Evaluating and Classifying Taxable Account Managers

Abstract

University and professional certification programs provide excellent course offerings designed to serve the traditional market for endowment, foundation, and retirement plan investing. However, the impact of taxes is all too often completely ignored. Fortunately, there is a body of truly passionate practitioners that are making significant contributions to further the understanding of taxable account investing. Their work is emerging primarily through articles in professional journals and presentations at wealth management conferences. The purpose of this article is to provide detailed insight into the evaluation and classification of taxable account investment managers. To gauge a manager's ability, or lack thereof, to create alpha on an after-tax basis, knowledge of both the “science” and “art” of tax-aware investing is essential. The “science” involves calculating, analyzing, and interpreting after-tax return performance information, while the “art” consists of a subjective analysis of the tax management tools and techniques utilized by investment managers.