Differentiating your practice based on performance is a challenge. Client portfolios are increasingly geared toward benchmark exposures, given the prevalence of low-cost, passive investing versus active management. However, while pre-tax performance might appear similar across mutual funds, SMAs, and ETFs, after-tax performance can vary substantially. This is where advisors using tax-managed strategies can separate themselves from the pack.
But which solution is right for your practice? Are you looking to serve an exclusive client base, or for scalability? For a public equities sleeve for larger portfolios, or a full account solution for smaller accounts? How can you effectively deliver after-tax returns to a range of clients without diluting your brand or losing time?
Tax-Managed Index Strategies, Powered by 55ip
Tax-Managed Index Strategies (TMIS) powered by 55ip have the flexibility to support a wide range of practice objectives. Constructed with granular ETFs to facilitate active tax management, TMIS have both the sophistication to support the most complex client needs, as well as simple implementation that makes them scalable across your practice.
How TMIS Work
Whether advisors track a standard index or their own customized benchmark, they can incorporate TMIS into their existing asset allocation. TMIS provide an intuitive, tax-efficient implementation, with each account controlled by the advisor using 55ip’s simple digital solution. The advisor sets up the account in minutes; 55ip automates the rest.
Harvesting Across The Portfolio While Maintaining Targeted Exposures
Example: US Large Cap Index Strategy
As an example of TMIS implementation, here are the composite returns of TMIS accounts that have implemented a Large Cap Index strategy.
Total returns as of 6/30/20201
1 Please see the last page of this document for detailed disclosures on the composite returns shown.
2 Excess returns are defined as returns achieved above the return of the index.
3 S&P 500® after-tax returns are net of taxable gains/losses from 1) ongoing rebalancing and 2) any dividends paid associated with holding the index.
TMIS offer a simple implementation and better experience for both the advisor and client. Fully automated TLH is run throughout the year to capitalize on volatility and to realize harvesting opportunities when they appear, not just at year-end. TMIS are branded and customizable for the advisor.
Your Practice: Powered by 55ip
55ip is a tax-smart investment strategy engine that dramatically improves financial advisor efficiency and effectiveness. Our intuitive experience and intelligent automation elevate portfolio design and delivery. Advisors get the time savings of outsourcing, while retaining control of the decisions that make a difference for their clients. Clients get tax-smart, tailored investment portfolios that drive better client outcomes. At the heart of the experience is 55ip’s ActiveTax® technology, which includes tax-smart transitions, management, and withdrawals—enabling advisors to deliver differentiated value throughout the client journey.
The composite information reflected herein is derived from eight accounts managed by the same adviser. The gross and net returns (net of 55ip fees of 30 bps and transaction costs) include cash held in the accounts. All taxes and tax benefits (i.e., tax savings) are expressed as a percentage of the account value using the average account value for the periods shown. Taxes were calculated using maximum capital gains tax rates of 40.8% for short-term and 23.8% for long-term, both of which include the 3.8% investment income tax. Dividend taxes for each account were calculated using the maximum qualified dividend tax rate of 20%, operating under the assumption that all dividends are qualified. Applying tax benefits to the current year assumes that the account holder has other capital gains against which they can apply harvested tax losses to offset the gains. To arrive at the after-tax return for the strategy, we take the pre-tax return less any taxes on dividends plus the net tax benefit, which includes any capital gains realized due to rebalancing the portfolio.
Past performance does not guarantee or indicate future results and there can be no assurance that any return objectives will be met. No representation is made that any investor will, or is likely to, achieve the intended results. All investments involve risk, including loss of principal.