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How tax reform is impacting advisors' 2019 strategy

Timely insights on the issues that matter most to investors.

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      By Advisor Top-of-Mind Index, Tap into the perspectives of financial advisors

      Boston - The sweeping tax overhaul signed by President Donald Trump this year has many positive aspects for investors, while also creating both opportunities and challenges for financial advisors who use tax-efficient strategies.

      Tax reform in the current political environment has prompted renewed interest in potentially limiting taxes in client portfolios, according to the Eaton Vance Q4 2018 Advisor Top-of-Mind Index (ATOMIX) survey of over 600 financial advisors. Advisors widely reported that tax reform is positive for their clients, their practice and the broader economy.

      Some of the tax-related findings from the survey include:

      • 54% of advisors believe their clients will benefit from tax reform in 2019.
      • 62% said their practice will also benefit.
      • 64% are making changes to client portfolios based on tax reform.

      "Although largely seen as a win, tax reform has prompted many advisors to employ tax optimization strategies for their clients," explains John Moninger, Managing Director of Retail Sales at Eaton Vance. "Active tax management can differentiate advisors and help ensure clients are minimizing their tax exposure across their equity and bond portfolios."

      Muni bonds in focus

      Tax-exempt income has traditionally made muni bonds an essential part of the advisor toolbox and helped them limit taxes in client portfolios.

      Indeed, 88% of advisors surveyed said they are using muni investments as tax-management tools. However, advisors are using different strategies to invest in muni bonds, according to the latest ATOMIX survey:

      • 35% of advisors use laddered muni portfolios.
      • 27% select individual muni bonds.
      • 27% allocate to muni funds or separately managed accounts.

      Blog Image ATOMIX Taxes Q418 Nov 12

      Source: Eaton Vance Advisor Top-of-Mind Index (ATOMIX) Survey, Fall 2018.

      Muni bonds have also been in focus after the recent midterm elections that resulted in the House of Representatives flipping to the Democrats, while the Republicans maintained control of the Senate. One of the key takeaways is that a divided Congress is expected to hamper further tax cuts and fiscal stimulus, which in turn is expected to stabilize the Treasury market. Muni bonds are historically correlated with Treasury bonds.

      To learn more about the Advisor Top-of-Mind Index and the latest quarterly survey, visit the ATOMIX page.