JPMorgan Chase & Co. JPM has successfully drawn in more than $15 billion in assets from affluent clients for its budding tax strategy business. This development comes as the bank seeks to expand its market share and compete with rivals like Goldman Sachs Group Inc. GS and Morgan Stanley MS.
What Happened: Over the past two years, JPMorgan has intensified its efforts to attract clients seeking to reduce their tax burdens by employing tactics such as tax-loss harvesting in separately managed accounts (SMAs). This approach involves selling stocks at a loss to offset other gains, reported the Financial Times on Tuesday, citing people familiar with the matter.
One JPMorgan banker described this as potentially the fastest-growing segment of asset management in the last 18 months, according to the report.
The bank has seen a significant uptick in the use of SMAs by wealthy investors to lower their tax bills. Data from Cerulli Associates, a consultancy, shows that SMA assets have surged by nearly 30% from $1.7 trillion in 2022 to $2.2 trillion in 2023.
For years, asset managers have viewed SMAs for institutional clients as a key avenue for expansion. They see SMAs as competing with the rapidly growing exchange-traded funds industry, offering investors tax advantages similar to those found in mutual funds, according to the report.
"We want to diversify the business, and I think because we don't have ETFs yet on the platform, we see this as the next group," said Manju Boraiah, co-head of custom SMA investments at Allspring Global Investments, citing a 146% surge in SMA platform users during the first quarter of 2024.
JPMorgan Chase & Co did not immediately respond to Benzinga's request for comment.
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Why It Matters: Despite this growth, JPMorgan still trails behind Goldman Sachs Asset Management, which has approximately $280 billion in tax-aware strategies, and Morgan Stanley’s Parametric platform, the leading player in direct indexing.
"Clients are looking to continue growing that space because they want to dictate the future of their holdings," Daniel Gamba, who serves as the president of Northern Trust Asset Management and ranks among the top 10 largest SMA issuers, said.
The move by JPMorgan to bolster its tax strategy business is in line with a broader industry trend. Goldman Sachs plans to double its lending to ultra-wealthy private bank clients by 2029. This initiative is part of the bank’s strategy to strengthen its wealth management operations.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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