Investment Planning

For a taxable private client, the return that matters is the one left after tax, costs and spending. This module turns a goals-based plan into an asset allocation, measures how different tax regimes erode returns using after-tax accumulation and accrual equivalent returns, sets out the main tax management tools (tax-advantaged accounts, asset location, tax-loss harvesting and deferral), places retirement planning in its legal and cross-border context, and closes with how to report on and review a private client's programme.

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What you will learn

1. Recommend and justify an asset allocation and investments for a private client, combining goal-based sub-portfolios, after-tax risk and return, and the client's existing holdings and constraints.

Aggregate allocation = sum over sub-portfolios of (share of assets x sub-portfolio weight); check the total for diversification and efficiency.
With accrual taxation and full loss offset, after-tax return = r(1 - t) and after-tax risk = sigma(1 - t).
Build the liquid portfolio around concentrated stock, business interests and human capital (completion portfolio).
Embedded gains make transitions costly; stage them and weigh tax cost against risk reduction.
Rebalance taxable accounts with wider bands, cash flows and tax-advantaged accounts first.

2. Calculate after-tax accumulations under accrual, deferred capital gains, wealth and blended tax regimes, and use accrual equivalent returns and tax rates to compare the tax efficiency of investments.

Accrual: FV = [1 + r(1 - t)]^n. Deferred gains: FV = (1 + r)^n - t_cg[(1 + r)^n - B]. Wealth tax: FV = [(1 + r)(1 - t_w)]^n.
Blended: r* = r(1 - p_i t_i - p_d t_d - p_cg t_cg) grows the portfolio; T* taxes the deferred part at the end.
Accrual equivalent return R_AE = FV^(1/n) - 1; accrual equivalent tax rate T_AE = 1 - R_AE / r.
Deferral pushes T_AE below the statutory rate, more so for long horizons and high returns.
A wealth tax weighs more heavily when returns are low; high turnover raises the effective tax rate.

3. Recommend tax management strategies for a private client, including the use of tax-deferred and tax-exempt accounts, asset location, tax-loss harvesting and holding-period management.

TDA: FV = (1 + r)^n (1 - T_n) per unit of pre-tax money; TEA: FV = (1 + r)^n per unit of after-tax money; the TDA wins if T_n < T_0.
Asset location: shelter heavily taxed income (interest, high turnover) in tax-advantaged accounts; hold tax-efficient equity in taxable accounts.
Tax-loss harvesting saves t x loss now but lowers the basis; respect wash-sale and anti-avoidance rules.
Harvesting is mostly a deferral; the benefit becomes permanent with a lower later rate, step-up at death or donation.
Defer realisations, use lower long-term rates where available, and never let tax override suitability.

4. Recommend retirement planning approaches that reflect the legal, tax and jurisdictional setting, including the choice between tax-deferred and tax-exempt accounts and the treatment of pensions across borders.

Map the three pillars (state, occupational, private) and the tax code of each account: EET, TEE and other combinations.
EET versus TEE per unit of pre-tax income: ratio = (1 - T_n) / (1 - T_0); choose EET if the retirement tax rate will be lower.
Legal features (access ages, penalties, required withdrawals, creditor protection, treatment at death) matter as much as tax.
Decumulation: plan the order of withdrawals across account types and how much to annuitise.
Cross-border: residence at withdrawal, treaties, non-recognition of foreign tax-free accounts, transfer charges and currency.

5. Evaluate a private client's investment programme through consolidated, after-tax and goal-based reporting, and recommend when and how the programme should be reviewed.

Consolidate across custodians, entities and currencies to see the true allocation and risk.
After-tax return = (V1 + withdrawals - V0) / V0 with taxes not added back; compare with an after-tax benchmark.
Report each goal's funded ratio (assets / PV of goal) or probability of success.
Show total costs, including tax, and risk measures alongside returns.
Review at least annually and after life, tax or market events; insist on independent custody and statements.

Module at a glance

Aggregate allocation = asset-weighted sum of goal sub-portfolios; complement concentrated stock, business and human capital exposures.
With accrual taxation and full loss offset, after-tax return = r(1 - t) and after-tax risk = sigma(1 - t).
Accrual: [1 + r(1 - t)]^n; deferred gains: (1 + r)^n - t[(1 + r)^n - B]; wealth tax: [(1 + r)(1 - t_w)]^n; blended uses r* and T*.
Accrual equivalent tax rate T_AE = 1 - R_AE / r; deferral pushes it below the statutory rate, turnover pushes it up.
TDA versus TEA depends only on today's tax rate versus the rate at withdrawal; shelter the most heavily taxed assets first.
Tax-loss harvesting saves t x loss now but lowers the basis; respect wash-sale rules and know when the benefit is permanent.
Report after-tax returns against after-tax benchmarks with goal funded ratios, and review on schedule and on events.

This free module has 5 lessons, 18 practice questions with full explanations and 1 essay case with a model answer.

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