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Tax-Loss Harvesting During Market Turmoil: Who Did It, Who Didn’t

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A report released Monday by Backend Benchmarking finds that although many robo-advisors describe their tax-loss harvesting services similarly, meaningful differences exist among them.

Robo-advisor tax-loss harvesting is the automated sale of a client portfolio’s securities in order to incur losses to offset any capital gains or taxable income.

Backend Benchmarking’s report was based on a specific set of accounts its researchers tracked that were opened and funded at the same time and received monthly deposits.

They found that several robos stood out in executing their TLH strategies and providing some tax alpha to clients during the first half of this year.

TD Ameritrade turned over its portfolio 127% during the six-month period. Schwab and Wealthfront were close behind, having turned over their portfolios 124% and 110%, respectively.

Among other TLH providers, Axos Invest exhibited a turnover rate of 69%, Morgan Stanley 51% and Wealthsimple 37%. Betterment trailed with a more modest turnover rate of 25% “but was still very active in harvesting losses,” the report said.

Less impressive, the report said, were TLH accounts held at SigFig, Citizens Bank and UBS, which showed little or no activity during the first half.

It noted that because Citizens Bank and UBS leverage SigFig’s technology to power their robo-advisors, their results were clustered together.

SigFig and Citizens Bank demonstrated zero TLH trades in spite of the market selloff in the first quarter, the report said. Similarly, researchers identified only one THL trade at UBS.

“We saw a fair amount of tax loss harvesting in accounts where it could be done effectively in the first half of the year,” a spokesman at SigFig said in an email message.

“But factors such as size of losses within holdings and wash sale avoidance dictate its use. The algorithm responds to different market conditions and may prioritize rebalancing to manage a portfolio’s risk exposure over capturing small tax losses.”

The spokesman noted that the platform’s older accounts have enjoyed a long bull run and have lots of capital gains. “Those accounts may not have experienced losses (even in the dramatic March downturn), so they may not have fallen enough to trigger any losses to harvest.”

— Check out Fidelity Loses Top Slot: Q2 Robo Report on ThinkAdvisor.


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