Displaying items by tag: tax efficiency

The proliferation of direct indexing continues as Smartleaf Asset Management’s sub-advisory service is now available on Fidelity’s Institutional Separate Account Network. The service enables advisors to outsource the rebalancing and trading of customized and tax-optimized portfolios. Smartleaf’s offering offers the ability to add direct indexing by making a selection on a pull-down menu. Advisors have the choice of specifying their own allocations and products or selecting allocations and models from third-party providers. The announcement is no surprise as the demand for direct indexing has skyrocketed among advisors. This has been especially true with tax management, risk customization, and impact investing, three areas where direct indexing has seen the greatest implementation. One drawback of direct indexing is that you have to actively manage a direct index portfolio to implement constraints and get tax savings. This is where SmartLeaf is looking to fill the void.

Finsum: With the demand for direct indexing skyrocketing, Smartleaf’s sub-advisory service launched on Fidelity’s Institutional Separate Account Network, providing advisors with an automated direct index solution.

Dan Egan, VP of behavioral finance at Betterment, suggests that personality types play a critical role in invstmet decisions such as tax-loss harvesting. Investors' neuroticism and emotional intelligence are linked to the strategies they pursue and their behavior can be predictable. For example, investors with low neuroticism may not care too much about the day-to-day movements in their portfolio they don’t take advantage of tax-loss strategies for their accounts. Betterment offers robo-advisors that will offset these types of forecastable decisions in a portfolio.

Finsum: Investors' own bias can lead them to shut the doors on opportunities that could save them lots of money.

Crypto could be a stress inducer when it comes to managing their tax solutions. However, a variety of portfolio products help investors navigate their digital wallets, track crypto investments, and manage their tax solutions. These portfolio trackers can help investors navigate the nuanced complexities in capital gains taxes that are constantly evolving. CoinTracker, TokenTax, and CoinLedger are all great crypto portfolio managers. TakenTax really lets investors take advantage of tax loss harvesting to optimize their crypto portfolio.

Finsum: Cryptos wash rule differences should incentivize investors to take advantage of tax loss harvesting.

Model portfolios have been a surprisingly quick growing tool for the financial industry in the last year, and Morgan sStanley’s Wealth Management is capitalizing by adding a series of new model portfolios. These strategies will have hefty minimums of $750k to $1.5 million and are targeting tax and direct indexing strategies from the recently acquired Parametric. This was a key reason Morgan Stanley acquired Parametric last year to rapidly develop and deploy direct indexing strategies. Overall the portfolios have acquired $150 million in assets since their inception in January.

Finsum: Financial companies took a page out of tech companies playbook by just acquiring the companies that might align with them and allow the to quickly scale when it came to direct indexing.

The longer equity portfolios experience growth over time the fewer the opportunities there are to realize the losses and take advantage. Actually quant fund AQR called these appreciated portfolio’s a ‘liability’ for tax purposes. One interesting thing they find is that tax preferred passive equity and direct indexing can develop unrealized gains rapidly. It takes only 3 years for direct indexing to have unrealized gains hit 50% of the portfolio value and 5 years for a tax preferred passive strategy. AQR offers an alternative approach, ‘enhanced indexing’ which is a tax-loss strategy they developed that can help investors. If a direct-indexing strategy already has large unrealized gains it is hard to catch up, but the enhanced indexing strategy can still generate losses for tax purposes. Enhanced indexing is the preferred option when a portfolio is already heavily appreciated.

Finsum: Direct indexing and enhanced indexing are both novel strategies in maintaining an ETF like strategy while taking advantage of tax-loss harvesting.