this was too short a period to judge rebalancing algorithms. We're with Schwab on this one — it's too early to tell. And we don't have access to both algorithms, so we can't judge them on that either. 

But we think this dispute is missing a much larger point. If we — and Schwab and Wealthfront — can't agree on whose algorithm is better, how is an advisor supposed to decide? Almost every financial advisor says they tax manage. Only a few do it well. How is a prospect supposed to tell the difference? 

For investors, benefits can't be theoretical. They need to be concrete measures of how tax management is helping them personally. Our own Taxes Saved report is an example. It shows each investor how much their advisor has saved them through tax management (both tax loss harvesting and gains deferral). The numbers are significant: in 2015, our clients saved an average of 1.86% of portfolio value. There's no need to evaluate test criteria or analyze algorithms - investors can see for themselves, in dollars, what tax management means to them. 

As this type of "what does this mean to me?" report becomes more readily available, all investors will be able to judge for themselves how much they are benefiting from tax management — and that's when better tax analytics will really matter. 

You can read about the face off here.


For more on this topic, check out A Guide to Tax Management.


President, Co-Founder