What We’re Reading about the Tax Bill

Current Events Industry Trends

Most of the sector’s recent press has focused on the tax bill’s impact on RIAs, so in addition to our own writings on the matter, we’ve highlighted some of the more salient pieces we’ve come across regarding the tax bill as it relates to the asset management sector. 

Understanding the New Pass-Through Business Deduction for Qualified Business Income

by Michael Kitces

The Nerd’s Eye View blog offers a great overview of the mechanics of the new QBI deduction for pass-through entities, with special attention paid to the contentious “specified service” exclusion, which prevents certain service industries (including RIAs) from realizing the full QBI deduction and drastically reduces the relative tax advantage of pass-through entities versus C corps.

Tax Overhaul Caused Slowdown in M&A: FA Insight

by Emily Zulz

RIAs were on pace for record setting M&A activity in 2017, but deal activity came to a halt in the fourth quarter as RIAs and advisors were inundated with client meetings related to the new tax bill.  The slowdown is likely temporary, however, once the dust settles from the tax bill, there may be a healthy backlog of deals, and the economic impetuses for deal activity are still alive and well.

The Impact of Tax Reform on Asset and Wealth Managers

by Thomas J. Holly

In the wake of recent tax reform, asset managers are reevaluating corporate structure (pass-through versus C corporation), compensation models (particularly for alternative asset managers), and firm location (a disproportionate number of asset managers are located in high income tax states and the sector is therefore disproportionately impacted by the loss of SALT deductions).

How the Carried Interest Break Survived the Tax Bill

by Sahil Kapur

Despite years of being in the political crosshairs, carried interest tax breaks for hedge fund managers miraculously survived the final tax overhaul legislation.

7 New Small-Business Tax Rules You Haven’t Heard Of

by William H. Byrnes

While many of the more impactful aspects of the tax bill have received plenty of press, there are several less covered (but still significant) new rules which will impact small businesses.

Ares Becomes Litmus Test for Buyout Firms Mulling Tax Change

by Melissa Mittelman

Ares Management LP became the first publicly traded alternative asset manager to switch to C corporation status following the recent tax bill (with the change effective March 1).  Many of Ares’ peers (KKR, Blackstone, Apollo, and Carlyle Group) are still evaluating a conversion.

In summary, there are a number of tax bill ramifications specific to the asset management industry that are presenting new business considerations for RIAs.  For many of our RIA clients, the exclusion of the QBI deduction for RIAs is top of mind, and with the dilution of the relative tax benefit of pass-through entities, we expect corporate structure to be in flux for many RIAs.  Stay tuned to next week’s post for more perspective on how the QBI deduction will impact the RIA community.

Mercer Capital’s RIA Valuation Insights Blog

The RIA Valuation Insights Blog presents a weekly update on issues important to the Asset Management Industry. Follow us on Twitter @RIA_Mercer.