Boston - The sweeping tax overhaul signed by President Donald Trump this year has many positive aspects for investors, while also creating both opportunities and challenges for financial advisors who use tax-efficient strategies.
Tax reform in the current political environment has prompted renewed interest in potentially limiting taxes in client portfolios, according to the Eaton Vance Q4 2018 Advisor Top-of-Mind Index (ATOMIX) survey of over 600 financial advisors. Advisors widely reported that tax reform is positive for their clients, their practice and the broader economy.
Some of the tax-related findings from the survey include:
- 54% of advisors believe their clients will benefit from tax reform in 2019.
- 62% said their practice will also benefit.
- 64% are making changes to client portfolios based on tax reform.
"Although largely seen as a win, tax reform has prompted many advisors to employ tax optimization strategies for their clients," explains John Moninger, Managing Director of Retail Sales at Eaton Vance. "Active tax management can differentiate advisors and help ensure clients are minimizing their tax exposure across their equity and bond portfolios."
"Advisors widely reported that tax reform is positive for their clients, their practice and the broader economy."
Muni bonds in focus
Tax-exempt income has traditionally made muni bonds an essential part of the advisor toolbox and helped them limit taxes in client portfolios.
Indeed, 88% of advisors surveyed said they are using muni investments as tax-management tools. However, advisors are using different strategies to invest in muni bonds, according to the latest ATOMIX survey:
- 35% of advisors use laddered muni portfolios.
- 27% select individual muni bonds.
- 27% allocate to muni funds or separately managed accounts.
Source: Eaton Vance Advisor Top-of-Mind Index (ATOMIX) Survey, Fall 2018.
Muni bonds have also been in focus after the recent midterm elections that resulted in the House of Representatives flipping to the Democrats, while the Republicans maintained control of the Senate. One of the key takeaways is that a divided Congress is expected to hamper further tax cuts and fiscal stimulus, which in turn is expected to stabilize the Treasury market. Muni bonds are historically correlated with Treasury bonds.
Eaton Vance does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision.
Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 618 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from August 20, 2018 - September 7, 2018. ATOMIX uses a similar methodology as the U.S. Consumer Confidence Index* (which has no affiliation with Eaton Vance) in that it calculates a weighted average of current perceptions (40% of the Index) and what advisors think about the trends (60% of the Index). The Index set a baseline average of 100 for April 2014. Each component measured is tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time. Future surveys will sample different financial advisors and may produce different results.
* The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. The Index is calculated each month based on a household survey of consumers' opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the Index, with expectations of future conditions comprising the remaining 60%.
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Eaton Vance does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision.
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