My do-it-yourself investor friends primarily rely on spreadsheets to track their multiple accounts. Others, aware that hubris can lead to bad calls, have a trusted financial advisor who knows their entire investment landscape.

You likely have clients with feet in both camps—a little DIY and several accounts you manage. Some clients probably have trouble remembering where all their money is invested and don’t understand tax liabilities and tax rates associated with different investment assets and account types.  

It’s how people save today: accounts and money scattered across multiple advisors, brokers, digital properties and workplace plans. You may try to help your clients organize themselves, but to do it right, it takes technology enabling a unified managed household (UMH) approach.

Multi-account, tax-smart management produces the best outcomes, as an EY evaluation of my UMH approach validated nearly 15 years ago. My colleague Jack Sharry wrote recently about how the UMH train is inching down the track but hasn’t pulled into the station.

Meanwhile, advisors are confronting everyday situations among clients and prospects that heighten the case for UMH.

UMH In The Real World
UMH starts with an investor and advisor assembling information on all household accounts. That is routinely part of your work with clients while creating a financial plan. In my experience—and I’m sure in yours – such an inventory frequently turns up accounts with:

• Restricted positions limiting the flexibility they (and you) have in managing them.

• Account allocations that don’t represent the current range of investment opportunities or the clients’ current risk preferences.

Restricted positions typically have two variations: positions the client must maintain, usually associated with their employment, and stock positions with significant unrealized gains.

Many investors have employee stock ownership plans (ESOPs) embedded in their 401(k)s that can’t be liquidated until they switch jobs. They may have company stock options or restricted stock, which also cannot be liquidated.

You can’t recommend immediate changes to these positions but can show investors how these positions contribute to their household portfolio risk. Each stock position creates exposure to the company’s stock sector and specific return. Each stock call option creates levered exposure (best estimated using the Black-Scholes option formula) to the company’s sector and specific return.

Stock positions with unrealized gains are essentially restricted. Sure, there’s nothing to prevent a client from selling the stock and paying long-term gains. But you can recommend ways to avoid realizing most gains by:

• Gifting some of these tax lots to charity.

• Placing others in a separate account of a member predeceasing a partner.

• Including them in the last survivor’s bequest.

I described these strategies in my articles on tax-smart wealth transfer tips for clients in late old age.

Outdated Individual Accounts Are Liquidation Candidates
A household assessment usually turns up accounts with asset allocations that no longer meet clients’ risk tolerance or income needs and make clients pay additional investment taxes. These may include:

• Insurance and annuity contracts sold by a long-forgotten insurance agent.

• Low-return alternative investments such as real estate, automobiles, art, or other collectibles (I hear sneakers are now in this category).

• Managed accounts with high turnover stocks.

• Self-managed accounts with individual stock options and stocks.

Depending on each client’s situation, there are alternatives you may present for limiting taxes and maximizing income.

• Term insurance can often be reduced; whole life insurance and short-horizon income annuities can be cashed in.

• New opportunities, including private equity and venture capital, can replace old alternative investments.

• Tax-inefficient stock accounts can be sold without incurring significant gains.

• Self-managed accounts can become part of the portfolio you manage to achieve a UMH approach.

Your clients may be convinced by recent bad results in their DIY accounts to stop betting on stocks in their industries and engage you to manage a household portfolio with more allocation and tax management discipline.

Tracks Diverge Depending On Clients’ Life Stages
Where you steer clients depends on which phase a household is in—accumulation or decumulation.

For accumulating clients, you will develop and implement a plan with projected earnings, employer and employee contributions to 401ks (with or without ESOPS), anticipated contributions to brokerage accounts, and planned charitable deductions.

• You can use a tax calculator to estimate your clients’ after-tax income and validate their capacity to make contributions.

• You need to use risk management software to prioritize assets to be included when restricted positions crowd out household target allocations.

• Asset location software will suggest what highly taxed assets should be held in clients’ discretionary IRAs.

Target asset allocations change for clients embarking on retirement. Conventional thinking prioritized asset preservation. But today, many clients anticipate long retirements and want the capacity for increased spending. Some allocation to diversified stocks and select alternative investments may be required to meet their expectations.

UMH Shines In Retirement
Account withdrawals require greater coordination than account contributions, so you have an opportunity to consolidate all a client’s accounts or risk losing them to another advisor. Only with UMH can you help clients convert their multiple accounts into a robust income stream while minimizing tax exposure and optimizing outcomes.

At this junction, you evaluate the potential advantages, depending on their tax brackets and ages, of such strategies as:

• Rolling up the household’s traditional and Roth IRAs to simplify withdrawals and conversions and allowing for sequencing withdrawals to minimize tax drag.

• Consolidating brokerage accounts into one cash account and another long-term investment account to simplify monthly income and tax payments.  

• Extending the horizon of a retirement portfolio by suggesting clients continue to work or delay Social Security to maximize lifetime income.

Complicated? Yes. Messy? Of course. That’s why investment technology and advisor know-how need to arrive with bullet train speed to meet the needs of clients with complicated household portfolios.

In my next article, I’ll examine how highly promoted individual account tax management strategies fail to meet clients' needs with common collections of household assets.  

Paul R. Samuelson is the chief investment officer and co-founder of LifeYield.