For many wealth management firms, financial planning and portfolio management exist as separate disciplines. They are linked in theory, but not always in practice. This disconnect quietly erodes an advisor’s ability to meaningfully improve after-tax outcomes for clients.
The Planning-Portfolio Divide
Consider how most firms operate today. A financial planner builds a comprehensive picture of the client, including their current tax bracket, expected income events, retirement timeline, estate planning goals, and state of residence. This information lives in planning software, informs annual reviews, and shapes high-level recommendations.
Meanwhile, the portfolio management process runs parallel. Models are assigned, drift thresholds trigger rebalancing, and tax-loss harvesting occurs when market conditions create obvious opportunities. The challenge isn't with either process in isolation. It is that they rarely inform each other in real time. This separation leads to missed tax-saving opportunities and inefficient portfolio decisions for clients.
Closing the Gap with Tax-Aware Rebalancing
Tax-aware rebalancing bridges the divide by treating planning data as direct inputs to portfolio optimization. Instead of asking "What trades bring this portfolio back to target?" the question becomes "Given this client's tax situation, what's the optimal path to the target allocation?"
By parameterizing clients’ marginal tax rates, gain and loss budgets, income event timing, and retirement and distribution plans, firms can create a continuous feedback loop between planning and portfolios. Here are three ways to transform rebalancing from a mechanical process into a strategic lever:
Gain/Loss Budgeting. One of the most practical ways to operationalize tax-aware rebalancing is through explicit gain/loss budgeting. At the start of each year, or whenever material circumstances change, the advisor works with the client to establish targets.
These budgets then become constraints in the optimization process. Every rebalancing decision is evaluated not just against tracking error or drift, but against the household's remaining tax budget. This shifts tax management from reactive to strategic and directly ties it to broader planning goals.
Householding. Effective tax-aware rebalancing requires visibility across the entire household, not just individual accounts. Wash sale rules apply at the entity level, meaning a loss harvested in one spouse's IRA can be disallowed by a purchase in the other spouse's taxable account. Gain budgets must account for activity across all accounts the household controls.
Managing these interdependencies manually across dozens of accounts and multiple family members doesn’t scale. With modern portfolio management tools, advisors can maintain household-level visibility, flag potential wash sale violations before they occur, and optimize across accounts simultaneously to find the most tax-efficient path to target allocations.
Beyond the Current Year. The most sophisticated tax-aware strategies extend beyond single-year optimization to consider multi-year dynamics. Planning insights, such as future income changes or an upcoming move to a lower-tax state, should directly inform today’s portfolio decisions.
From Concept to Execution
Implementing tax-aware rebalancing requires both technology and process changes. On the technology side, firms need modern systems, such as those available through SS&C Black Diamond® Wealth Solutions, that can accept client-specific tax parameters and optimize against them. This goes beyond generic tax-lot accounting to true multi-objective optimization that balances risk, return, and after-tax outcomes.
On the process side, it requires tighter coordination between planning and portfolio management functions. Annual reviews should include explicit tax budget setting. Planning updates should trigger portfolio reviews, and reporting should highlight not just performance, but after-tax value creation.
As markets reach elevated valuations and clients accumulate larger unrealized gains, tax management becomes an increasingly important differentiator. Advisors who deliver consistent, measurable after-tax alpha strengthen client relationships and justify fees beyond pure investment performance.
Firms that eliminate the artificial boundary and redefine how planning and portfolio management work together will deliver durable after-tax value.
To see how SS&C Black Diamond Wealth Solutions can help your firm integrate tax planning directly into your investment management process, request a personalized demo, call 1-800-727-0605, or email info@sscblackdiamond.com today.
