The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Tax-Aware Managers

The money management business, at least as a professional, thoughtful, disciplined activity, grew up in the institutional world. The overwhelming majority of competent money managers designed their investment strategies and disciplines for, and cut their teeth on, an institutional, nontaxable client base. Because those investors paid no taxes, tax considerations were never incorporated into the investment process. Meanwhile, most family investors were stuck in the trust company and private client backwaters, having their portfolios managed by individuals who were really salesmen or client relations people, not professional portfolio managers.

As families have become more sophisticated over time, they have naturally sought out more professional investment management for their portfolios. Unfortunately, this has taken too many families out of the frying pan and right into the fire. The reason is that the institutional money managers whose thoughtfulness and discipline appeal to sophisticated families are all too often money managers who don't pay the slightest attention to the tax consequences of their investment activities.

As the institutional business has stopped growing and, at the same time, become intensely competitive, many institutional managers have set their sights on wealthy families as a rapidly growing and hugely underserved market. Most, as noted, have simply sold their gross return performance, hoping that family investors will not take the trouble ...