Model Portfolio & SMA Strategists Showcase - Flipbook - Page 52
SMAs & MODEL PORTFOLIOS
core equity sleeve, a municipal bond
ladder sized to cover a meaningful
share of the annual income need, and a
modest options-income overlay sleeve
for additional yield gives the tax-smart
withdrawal technology multiple sleeves
to draw from.
That means the $180,000 annual
distribution can be sourced from
whichever combination of positions
minimizes the tax hit each year, rather
than mechanically drawing down one
bucket first.
Given she’s new to sophisticated
advice entirely, this is also a good
candidate for a boutique, singlestrategy manager on the equity sleeve
specifically. But the key-person duediligence question discussed earlier
matters more here than usual (p. 23),
precisely because she has no prior
context for evaluating whether a smaller
firm’s concentration risk is reasonable.
Surfacing that question proactively,
using the fifth script’s language from
Appendix B, does real work in building
trust with a client who’s never had this
conversation before.
The plan-sponsor obligation.
Separately, her outgoing fiduciary duty
to the dozen departing employees
deserves the retirement-plans treatment
on its own terms (p. 39): evaluating
whether the plan’s existing targetdate default is adequate, whether
a managed account option would
meaningfully improve outcomes for a
small population that skews toward less
financially sophisticated participants,
and documenting the due-diligence
process specifically because winding
down a fiduciary role still carries
fiduciary standards until the moment it’s
actually transferred. This is a short-term
engagement relative to her personal
relationship, but not a lesser one.
The client conversation. Two
separate conversations, deliberately
not blended into one meeting. The
personal-asset conversation leans on
the value-of-advisor framing discussed
earlier (p. 42), since she’s paying real
fees for the first time and deserves
to understand specifically what she’s
getting for them: behavioral coaching
she’s never had access to before,
tax-smart income management, and
coordination she previously handled
herself as a business owner. The plansponsor conversation is shorter, more
procedural, and closes out cleanly
rather than becoming an ongoing
relationship, which is itself a form of
good service. Not every engagement
needs to become permanent to be
done well.
What these four scenarios have in
common. None of them start with a
structure decision. Each starts with
a genuine, specific understanding of
what the client actually needs, and the
structure (SMA, UMA, model-only, or
bespoke) falls out of that understanding
rather than being chosen first and
justified afterward. That’s the whole
argument of this guide compressed into
four examples.
The frameworks in this guide are only
as good as the specificity of the client
situation they’re applied to, and the
advisor’s judgment about which pieces
matter for a given client is the one part
of this entire outsourced-management
story that was never actually available
for outsourcing in the first place.
Glossary
3(21) / 3(38) Fiduciary: The two
common ERISA advisor relationship
structures for retirement plans. A 3(21)
advisor makes recommendations while
the plan sponsor retains final decision
authority and liability. A 3(38) advisor
takes on full discretionary authority and
the associated fiduciary liability directly.
83(b) Election: A tax election, filed
within a strict window after receiving
restricted stock or certain option
grants, to pay tax on the shares’ value
immediately rather than as they vest, in
exchange for capital-gains treatment on
future appreciation rather than ordinary
income treatment. Must be made years
before a resulting concentrated position
typically becomes a planning concern.
Account Aggregation: Methodology
that compiles information from different
investment and bank accounts into a
single client view.
Active Overlay: An overlay approach in
which a manager sends model-based
trading signals to a centralized overlay
manager, who then executes trades
at the account level with full discretion,
typically producing more complete tax
optimization than a passive overlay.
Alpha: Excess return generated by a
strategy relative to its benchmark, after
adjusting for the risk taken to achieve it.
Positive alpha indicates outperformance
on a risk-adjusted basis. Negative alpha
indicates underperformance.
Asset Allocation: The strategic
distribution of a portfolio across major
asset classes (equities, fixed income, cash
and alternatives), calibrated to a client’s
goals, risk tolerance, time horizon.
Bespoke Discretionary Management:
A delivery mode, distinct from modelonly, SMA, and UMA structures, in which
a dedicated portfolio manager builds a
fully custom portfolio for a single client
from inception, often benchmarked to
a “personal benchmark” rather than
a standard index. Typically accessed
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