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Financial Planning > Tax Planning

J.P. Morgan Rolls Out Tax-Smart SMA Platform for Advisors

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What You Need to Know

  • J.P. Morgan's new digital SMA platform leverages tech from 55ip, a firm it acquired in late 2020.
  • The J.P. Morgan Custom Invest - U.S. Large Cap Equity Strategy is the first SMA offered on the platform.
  • The firm plans to launch a series of active SMAs and additional indexes for clients.

J.P. Morgan Asset Management launched a new Tax-Smart Separately Managed Account Platform that it said Tuesday enables advisors to build customized portfolios and seek better after-tax returns for their clients.

The new SMA platform combines J.P. Morgan’s investment expertise with ActiveTax technology from 55ip, a fintech firm it acquired in late 2020.

The platform will be “one of the first of its kind to offer custom index” SMAs and model portfolios of mutual funds and exchange-traded funds in one digital portal, providing “seamless portfolio customization, tax management and reporting functionality,” according to J.P. Morgan.

The J.P. Morgan Custom Invest – U.S. Large Cap Equity Strategy is the first SMA offered on the platform.

But additional offerings will be added to the platform this year, Jed Laskowitz, global head of Asset Management Solutions at J.P. Morgan Asset Management, told ThinkAdvisor.

The Roadmap

“We have plans to launch a series of both active J.P. Morgan Asset Management separately managed accounts and additional indices for our clients,” Laskowitz said.

“A very small percentage of SMAs have an explicit tax-managed overlay and most don’t have something that’s as automated as what we’ve built that will allow for more frequent tax loss harvesting,” he said.

But he added: “This is just a start and we’re going to be launching a series of products over the course of the next month and year.”

The company’s next launch on the platform will be an “active large-cap core strategy and then we plan on launching a series of additional indices and other active strategies,” he told ThinkAdvisor.

The active large-cap core strategy will come “in the next few months” and the others will follow by the end of this year, he said, adding the “roadmap will extend into 2023.”

J.P. Morgan has been “working with 55ip for a couple of years now around the area that they started their business in, which is model portfolios of mutual funds and ETFs,” he pointed out.

Since the acquisition, “we’ve been working on ways to extend that and we believe that separate accounts was a natural extension to the model portfolio business,” he said.

The J.P. Morgan Custom Invest – U.S. Large Cap Equity Strategy enables clients to create a custom portfolio of 275 to 350 stocks benchmarked to the S&P 500, providing investor-directed customization and enhanced tax management capabilities, the company said.

“The strategy will leverage insights from J.P. Morgan’s index team, which manages over $70 billion in indexed assets, and harnesses J.P. Morgan’s 30 years of experience managing passive index strategies,” the company said.

J.P. Morgan Asset Management now manages $2.7 trillion in client assets, Laskowitz told ThinkAdvisor, noting it manages a little over $140 billion in SMAs.

Meanwhile, since J.P. Morgan acquired 55ip, the fintech firm’s assets have “more than tripled to over $6 billion,” he said.

J.P. Morgan has been seeing a lot of interest from advisors for increased tax management and “I think one of the drivers” of that demand has been that, as the returns investors see have been “coming down, a greater percentage” of their total returns will “come from tax management and active management,” he explained. “And those are areas where we’re really focused on helping advisors.”

More Platform Details

A small number of RIAs have been able to access the platform as part of a “soft launch” that’s been “running for a couple of months now,” and “the feedback that we have received initially has been very positive,” Laskowitz said. He declined to say how many advisors were included in the soft launch.

The platform’s official launch on Tuesday makes it available to the “broader market” of advisors, he noted.

Pre-acquisition, 55ip had been working to “democratize access to personalization and tax management, and the primary focus of the business has been around model portfolios to date,” 55ip CEO Paul Gamble told ThinkAdvisor.

But he said: “It’s always been our plan to extend that into SMAs as well.”

The company has created a “very intuitive, advisor-led experience” that offers “real-time customization and tax management,” along with “automated trade generation and execution to allow for advisors to do customization and tax management at scale but without having to take up more and more of their time,” Gamble said.

“We built deep integration with all the major RIA custodians so any custodians that we’re connected with today will have access to the strategy,” he continued.

Overall, the new digital platform “transforms what is often a complex, paper-based task into a digital, on-demand experience” that allows advisors to create custom SMAs in just a few steps, according to J.P. Morgan.

Advisors, J.P. Morgan said, can use the platform to:

  • Create customized investments: Using the J.P. Morgan Custom Invest SMA, advisors can create flexible, customized portfolios, incorporating clients’ investment views, preferences and tax considerations.
  • Create custom, tax-smart transitions: Advisors can deliver tax transition proposals to “ease the tax burden over time or limited to a specific tax budget.”
  • Automate systematic tax management: Potential tax alpha can be generated through ongoing, systematic tax-loss harvesting with constant portfolio manager oversight.

(Image: Shutterstock)