Wealth Management
A feature of separately managed accounts (SMAs) is that investors directly own securities, compared to an ETF or mutual fund. This makes them more tax-efficient, as investors have more opportunities to harvest tax losses and capitalize on volatility. In contrast, mutual funds, or ETFs, offer much more limited opportunities.
With SMAs, tax losses can be harvested even in years with positive returns, as securities that are down can be sold. These losses can be used to offset gains and reduce an investor's overall tax bill. Positions can be rebought after 30 days to avoid wash sale restrictions, or stocks with similar factor scores can be purchased instead.
Unlike mutual funds, SMAs are not subject to embedded capital gains. Embedded capital gains mean that an owner of a mutual fund is liable for capital gains depending on a position’s cost basis. This means that an investor in a mutual fund could be liable for capital gains, even if they have a loss on the position.
In stressful markets, mutual funds can see distributions of capital gains if there is a surge of redemptions, adding to the risk of a capital gains tax bill in concert with a losing position. With SMAs, this risk is nonexistent since securities are directly purchased. Instead, there is more flexibility to pursue the most tax-efficient strategy.
Finsum: Separately managed accounts offer certain tax advantages to investors over investing in ETFs or mutual funds. Over time, the boost to after-tax returns can be quite significant, especially for high-net-worth investors.
Recent fluctuations in the market have fueled investors' desire for strategies that mitigate risk. Defined-outcome exchange-traded funds, also known as "buffer ETFs," have emerged as a solution, aiming to protect investors from losses on a designated index.
The proliferation of these funds has been remarkable, with assets ballooning to over $22 billion from under $200 million in 2018, with 169 offerings available presently. These ETFs typically offer index returns while mitigating downside risk, achieved by sacrificing a portion of potential upside gains.
By employing various options structures, such as funds with upside caps or partial upside exposure, investors can tailor their risk-reward profiles according to their preferences. Despite operational nuances and fees, most of these ETFs have demonstrated their ability to shield investors from market downturns while offering competitive returns.
Finsum: These last five years have been critical examples of why many investors need buffer ETFs to both capture gains and hedge losses.
Monday heralded the unveiling of a new investment suite by the firm, iCapital Model Portfolios, aimed at elevating advisors' asset-allocation strategies to a new echelon of diversification.
Lawrence Calcano, iCapital's Chairman and CEO, voiced enthusiasm about the debut, highlighting its innovation in integrating alternative investments into client portfolios. Among the offerings stands the iCapital Multi-Asset Portfolio (iMAP), strategically engineered to blend income and growth through a selection of top-tier private equity, private credit, and real asset funds.
These portfolios, actively curated by iCapital's research team, aim to deliver total returns with diminished volatility compared to traditional assets, assuaging client concerns during market fluctuations. With aspirations to broaden the lineup and accessibility to over 100,000 financial advisors, iCapital aims to perpetuate the simplification and enrichment of the investment experience for advisors and clients alike.
Finsum: Model that can capture uncorrelated returns a necessary niche in the evolving landscape.
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As the 2024 golf season kicks into gear and the warm weather sets in, financial advisors and businesses might want to consider planning for fall golf outings now. Summer and Fall offer ideal conditions with well-maintained courses, pleasant weather, and peak performance after a summer of play.
The season also presents excellent deals at golf destinations nationwide or even abroad for those seeking Caribbean getaways or links golf in the UK or Ireland before their season ends.
For advisors and businesses opting to stay stateside, prime golf destinations like Myrtle Beach, Scottsdale, Orlando, Las Vegas, and Alabama's Robert Trent Jones Trail offer diverse experiences to cater to various preferences and budgets. With fall golf trip bookings already on the rise, early planning ensures securing preferred travel dates and tee times for a successful outing.
Finsum: Lifestyle and activities can deepen relationships for advisors on both sides of their business, structuring more than legs but also business potential.
When transitioning between custodians, advisors need to be on the lookout for options that could improve their practice. One of the first things to look out for is discussions around a pricing strategy rather than resorting to fixed rates marking the inception of our the plan. RIAs should look for custodians that understand their unique business before proposing a suitable pricing structure.
A good custodian will seek insights into operations before tailoring pricing. Personalized solutions will consider a variety of factors that lead to custom solutions such as growth stage and client dynamics. By embracing flexibility and collaboration, RIAs can feel empowered when navigating custodial transitions effectively, ensuring a prosperous future for their businesses.
Look for custodians that are open to this flexibility when it comes to this sort of pricing structure and make sure they understand your business when changing providers.
Finsum: Clients are seeking flexibility and understanding with their advisors and RIAs should look for a similar approach when it comes to custodians.
Direct indexing, via separately managed accounts, is rapidly gaining traction as an investment strategy in the United States, particularly beneficial for those with significant holdings in company stocks, and is already proving to be major movement among prominent investment firms in 2024.
This approach allows investors to replicate index performance while retaining control over individual securities, utilizing automated programs for systematic trading. Once limited to the ultra-wealthy, recent technological advancements have made direct indexing accessible to investors of varying levels, with assets projected to reach $2 trillion by 2024.
Direct indexing offers customization, diversification, and risk mitigation, enabling investors to tailor portfolios to their preferences and goals while reducing reliance on specific stocks. With its tax efficiency and customization benefits, it’s easy to see why it’s so appealing in an SMA format and companies like Goldman Sachs are already making huge strides in this subsector.
Finsum: The hybridization of products has been one of the defining features of the 2020’s and integrating vehicles like SMAs with direct indexing will continue the rest of the decade.