Investment adviser Cheyne Pace '94 is preoccupied with tax efficiency—a focus that’s helped him attract $1.7 billion in client money since he founded Yale Capital in 2004. Last year, when he thought about relocating, tax advantages were among the things he considered before moving himself and Yale’s headquarters to Dorado, Puerto Rico.
U.S. investors are bemoaning the tax drain on their savings and seeking help to reduce the bite, Bloomberg Markets magazine reports in its December issue. Millionaires worry more about taxes than terrorism, ranking the issue third behind the political environment and government gridlock among their national concerns, a 2015 survey by research firm Spectrem Group found.
Wealth managers say they’re working more on tax issues since the federal government boosted the levies on wages and investment gains of big earners in 2013 for the first time in a decade. Today, the marginal income tax rate, on earnings above about $400,000, is 39.6 percent, up from 35 percent in 2012. On top of that, some states target their richest residents. California raised its top marginal rate to 13.3 percent in 2012 from 10.3 percent on income above $1 million.
“After-tax returns matter, especially in a lower-interest-rate environment,” says Elizabeth Nesvold, managing partner at Silver Lane Advisors, which specializes in mergers among wealth management firms. “As more baby boomers age, every penny will count.”
Pace, 47, wants to see those pennies add up. He chooses investments from oil pipelines to shares of bank stocks that pay tax-preferred dividends to help clients build savings and lose less to levies. “I need to make sure their net return is as high as possible,” he says. “One of those components is fees, and the other is taxes.”
Yale boosted its assets under management 70 percent last year, making it the fastest-growing firm in Bloomberg Markets’ second annual ranking of registered investment advisers. Wetherby Asset Management tops RIAs by size for a second year. The San Francisco–based firm managed $3.6 billion as of December 2014, up 3.5 percent from the previous ranking. A dozen companies are new to the list this year.