Displaying items by tag: taxes

As the end of the year approaches, investors should focus on capital gains management and explore tax-smart strategies in nonqualified accounts. Active trading can significantly impact capital gains liability and improve after-tax performance. 

Moving investments into exchange-traded funds (ETFs) may offer a tax-efficient solution, with active ETFs presenting a strong option during tax loss harvesting. ETFs have been more tax-efficient than mutual funds due to their unique structure, minimizing capital gains distributions. 

Additionally, actively managed ETFs typically have lower operational costs than mutual funds, providing a more cost-effective investment option. This makes them appealing to investors looking for both performance and tax efficiency as they assess their portfolios.

Finsum: It will be critical with some potential rallies coming on for investors to maximize their tax efficiency and take advantage of the volatility in sectors of the market. 

Hedge fund billionaire John Paulson, known for his profitable bet against the housing market during the financial crisis, warned of a potential market collapse if Vice President Kamala Harris' proposed tax plans are implemented. 

In an interview on CNBC, Paulson criticized Harris' endorsement of raising the corporate tax rate to 28%, increasing the capital gains tax to 39%, and taxing unrealized gains, predicting these measures would trigger a financial downturn. While Harris has supported tax hikes proposed by President Biden, insiders suggest she may not pursue taxing unrealized gains. 

Paulson believes such policies would lead to massive asset sell-offs and a recession. Some economists agree higher corporate taxes could impact earnings but don't foresee the drastic crash Paulson predicts. 

Finsum: The impacts of the taxes on unrealized capital gains are overblown, they affect a very small unmeasurable margin.

A recent Goldman Sachs survey reveals that investors are enthusiastic about separately managed accounts (SMAs). Financial advisors appreciate SMAs for their professional management, customization, transparency, tax efficiency, and diversification benefits. 

Chris Mankoff of JTL Wealth Partners finds SMAs advantageous for aligning with clients' preferences and optimizing tax strategies. While there have been challenges in the past with SMAs but the recent technological advancements have made them more accessible and effective. 

Direct indexing, a step beyond SMAs, leverages technology for customized tax management and ESG preferences. Despite their benefits, SMAs may not be suitable for all clients, particularly those with smaller portfolios or predominantly pretax investments.

Finsum: While SMAs might not be for all, with a sizeable portfolio technology makes them easier for advisors to manage. 

BlackRock (BLK) has unveiled plans to acquire SpiderRock, a prominent provider of technological solutions tailored for financial institutions. This acquisition is set to bolster BlackRock's Aladdin platform, a key player in the world of separately managed accounts (SMAs). 

By integrating SpiderRock's state-of-the-art technology into Aladdin, BlackRock aims to enhance its SMA capabilities, particularly in risk management and trading strategies. According to Cerulli Associates, SMAs are projected to see their assets under management surge to $4 trillion by 2026 from $2.7 trillion, driven primarily by heightened client demand for personalized portfolios offering tax advantages. This strategic move underscores BlackRock's commitment to leveraging advanced analytics within the management sector, enabling clients to optimize operations and mitigate risks more effectively. 

Through this acquisition, BlackRock is poised to pioneer innovative SMA solutions, driving efficiency and productivity across operations and meeting the demand for tax optimization. This development signals a significant step forward in BlackRock's journey toward becoming a leader in SMA, offering tailored solutions to address the evolving needs of investors and wealth managers worldwide.

Finsum: SMAs are fighting atop the industry with model portfolios to be the customized solution. 

A recent survey of financial advisors showed that separately managed accounts (SMAs) are seeing more traction in comparison to model portfolios. Only 22% of advisors plan to increase reliance on model portfolios, a 5% drop from the previous year. In contrast, allocations to SMAs are forecast to reach 26% in 2025 from 18% currently. The trend is more pronounced among advisors serving high net-worth clients who see allocations reaching 31% in 2025 from 23% now.

Some of the reasons cited by advisors in the survey for less interest in model portfolios were higher fees, underperformance, a need for customization, and more investment options. The survey is an indication that model portfolio uptake and growth have stalled as only 29% of advisors using model portfolios report increasing use over the past year. 

The survey was conducted by Cogent Syndicated in October and November of last year. The firm surveyed 403 registered financial advisors with an active book of at least $5 million. The report suggests that model portfolio providers are losing ground as many advisors and clients are gravitating towards direct indexing and SMAs due to their customization and tax optimization, while model portfolios fall short in these regards despite offering other advantages for advisors and clients. 

Finsum: A survey of financial advisors showed that model portfolio adoption has stalled. Here are why advisors are gravitating towards SMAs instead.