All RIAs know that balancing investment returns with tax consideration is no easy task—it takes skill, strategy, and careful attention. Few things are more frustrating than delivering outstanding performance for a client, only to hear them say, “Wait, I owe how much in taxes?”
Tax optimization has become increasingly important in investment strategies, and 2025 is no different. With evolving tax laws and rising client expectations, RIAs face growing pressure to minimize tax liabilities while maximizing returns.
Outsourced Chief Investment Officer (OCIO) services provide a solution, offering the resources and knowledge necessary to craft sophisticated tax-aware strategies.
This article from Cornerstone Portfolio Research will discuss how OCIO investment management services can assist you in addressing tax challenges and optimizing outcomes for your clients.
The Importance of Tax-Aware Investment Strategies
The Impact of Taxes on Investment Returns
Taxes are a substantial factor in determining net investment returns, with studies showing that poorly managed portfolios can lose up to 2% of their annual return to taxes. Over time, this erosion can significantly impact long-term growth, leaving clients with diminished wealth and unmet financial goals.
For example, capital gains generated from frequent portfolio turnover can result in unexpected tax liabilities, undermining the portfolio’s ability to compound effectively. Similarly, the improper placement of income-producing assets in taxable accounts can lead to recurring tax burdens, further reducing a portfolio’s overall performance.
Effectively addressing these challenges isn’t just about maximizing returns—it’s about demonstrating expertise and building lasting client trust. OCIOs like Cornerstone bring specialized portfolio management solutions that focus on tax efficiency, helping to safeguard portfolio growth and support clients’ long-term financial goals.
Trends Driving the Need for Tax-Aware Strategies in 2025
Several factors are contributing to the growing importance of tax-aware investing:
- Increased client awareness: High-net-worth clients are more informed than ever, expecting tax-efficient solutions as part of comprehensive wealth planning.
- Market volatility: Fluctuating market conditions present opportunities and risks but require careful execution to avoid unintended consequences.
- Evolving tax laws and uncertainty: While the current administration suggests a stable or potentially lower tax environment, the unpredictability of future tax policies requires a proactive and flexible approach.
- Diverse investment options: Alternative assets like private equity and real estate, as well as situations like concentrated stock positions, require advanced tax-aware strategies to optimize outcomes.
These trends are shaping the financial environment, emphasizing the need for wealth managers to provide the best investment strategies for 2025 to meet client expectations and stay competitive.
What Are Tax-Aware Investment Strategies?
Rather than solely targeting growth or income, tax-aware investment strategies prioritize optimizing a portfolio’s after-tax returns. Key components include:
Asset location: Strategically placing investments in taxable, tax-deferred, or tax-exempt accounts to maximize tax efficiency.
Tax-loss harvesting: Selling underperforming assets to offset capital gains elsewhere in the portfolio.
Investment selection: Utilizing tax-efficient funds, ETFs, municipal bonds, and tax-free money markets to minimize annual tax obligations.
Withdrawal sequencing: Determining the most tax-efficient order for withdrawing funds from various accounts during retirement or other major life events.
These are common tax-efficient investment strategies practiced by most RIAs. However, constantly monitoring client portfolios can be time-intensive, especially when managing complex situations like concentrated stock positions, business sales, or stock options. This is where the benefits of outsourcing chief investment officer services become clear.
How OCIOs Implement Tax-Aware Strategies
An OCIO integrates tax considerations into every aspect of portfolio management. From initial asset allocation strategies to ongoing portfolio adjustments, the goal is to create a seamless connection between tax planning and investment management services.
For example, an OCIO might identify opportunities to defer gains by holding assets longer or strategically utilize tax-advantaged accounts to shelter income. These efforts require constant oversight to provide clients with both strategic planning and timely execution.
OCIOs leverage advanced tools and techniques to execute tax-aware strategies effectively. Integrated software tracks and manages tax implications across multiple accounts, allowing for precise implementation.
They will also make asset placement decisions, such as allocating dividend-paying stocks or specific bonds to taxable accounts, while carefully considering ex-dividend dates and capital gain distributions to reduce tax liabilities. Dynamic rebalancing further supports this process by maintaining target allocations while avoiding unnecessary taxable events.
Addressing Client Needs With Precision
Tax-aware strategies are not one-size-fits-all. When evaluating how to choose an OCIO provider, it’s vital to select a partner that assesses each client’s financial picture, including their income, goals, and tax bracket. Examples of tailored approaches include:
- Managing tax implications for equity compensation or stock options held by executives.
- Structuring portfolios to reduce the impact of estate taxes.
- Preparing for significant financial events, such as business sales or inheritances, with tax mitigation strategies.
By personalizing these strategies, OCIOs like Cornerstone assist you in delivering solutions that address the sophisticated needs of your clients, fostering stronger relationships and long-term loyalty.
Cornerstone: Your 2025 Partner for Tax-Aware Investing
At Cornerstone Portfolio Research, we bring over 70 years of combined experience to provide investment insights and strategies that help RIAs across the country navigate complex tax considerations.
Outsourcing investment research and portfolio management doesn’t have to be complicated—or noticeable to your clients. We evaluate existing portfolio holdings to build portfolios around key legacy positions, offering services that range from investment research to comprehensive portfolio management.
We take a proactive approach to tax-aware investing, blending advanced technology with decades of expertise to create strategies that reduce tax liabilities and enhance client outcomes. Our process begins with understanding your firm’s unique investment philosophy. From there, we carefully transition into managing your client portfolios, avoiding sudden changes that could disrupt service or result in unintended tax consequences.
Working with Cornerstone means gaining access to a team that prioritizes both tax awareness and client satisfaction. Our OCIO services can provide you with the expertise, tools, and resources to deliver the best investment management strategies in 2025 and beyond.
Contact us today to explore how partnering with an OCIO can help RIAs like yours grow and scale with ease.
