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Do your prospective clients know that there's such a thing as the right bond in the wrong place? The After-Tax Advisor® can attract prospective clients by helping them understand this tax tenet: "Asset location can be as important as asset allocation."
Illustrate the importance of understanding how owning the right asset (asset allocation) in the wrong account (asset location) can have unintended tax consequences by asking these three questions:
- "May I ask you a few questions about your bond allocation?" This is highly deferential, and a great way to start the asset location conversation.
- "Has your current advisor explained the importance of after-tax yield in bonds of similar maturity and credit quality?" This allows you to discuss tax-equivalent yield when considering different fixed income asset classes.
- "Has your current advisor explained the importance of asset location regarding different types of bonds?" Prospective clients might not fully appreciate how the location of bonds in their portfolios can influence after-tax investment return.
Prospective clients' answers can provide insight on their understanding of how asset location can be as important as asset allocation.
Bottom line: Open the door to a timely conversation about asset location and the benefits of a tax-optimized bond strategy in a changing tax environment. With higher taxes likely on the horizon, prospective clients may benefit from an analysis of after-tax yield based on their tax circumstance.
"Illustrate the importance of understanding how owning the right asset (asset allocation) in the wrong account (asset location) can have unintended tax consequences by asking these three questions."
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