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4 min read

Our Kind of Audit

We’re sorry. We think. Sort of. Let me explain.

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A few weeks ago, we wrote about the importance of bragging to your clients — backed by data  and gave the example of clients who could brag about how well they’re tax managing. We’ve got an unusual update. We’ve heard from clients who are doing such a good job with tax management that... they’re triggering IRS audits. We’re not talking about complex tax shelters here, just simple gains deferral and loss harvesting  done consistently and well. While being audited is never a good thing in itself, and we’re sorry for the pain we indirectly caused, we’re pleased to report the investors in question viewed the audit as the ultimate endorsement of the manager’s skill and value.  

While we (mostly) find these stories amusing, they tell a not-so-flattering truth about the wealth management industry. If simple tax management done well causes an IRS alert, what does that tell us about typical wealth management? The principles of tax management are well understood, and the process can be almost entirely automated. It should be “table stakes”  something every manager offers as a matter of course. And yet it’s not. The words are there  it’s hard to find any wealth management firm that doesn’t talk about the importance of tax management   but for many wealth managers their commitment to tax management is belied by their results.  

The reason for this disconnect is that investors have trouble distinguishing between managers who really serve their clients through active tax management and those who just say the right words. For this to change, it will need to become standard practice for wealth managers to show their clients the value of tax management. It is probably no coincidence that the managers we hear from all do just that  they provide each client with individualized documentation of their taxes saved.

The wealth management industry has a ways to go. Until it catches up, we look forward to hearing from wealth managers who become heroes in their clients' eyes  for getting them audited.


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


President, Co-Founder