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JPMorgan Chase has attracted more than $15 billion in assets from wealthy clients to its nascent tax strategy business, according to people familiar with the matter, as the U.S. bank seeks to win a bigger stake in the business from Goldman Sachs and Morgan Stanley.
In the past two years, JPMorgan has stepped up its efforts to win over clients looking to lower their tax bills by selling shares at a loss as a write-off against other gains, a tactic common in self-managed accounts (SMAs) known as tax loss. harvest. In addition to reducing tax bills, investors use SMAs to own individual securities and express specific preferences, such as prioritizing environmental, social and governance factors.
“It may be the fastest growing part of asset management in the last 18 months,” said one JPMorgan banker. JPMorgan declined to comment.
Wealthy investors are increasingly using SMAs in an effort to reduce their tax bills. Assets in the SMA rose nearly 30 percent from $1.7 trillion in 2022 to $2.2 trillion in 2023, according to data from consulting firm Cerulli Associates.
Tax loss harvesting is also becoming standard in the asset management industry. It has soared in popularity in recent years as investors have taken advantage of the decline in stock and bond markets to offset years of high returns and associated tax burdens. Asset managers surveyed earlier this year told Cerulli that 45 percent of their assets are subject to tax management, up from 33 percent in 2022.
SMAs, which offer the ability to recognize losses by selling individual securities, have gained traction among high-net-worth clients, in large part because the highly customizable portfolios offer generous tax benefits. These portfolios typically require high minimum account balances, making them more suitable for wealthier investors.
“Clients want to expand this space further because they want to dictate the future of their stocks,” said Daniel Gamba, president of Northern Trust Asset Management, one of the top 10 SMA issuers.
Despite JPMorgan’s SMA growth, the bank still trails Goldman Sachs Asset Management, which has about $280 billion in tax-focused strategies, and Morgan Stanley’s Parametric platform, the market leader in direct indexing, in which custom indexes are based on client preferences .
Last year, Goldman launched a direct indexing tool for clients that allows them to diversify out of concentrated equity positions over a decade. Meanwhile, Parametric is developing its ability to harvest tax losses in multi-asset portfolios under SMA.
Morgan Stanley acquired Parametric in 2021 as part of its $7 billion purchase of asset manager Eaton Vance, which JPMorgan also tried to buy. Shortly after missing out on that deal, JPMorgan bought 55ip, which is now the foundation of its tax platform.
After buying SMA business Aperio in early 2021, BlackRock struck a deal this spring to buy SMA specialist SpiderRock Advisors, citing “growing demand from wealth managers for personalized, tax-efficient portfolios”. Vanguard made its first ever acquisition in 2021 with the purchase of Just Invest, a direct indexing boutique.
Even less established players make moves. Following a 66 percent increase in its own retail SMA assets in 2023, Invesco recently launched two tax-aware SMAs, including one based on its flagship $291 billion QQQ ETF.
For years, asset managers have said they see SMAs as one of the best avenues for growth for institutional clients, competing with the fast-growing exchange-traded fund industry, which like SMAs provides investors with tax advantages compared to mutual funds.
“We want to diversify the business, and I think because we don’t have an ETF on the platform yet, we consider it as another group,” said Manju Boraiah, co-head of SMA’s own investments at Allspring Global Investments, who cited a 146 percent increase in users of the SMA platform in the first quarter of 2024.