Tag Archives: ETFs

Around the RIA Web with Adhesion, June 2016

A few great reads from the month of June, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Wealth Management writes that the SEC proposal on succession planning is officially out, requiring RIAs to explicitly adopt and implement business continuity and transition plans. For those who have yet to adopt formal policies, the cost of implementation may be substantial and accelerate the trend towards multi-advisor platforms.

The clear trend in ETFs is towards lower fees, but massive amounts of money still reside in higher-fee counterparts. As shown by ETF.com, the march will continue at its own pace with RIAs and ETF strategists the typical early adopters of lower-fee products.

EVERYONE is in the market to buy existing advisory firms. Michael Kitces shares some ideas on (too?) popular ways to find opportunities, as well some less-traveled paths and key considerations in an acquisition.

Common theme for successful outsourcing…find a strategic partner not just a product vendor. How two advisors leverage healthy relationships, via Financial Planning magazine.

The standard 60/40 portfolio has been a tough benchmark in recent years, but basic math says that will be a tough act to follow. Illustrations from EconomPic and Charles Sizemore reveal a need to blend in some alternatives going forward.

Happy clients generally means happy advisors. Julie Littlechild suggests some steps for a manageable 7 week bootcamp to deeper client engagement.

Servicing clients of all sizes is a constant battle between the hearts and minds of advisors. There is no doubt that the DOL rule will force firms to reconsider how and whether they service smaller accounts. Our clients have been on this issue long before the DOL ruling, prompting ETF Select to be included as a new investment option for Adhesion client firms.

Retail investors are often mocked as “dumb money”, but behavioral biases are just as likely to impact those human beings known as advisors. Abnormal Returns shares thoughts on how hindsight bias can creep into all of us, and how the habit of writing can be an outlet for clear planning. Michael Batnick does his part to write about hindsight bias as well, and how some market truths are merely traps.

Reverse churning is a serious issue, and Blaine Aikin thinks the new DOL fiduciary rule puts more bite into the ability for regulators to demand more documentation from firms transitioning IRAs.

As Ben Carlson shares, what a firm DOES NOT do can reveal just as much as what they do. This negative knowledge can act as a worthy qualitative filter in assessing investment managers. Pair that with this riff from Tom Brakke on man vs. machines and you’re ahead of most highly-paid investment committees.

In this world of more sophisticated number crunching, let’s not forget that market “risk” is not truly quantifiable. It is not those with the best formulas who deliver the best plans, but Phil Edwards of Mercer suggests an open and imaginative mind towards the uncertainty of the future.

Client acquisition is a real but hard-to-quantify cost for advisors. Michael Kitces had two comprehensive articles on low-cost and high-cost ways to grow one’s client base.

The active vs. passive debate is never-ending but thoughtful advisors can look with an objective lens at the merits of both sides. As Nir Kaissar shows, the S&P 500 as it currently stands is currently structured as a bet on high valuation-stocks.

There is constant competition for the attention of affluent investors. Are there aspects of your practice that are highly unique to your firm? Matt Oechsli shares 13 true differentiators for financial advisors.

No such thing as a perfect portfolio but a core/satellite approach can provide an ideal mix of cost, reward/risk, and client behavior. Deborah Fox shares some thoughts on logical blends.

Interesting insights from the Schwab Independent Advisor Outlook Study into the way different RIA firms see their business changing over the next few years.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Investors Poised to Take Tax Hits as Mutual Funds and ETFs see Big Gains

Taxes are definitely on your clients’ radar this year.  Both mutual funds and ETFs have seen big gains and sizable distributions this year.  As you are well aware, the bad news is that the ongoing bull market has greatly diminished the losses that managers can normally use to offset their clients’ gains; especially since the big losses of 2008-2009 have already been used to offset gains made over the past few years.  The Wall Street Journal addressed this issue in a recent article: “Minimizing the Cap-Gains Tax Hit.”  The stakes have been raised for your most important clients, and now is the time for advisors to step up and add value through creating Tax Alpha.

Mark Wilson, chief investment officer at The Tarbox Group Inc. of Newport Beach, has tracked capital-gains distribution information for the funds he uses in his clients’ portfolios for 17 years.  This year he has expanded his search to mutual funds across the board (Check out his no-charge website for tracking gains at capgainsvalet.com). He has gathered distribution information on 153 mutual funds so far, and has found that the estimated payouts are “surprisingly high.”  53 of these funds will pay out distributions of 20% or more.  The result is that advisors are looking for other ways to protect their clients from potential tax hits other than offsetting gains.

One approach advisors can use is to delay buying into a fund if it’s due for a large payout.  For example, this year Mr. Wilson delayed buying shares of Artisan Mid-Cap fund so his clients would avoid receiving a November 19 payout worth about 10% of the fund’s net asset value.  In other words, Wilson’s proactive tax management strategy actually led to an increase in the value of his clients’ portfolios.  This bull market has created opportunities for advisors to generate tax alpha by deferring gains and reducing clients’ overall tax liability.

Another proactive tax management strategy advisors can utilize is weighing the tax consequences of a big distribution versus the gain a client would receive from making a sale in a taxable account.  If a fund that is already underperforming announces a distribution, this will often tip the scales in favor of making a sale.  Timothy Parker, a partner at Regency Wealth Management in Ramsey, NJ, pointed out: “The last thing investors in taxable accounts need on top of a fund that hasn’t appreciated in the last year is a tax bill.”

Advisors can reduce clients’ tax liability and add excess portfolio value by employing an active and proactive tax management strategy.  Or as the WSJ puts it, “Efforts to minimize capital-gains taxes usually begin long before estimated distributions become an issue.”  Scott Keller, a principal at Truepoint Wealth Counsel of Cincinnati, employs a tax strategy that includes buying into funds with relatively low turnover and using rebalancing software that harvests losses when an asset class underperforms.

In today’s market even ETFs are vulnerable to tax issues.   According to Dan Moisand, principal at Moisand Fitzgerald Tamayo of Melbourne, FL, though mainstream ETFs are generally highly tax efficient, in past years the distributions on some leveraged or non-mainstream ETFs have had some abnormal gains.  The Vanguard Group has 9 U.S. bond ETFs that are expected to have modest payouts due to the historically low interest rates.

With a 5-year bull market making it yet again tricky to navigate taxes, it’s more important than ever for advisors to implement an active tax management approach and become aware of opportunities to generate tax alpha for clients.  In this climate, many opportunities exist to shield clients from their overall tax liability by opportunistically building up losses to counterbalance gains, limiting additional gains or even deferring gains entirely.

Advisors on the Adhesion Wealth platform deliver more “tax alpha” through a sophisticated tax aware management process. Learn more about Adhesion’s Tax Alpha from our webinar.

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