Displaying items by tag: tax loss harvesting

Now is an opportune moment to optimize your investments for tax efficiency, as upcoming policy changes could significantly impact financial planning. With tax rates set to rise and transfer tax exemptions shrinking in 2026, proactive strategies can help safeguard wealth. 

One key approach is ensuring that assets are held in tax-advantaged accounts, maximizing the benefits of tax deferral or exemption. Additionally, tax-loss harvesting and careful portfolio rebalancing can mitigate liabilities while maintaining investment goals. 

Charitable giving through donor-advised funds or qualified charitable distributions also presents tax-efficient opportunities. Finally, sophisticated tools like GRATs and strategic liquidity management can help navigate tax burdens while preserving long-term wealth.

Finsum: These are three wonderful tips to improve the efficiency of portfolios, and its good to start educating clients on the benefits of tax alpha.

The rise of separately managed accounts (SMAs) is reshaping the financial services industry, shifting brokers from commission-driven sales to fee-based consulting focused on long-term client relationships. However, this transformation remains incomplete, as many advisors misuse SMAs, treating them like expensive mutual funds rather than customizing portfolios for individual needs. 

Despite SMAs' advantages, such as tax-loss harvesting and tailored asset allocation, few brokers fully leverage these features, with customization rates alarmingly low. A significant hurdle is inadequate diversification, especially as lower account minimums make it difficult to properly spread investments across multiple managers and styles. 

To address these challenges, brokers need better training, more robust technology platforms, and a commitment to understanding both their clients and their investment managers. 

Finsum: Ultimately, success with SMAs requires not just offering the product, but delivering ongoing service, customization, and disciplined portfolio management—a shift that, while slow, seems inevitable

Separately managed accounts (SMAs) are gaining traction among investors, offering personalized portfolios with features like tax optimization and tailored investment preferences. Once reserved for the wealthy, advancements in technology have made SMAs more accessible, with minimum investments as low as $5,000 through platforms like Fidelity. 

While SMAs allow for benefits such as tax-loss harvesting and charitable stock donations, they often come with higher fees compared to ETFs, which can make them less cost-effective for many retail investors. 

Critics argue that customization can lead to active management pitfalls, with most SMAs historically underperforming benchmarks after accounting for fees. 

Finsum: Innovations in AI and portfolio management tools are enabling financial advisors to efficiently manage larger numbers of accounts with greater precision. 

The Bank of New York Mellon Corporation (BK) has introduced customized tax solutions and expanded its direct indexing suite, BNY Mellon Precision Direct Indexing. These offerings aim to help advisors align strategies with clients' investment goals, featuring tax transition management and tax overlay management through BNY Mellon Pershing X’s Wove platform.

 Advisors can now manage portfolio migrations and apply ongoing tax overlay management to a customized set of assets. Stephanie Hill, head of Index at Mellon, emphasized that these enhancements aim to bring institutional-quality index management to retail investors in a tax-efficient manner. 

This initiative complements BNY Mellon’s long-term growth strategy, which includes launching new services, digitizing operations, and strategic acquisitions. The company has recently formed significant partnerships and made strategic divestitures to strengthen its market position.

Finsum: Built in features to explicitly manage tax efficiency can help advisors leverage the full potential of this underused technology. 

A survey of 631 financial advisors conducted by RIA Channel and FTSE Russell reveals that 79% of financial advisors do not currently use or offer direct indexing, although nearly half plan to begin adoption within the next five years. 

The survey shows that direct indexing’s growth remains in its infancy despite more awareness among advisors and clients. It also shows that many advisors are unfamiliar with direct indexing and unprepared for the shift in wealth management towards more personalized offerings. 

Among the respondents who offer direct indexing, 64% cited ‘tax loss harvesting’, 56% noted ‘tax efficient transitions’, and 40% acknowledged 'reducing concentration risk’ as major benefits of the strategy. Notably, 34% of advisors don’t feel confident talking to clients about direct indexing, despite offering the service.

In fact, the survey shows that 28% of advisors “don’t understand the benefits over other investment options,” while 27% believe the same goals can be reached with a portfolio of ETFs, and 20% see it as equivalent to separately managed accounts. 

In terms of obstacles, 34% said there was a ‘lack of client demand’, and 29% noted a lack of ‘understanding and knowledge of direct indexing’. Other factors cited were an absence of ‘organizational focus’ and ‘cost’.

Clearly, more needs to be done to educate advisors about the opportunity embedded in direct indexing to provide a personalized experience and help clients optimize their tax situations.

Finsum: Direct indexing is becoming increasingly ubiquitous; however, there is still a big gap when it comes to education. Here are some insights from a recent survey on what is preventing some advisors from adopting the strategy.