More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
Envestnet|PMC, the portfolio consulting group of Envestnet (ENV), has launched seven Quantitative Portfolios, separately managed accounts that combine the beta of index ETFs with tax optimization provided by Envestnet’s Tamarac group and SMA customization for individual clients. The seven portfolios include five domestic indexes built by PMC portfolio managers, and two international portfolios; each portfolio has as few as 60 individual holdings chosen by PMC portfolio managers.
In an interview Thursday, Envestnet Chairman and CEO Jud Bergman said the intent behind the portfolios was to “bring the promise of SMAs to fruition,” allowing advisors with high-net-worth clients to “get the benefits of our scaled SMA infrastructure which allows us to do these very cost effectively,” in SMA accounts of as little as $100,000. Then there are the added benefits of “using a proven tax and trade optimizer with the Tamarac software.” For those HNW clients, said Bergman, the portfolios provide “the ability to create customized alpha around concentrated positions that you can’t do with an ETF strategy.”
The tax benefits of the portfolios are crucial, Bergman said. While ETFs themselves are tax-friendly vehicles because they tend not to throw off capital gains, “because you don’t own the basis of the underlying security,” ETFs don’t allow tax-loss harvesting. “We’ve been able to add 25 to 30 basis points a year with our tax managed products,” Bergman said. “If we can do this” in the SMAs, he said, “they more than pay for themselves, enhanced by the Tamarac software.”
PMC portfolio managers manage the indexes and do the “rebalancing as necessary, trade in and out of the names as research tracks the indexes, but optionally also provide the tax management,” Bergman said. The seven portfolios are available only on the Envestnet platform for the moment, though Bergman said “we might expand on the availability in other channels down the line.”
While Bergman said Envestnet “saw an opportunity to create a market access vehicle in a SMA chassis to allow optimization for tax-a potential for a new category,” he also placed the announcement squarely within Envestnet’s overall strategy.
“We’re trying to empower advisors to offer better solutions to their HNW clients. We’re believers in transparency; we like cost-effective fiduciary options, so it fits pretty squarely into our strategy.” The new portfolios, he argues, also help advisors to differentiate themselves, and answer the question from clients as to “why can’t I just buy these ETFs myself?”