Marketing Tax Loss Harvesting (Robo-Advisors)
Robo-advisors have been on my mind as we’ve been asked to help a few firms adjust (potentially) strategic marketing plans to consider their impact on asset management. One interesting marketing component is “tax loss harvesting” championed by Betterment and Wealthfront. Is this is an important concept, though?
On the one hand, what would typical Americans think? Well 50% of Americans believe their taxes are too high. So anything that could harvest (by definition “to win, achieve a gain”) taxes would be viewed positively viewed by that half (and probably most others) of America.
On the other, the potential benefit simply isn’t very large. According to a 2014 Betterment ADV, the 2014 average Betterment account size is nearly $15,000. Coupled with the stated benefit by 0.77% yearly, the average account holder harvests $115 yearly. Over 30 years, that could become nearly $7,000 and Betterment keenly shows you this long-term impact through videos and calculators. $115 annually for a person originating an account isn’t anything to mock. Yet, that same person probably fares better by replacing 10% of latte consumption with homebrewed coffee.
So then is tax loss harvesting a worthy tenet?
Again, on the one hand, I would say no unless you’re a ultra high-net worthy investor, tax loss harvesting isn’t meaningful enough to conceptually engage on (see image below). Yet on the other hand, because the term evokes such a compelling image, I believe it’s a quality brand message and one without much ownership.
