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For immediate release, 06/17/2014

Majority of Financial Advisors and Clients Value Tax Deferral, but Unaware of Full Scope of Benefits

Jefferson National's Latest Survey Finds Many Advisors Primarily Use Tax Deferral to Grow Assets and Manage Taxes

Louisville, Ky. — June 17, 2014 — High tax rates have been top of mind for every advisor and their clients in recent years, particularly for investors with high incomes. As advisors face an uphill battle to generate wealth and manage tax implications for their clients, 96 percent of financial advisors say tax deferral is important, and 94 percent report that their clients think the same. Further, 86 percent of advisors expect that tax deferral will be more important in the future, and almost two-thirds (59 percent) say that they have increased their use of tax deferral over the past five years. These findings are from a recent survey by Jefferson National, innovators of the industry’s leading tax-advantaged investing solution for RIAs, fee-based advisors and the clients they serve.

Although tax deferral is a crucial component to maximize accumulation and generate more retirement income, the survey reveals a lack of understanding around the full scope of its benefits. In fact, 59 percent of advisors say their clients have no knowledge about tax deferral beyond traditional 401(k)s and individual retirement accounts (IRAs), which means that many clients are leaving on the table opportunities to maximize wealth through other tax-deferred vehicles, such as a new generation of low-cost and no-load variable annuities. Moreover, only 19 percent of advisors are aware that tax deferral can add 100 bps or more of alpha to an investment.

"This research highlights a clear opportunity to help educate advisors and their clients about creating ‘tax alpha’ by using the power of tax deferral to help increase returns by 100 bps or more—without increasing risk," said Laurence Greenberg, President, Jefferson National. "For most clients, tax deferral means a lower tax bill or a better retirement, but its benefits go beyond that. Advisors can potentially generate additional wealth, especially if they locate tax-inefficient investments within tax-deferred vehicles."

The vast majority (91 percent) of advisors use tax-efficient investing strategies to mitigate tax burdens for clients, specifically citing asset location in a tax-deferred vehicle (92 percent) and tax loss harvesting (72 percent). Moreover, 77 percent of advisors also use tax-efficient investing strategies to generate alpha. When asked to name the primary benefit of tax deferral, 47 percent of advisors cited asset growth while 40 percent named tax management.

Additional survey findings include:

  • Other than 401(k)s and IRAs, almost three-fourths of advisors surveyed (72 percent) recommend using an annuity for tax deferral.
  • The most popular tax-efficient products used by advisors to mitigate taxes include municipal bonds (69 percent), ETFs (66 percent), tax-managed mutual funds (61 percent) and index funds (54 percent).
  • More than half of advisors (63 percent) recommend that high income clients use tax deferral as they typically face higher tax brackets than clients who are already retired.

 

Media Relations
JeffNat Deborah Newman 502.587.3858

About this survey

More than 370 responses from participating advisors were collected online throughout May 2014 as part of Jefferson National’s series of ongoing surveys addressing the issues that RIAs and fee-based advisors care about the most. The margin of error in this survey was +/-5%.

 

About Jefferson National

We are committed to serving RIAs and fee-based advisors with investing solutions that help their clients build wealth and achieve financial goals. Named the industry “Gold Standard” for our unique approach, we continue to invent new ways to help advisors take their seat on the client’s side of the table. We believe above all that consumer value is in everyone’s best interest.