Model Portfolio & SMA Strategists Showcase - Flipbook - Page 50
SMAs & MODEL PORTFOLIOS
index fund, so the ongoing tax-loss
harvesting machinery is already running
once the transition completes, rather
than starting a new tax-management
relationship from scratch afterward.
For the existing diversified account,
a core equity direct-indexed strategy
paired with a municipal bond ladder
(she’s in a high-tax state) makes more
sense than a blended multi-asset
model, since she has enough assets
and enough runway to benefit from
the sleeve-level tax coordination a
UMA provides across both pieces. The
due-diligence process here follows the
four-leg framework discussed earlier in
full: people, process, parent, and fees,
with particular attention to the municipal
manager’s institutional trading access,
given how much of the fixed-income
sleeve’s value depends on execution
quality in an over-the-counter market.
The tax picture, worked through.
Rather than treating the transition and
the ongoing account as separate tax
stories, a household-level view catches
something a purely account-by-account
plan would miss. The direct-indexed
core account, once established,
generates harvestable losses in ordinary
market volatility that can be used to
offset some of the gains realized during
the concentrated-stock transition itself.
That means the two work streams
should be coordinated on the same tax
calendar rather than run independently,
even though they’re structurally
separate accounts.
The client conversation. The framing
that lands here isn’t “we’re fixing a
mistake.” It’s “we’re converting a
concentration risk into a diversified, taxefficient foundation for the retirement
income you’re five years from needing.”
The fourth script in Appendix B applies
almost verbatim: naming the tradeoff between immediate diversification
and tax cost, then recommending the
Timeline approach specifically because
of her stated retirement horizon and risk
tolerance, not as a default.
Case Study 2: The
Multigenerational Family
The situation. A family with $18 million
across three generations, grandparents
in their late 70s, their adult children in
their 40s and 50s, and a handful of
grandchildren with UTMA accounts,
banked at a large private bank,
dissatisfied with generic quarterly
statements and a sense that no one has
a full picture of the family’s combined
position. The family has strong valuesbased investing preferences, specifically
around fossil fuels and firearms
manufacturers, and a pending business
sale that will bring a significant taxable
event within 18 months.
Segmentation. This is a bespoke
discretionary management situation
from the start, not a model-portfolio
one. The account sizes, the
multigenerational complexity, and the
family’s expectation of a dedicated
relationship all point toward the fourth
path discussed earlier (p. 8) rather than
SMA, UMA, or model-only delivery.
Bank- or trust-affiliated management,
discussed earlier (p. 11), is a natural
fit here precisely because the family’s
existing private-banking relationship
already provides custody and balancesheet advantages that would otherwise
need to be built from scratch.
Structure and strategy. Rather than
a single account, the right structure is
a coordinated set of accounts under a
Unified Managed Household framework.
The grandparents’ accounts, each
adult child’s account, and the UTMA
accounts are all managed with visibility
into the whole family’s combined tax
and allocation picture, even though
they remain legally and operationally
separate accounts. This is where the
household-level tax optimization logic
discussed earlier earns its keep (p. 35).
When one generation’s account
needs rebalancing, the system (or
the dedicated portfolio manager, in a
50
bespoke relationship) can look across
the whole family before deciding
whether to harvest a loss, use a taxadvantaged account as a rebalancing
tool, or realize a gain as a last resort.
The values-based screening gets
built directly into each account’s
direct-indexed core, using the same
questionnaire-driven exclusion
technology described earlier (p. 32).
Fossil fuel and firearms exclusions
are applied consistently across every
generation’s account rather than
negotiated separately each time a new
family member’s account is onboarded.
The pending business sale. This is
where the transition-management-asspecialist-service point discussed earlier
becomes directly relevant rather than
theoretical (p. 38). A transition of this
size, timed around an irregular liquidity
event not a routine rebalancing, is a
scenario where bringing in dedicated
transition-management expertise from a
specialist division, rather than handling it
inside the standard relationship, is worth
the additional coordination. In-kind
gifting also enters the conversation.
This is a natural moment to discuss
gifting appreciated shares to the family’s
donor-advised fund ahead of the sale,
avoiding realization of that gain entirely
rather than simply managing around it.
The client conversation. With a family
this size, the conversation isn’t a single
script. It’s coordinated messaging to
multiple family members with different
priorities. The grandparents care
most about the values screening and
multigenerational coordination. The
adult children care most about the tax
efficiency of the coming business sale.
The family as a whole responds well to
the quantified value-of-advisor framing
discussed earlier (p. 42).
