Model Portfolio & SMA Strategists Showcase - Flipbook - Page 53
SMAs & MODEL PORTFOLIOS
through bank trust departments,
private banks, or long-standing UHNWfocused practices, and typically carries
the highest account minimums of any
structure in this guide.
Capacity Constraint: The asset level at
which continued inflows into a strategy
begin to work against its own execution
and performance, most relevant for
concentrated, high-conviction, lowturnover strategies with a limited number
of holdings.
Centralized Portfolio Manager:
Industry term for the third-party
investment advisor or manager who
implements and oversees a separately
managed account strategy on a client’s
behalf, as distinct from the SMA program
sponsor. Also used to describe a firm
that aggregates multiple managers’
model updates into a single, centrally
executed account (see Custom Portfolio
Management).
Charitable Remainder Trust: A trust
structure that pays income to the donor
or another named beneficiary for a set
period or for life, with the remaining
assets passing to charity afterward.
Useful for divesting a concentrated
position while generating lifetime income
and supporting a charitable cause in a
single transaction.
Composite (Performance): A
theoretical or asset-weighted average
return series meant to represent how
an SMA or model strategy performed
across a representative set of accounts,
since no single official “fund NAV” exists
for a strategy implemented separately
across many individual accounts.
Cost-Basis Step-Up: The adjustment
of a security’s cost basis to its fair
market value on the date of an owner’s
death, generally eliminating capital
gains tax on appreciation that occurred
during the original owner’s lifetime if the
position is sold by the heir. Changes
the value calculus of lifetime tax-loss
harvesting for clients planning to hold
appreciated positions until death.
Custom Model Portfolio: An
off-the-shelf model modified to
accommodate an advisor’s or client’s
specific preferences, through fund
substitutions, additional asset classes,
lineup consolidation, or adjusted trading
frequency.
Custom Portfolio Management: A
commercial overlay service in which an
advisor selects multiple third-party asset
managers, each of whom feeds model
updates to a central manager rather than
trading a client’s account directly, and the
central manager aggregates everything
into a single account, coordinating
rebalancing, tax-lot management,
and risk control across all contributing
managers at once.
Cycle of Investor Emotions: A widely
used investor-education framework
mapping investor sentiment against
market cycles, including optimism,
excitement, and euphoria building
toward a market top, followed by
anxiety, denial, and panic near a
bottom, before sentiment turns
back toward hope and relief. Used
by advisors to normalize a client’s
emotional reaction during volatility.
Direct Indexing: An investment
approach in which an investor directly
owns the individual securities that make
up an index, rather than owning shares
of a fund that holds those securities,
enabling security-level tax management
and customization.
Distributed Overlay: An overlay
structure in which a relationship manager
or trust officer sets individualized rules
for individual client accounts, offering
more granular control than a centralized
approach.
a specific period, typically expressed as a
percentage.
Factor Investing / Smart Beta: A
rules-based investment approach
that systematically tilts a portfolio
toward specific, empirically studied
characteristics, such as value, quality,
momentum, or low volatility, rather than
weighting by market capitalization (core)
or making discretionary asset-class shifts
(tactical).
GIPS® (Global Investment
Performance Standards): A
standardized, independently verifiable
methodology for calculating and
presenting investment performance.
GIPS compliance confirms that
performance reporting follows this
standard. It is not itself a measure of
investment quality.
In-Kind Gifting: Donating an
appreciated security directly out of a
client’s account, rather than selling it
and gifting cash, allowing the donor
to avoid realizing the capital gain while
the recipient receives the security at its
existing cost basis. Enabled by direct
security ownership in an SMA or directindexed account, and not possible with a
pooled fund.
J-Curve: The tendency for privatemarkets investments, particularly private
equity, to show flat or negative returns
in early years as capital is deployed
and fees are charged, before returns
potentially accelerate in later years.
Distinguishing a normal J-curve pattern
from genuine underperformance requires
knowing a private allocation’s actual
vintage.
Donor-Advised Fund: A charitable
account that provides an immediate
tax deduction upon funding, letting the
donor recommend grants to specific
charities over time. A common, simple
destination for gifting a direct-indexed
account’s most appreciated positions.
Key-Person Risk: The risk that a
strategy’s investment process and
performance are concentrated in one
or two individuals, such that their
departure, unavailability, or divided
attention could materially change the
strategy. Particularly relevant for boutique
managers without a separately resourced
chief investment officer role.
Drawdown: The peak-to-trough decline
in an investment or portfolio’s value over
Long/Short Tax-Loss Harvesting: An
advanced tax-management technique
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