Some advisors are skittish about discussing tax-loss harvesting for their clients. It's pretty obvious why.
"It is easy to screw it up, and it's happening a lot," says Robert Gordon of Twenty-First Securities.
Gordon, who's featured in this month's cover story, and runs a New York brokerage where tax-loss harvesting is a specialty, has written and spoken extensively against clients buying into the hype of this approach to shore up losses. He warns some strategies are based on misunderstandings that don't deliver as promised, or which don't comply with IRS rules.
"Let's say I sold a stock, and then I go to buy a call option on the stock. That's not necessarily the same as buying the stock, and it breaks the wash sale rule," he says.
Our cover story looks at how wealth management firms are approaching this strategy for success. Tax-loss harvesting has evolved from year-end tax planning to an approach that can provide tax-loss savings for all 12 months.
Contributing writer Dave Lindorff explores the use of automation which promises impressive results for harvesting losses and improving portfolio performance. But he also points out that not all these strategies provide the same level of savings over the long term, which is where Gordon says the hype of tax-loss harvesting comes from.
"It doesnt mean that tax-loss harvesting isn't worth something," he says. "It's just not worth as much as these people are claiming."
He urges advisors to know the elements of what works to provide the best value for their clients, and he adds, "When a loss is 15% of what you paid on a security, that's a good time to do a loss harvest."
Can you then blame some advisors for being a little apprehensive about discussing their approach?
"You don't necessarily want to stick your head out and say you didn't trigger the loss harvesting," says Gordon. "Dont promise what you might not be able to deliver."