Displaying items by tag: tax efficiency

Frontier Asset Management and 55ip are combining their areas of expertise to offer financial advisors a unique set of model portfolios that will minimize risk and seek ideal tax management solutions. The two firms inked a deal this month that will apply 55ip’s tax management solutions to Frontier’s risk-averse ETF strategies so advisors can utilize both techniques within model portfolios. While Frontier does not have any proprietary ETFs, it publishes investment strategies that are used by advisors. The firm establishes a downside risk target for each strategy representing the expected one-year loss potential over 12 months. Their strategies are built around the idea of not losing more than the downside risk target 95% of the time. 55ip, on the other hand, offers tax management for an array of products such as model portfolios, ETFs, direct indexing, and active SMAs. It achieves this through proprietary algorithms, which keep track of the different portfolios the firm oversees along with every tax position and tax law related to those portfolios. Rob Miller, CEO of Frontier had this to say about the deal, “Being able to utilize 55ip’s tax overlay service within our risk-managed services gives a really unique product in the investment advisor space. We’re hoping that investment advisors will get the best of both worlds with tax and risk management for their clients.”

Finsum:Frontier Asset Management, which provides risk-management strategies, and 55ip, which offers tax management solutions are combining their expertise to provide advisors with a unique set of model portfolios.

According to data from the financial technology platform 55ip, a record number of financial advisors are taking advantage of tax-loss harvesting opportunities for their clients. Data from its platform revealed that across client portfolios through Q3, the 2022 YTD tax savings benefit for model portfolios of ETF and mutual funds was 2.99%. Going back to 2020, the annualized tax savings across clients in model portfolios on their platform was 2.82%. The tax savings illustrates the value of ongoing tax loss harvesting within client portfolios throughout the year, compared to those not harvested for tax losses. 55ip, which is a wholly owned subsidiary of J.P. Morgan Asset Management, offers advisors trading and rebalancing capabilities, in addition to automated, personalized, and optimized tax outcomes. Paul Gamble, Chief Executive Officer of 55ip stated “The growth of model portfolios is one of the fastest growing trends in asset and wealth management, but concerns about the tax implication of transitioning and managing client accounts have been a major barrier to broad use by advisors. Volatile markets can be emotionally and financially challenging for investors, but our data indicates they can also present potential opportunities for meaningful benefits from a tax perspective.”

Finsum:Based on data from 55ip’s platform, a record number of advisors are implementing tax loss harvesting in their clients’ model portfolios.

Over the past year, direct indexing has become a hot topic in the financial media. It’s hard not to see why with firms such as Fidelity and Vanguard launching direct indexing solutions. But direct indexing is not a new investment product. In fact, Natixis launched Active Index Advisors Strategies, its direct indexing business, in November 2002 with the AIA S&P 500® direct indexing strategy. The strategy has grown from $4 million in assets under management to nearly $8 billion today. Even more impressive is that the AIA S&P 500® strategy has tracked its benchmark index to within 12 basis points annualized since inception, outperforming on an after-tax basis by over 370 basis points on an average annualized basis. The strategy seeks to outperform on an after-tax basis while providing a pre-tax return similar to the S&P 500 Index. The firm’s direct indexing solutions provide fully customizable SMAs that can be customized for tax purposes, align with investor values such as ESG, or tilt towards factors.

Finsum:Amid a recent push by financial firms to launch their own direct indexing solutions, Natixis celebrates the 20th anniversary of its first direct indexing strategy. 

Based on the results of a recent survey by Broadridge, advisors are still not embracing direct indexing. The survey data showed that just 12% of advisors are “very familiar” with direct indexing. In fact, fewer than one-third even consider themselves “somewhat familiar” with direct indexing, while 40% say they are aware of the technology, and 15% have never heard of it. Ram Ramaswamy, Head of Custom Direct Indexing at Neuberger Berman, told Ignites that he has encountered resistance from advisors to any new investment option. “The first thing we hear from a lot of advisors is that they are comfortable using the ETF and mutual fund model,” said Ramaswamy. In addition to resistance to new investment options, data gathering could be another impediment. Cindy Galiano, Head of Product, Investment Management at Morningstar Wealth, told Financial Advisor IQ, “Implementing direct indexing successfully requires a lot more than a Bloomberg terminal and a list of client holdings. An enormous amount of data is needed that ranges from benchmarks and prices to sophisticated risk models and portfolio optimization tools.”

Finsum:Due todata gathering and resistance to new investment options, advisors are still not embracing direct indexing. 

Category: Wealth Management

Keywords: advisors, direct indexing, tax efficiency, ESG 

Morningstar recently announced the launch of Direct Indexing. The new offering will draw from industry-leading research, technology, and insights from Morningstar to help deliver greater personalization, automation, and tax efficiency for advisors and their investors. It will utilize many of the firm’s in-house capabilities, including Morningstar's Investment Management, Morningstar Indexes, Morningstar Sustainalytics, and Morningstar Equity Research to create and manage personalized investment strategies. Initially, the direct Indexing portfolios will be made available through the Morningstar Wealth Platform. This is one of the firm's first major product launches from Morningstar Wealth, a new group combining managed portfolios from Morningstar's Investment Management group, portfolio management software Morningstar Offices, investment data aggregator ByAllAccounts, and the individual investor experience across Morningstar.com. Morningstar Wealth is expected to introduce additional functionality and capabilities to advisors and firms in the coming year. According to Morningstar, approximately 61 percent of advisors indicate they are using or are considering using direct indexing.

Finsum:With a majority of advisors using or planning on using direct indexing, Morningstar has launched its own Direct Indexing offering.

Category: Wealth Management

Keywords: direct indexing, advisors, clients, tax efficiency