Model Portfolio & SMA Strategists Showcase - Flipbook - Page 68
SMAs & MODEL PORTFOLIOS
conversation, as discussed earlier in this
guide (p. 43).
4. Discussing a portfolio transition
with a concentrated stock
position
Situation: A client holds a large, lowcost-basis position, often employer
stock, that needs to be diversified.
“Your position in [stock] has grown to
represent a real concentration risk in your
overall plan, and I want to talk through
how we address that without creating an
unnecessary tax bill. We have two ways
to approach it. One sets a fixed timeline,
say three to five years, and lets the tax
cost land wherever it lands along the
way. The other sets a fixed annual tax
budget and lets the timeline stretch or
compress based on that.
“Given how concentrated this position
is, I’d lean toward the first approach,
prioritizing getting you diversified over
precisely controlling this year’s tax bill.
But that’s your call to make, and I want
you to understand the trade-off before
we choose.”
Note: Offers the framework discussed
earlier (p. 36) as a real choice, not a
foregone conclusion, while still giving a
professional recommendation.
5. Explaining a boutique or
key-person manager choice
Situation: A client asks why their
advisor selected a smaller, less
recognizable manager over a wellknown name.
“This firm is smaller than some of the
household names you’d recognize, and
that’s actually part of why I chose them
for this specific piece of your portfolio.
They do one thing, [specific discipline],
and they do it with more focus than
a firm running dozens of strategies
at once. I did ask them directly what
happens if their lead manager becomes
unavailable, and I was satisfied with the
answer before recommending them.
I’m comfortable with the trade-off for
this part of your portfolio, though it’s not
where I’d put money you need broad,
all-weather diversification from.”
Note: Surfaces key-person risk
proactively rather than waiting for the
client to discover it, consistent with
the due-diligence standard discussed
earlier (p. 23).
6. Talking to a plan sponsor about
managed accounts
Situation: A retirement plan advisor is
proposing a managed account option
to a plan sponsor currently offering only
target-date funds.
“Your target-date fund is doing its
job for the average participant at
each age, but it can’t account for a
participant’s actual savings rate, outside
assets, or risk tolerance. A managed
account option closes that gap, and
the research on outcomes is real.
Participants using managed accounts
have shown meaningfully higher savings
rates and stronger projected retirement
income, with the largest benefit going to
your youngest participants.
“I want to walk you through what this
would cost relative to your current
lineup, what your fiduciary due-diligence
obligation looks like for adding it, and
how we’d communicate the option to
your participants.”
Note: Leads with the participantoutcome case, not the product pitch,
and names the fiduciary obligation
directly rather than glossing over it.
7. Communicating through market
volatility
Situation: A client calls during a
market downturn, anxious about their
outsourced portfolio.
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“I understand why you’re calling, and I
want you to know your portfolio is being
actively managed through this exact
situation right now. Tax losses are being
harvested to offset gains elsewhere in
your accounts, allocations are being
monitored against the plan we built
together, and none of that requires either
of us to guess at the right trade to make
today. That’s precisely the value of the
structure we set up. It’s designed to
keep working, calmly and systematically,
during moments exactly like this one.”
Note: A calm, specific answer rather
than a defensive one. Reinforces the
value proposition in the moment it
matters most, per the discussion earlier
in this guide (p. 43).
8. Explaining direct indexing and
tax-loss harvesting to a taxsensitive client
Situation: A prospective or existing
client is deciding between a traditional
index fund and a direct-indexed SMA.
“An index fund and a direct-indexed
account can hold essentially the same
securities, but they behave differently at
tax time. Because you own the individual
stocks directly in a direct-indexed
account, we can sell specific positions
at a loss during the year to offset gains
elsewhere in your portfolio, which a fund
can’t do for you individually.
“Early on, this typically offsets a
meaningful share of your capital gains
each year. That benefit tapers over time
as fewer losses remain to harvest, but
it doesn’t disappear, and it includes the
ability to exclude specific companies or
sectors you’d rather not hold.”
Note: Sets an honest expectation
about the harvesting benefit tapering,
rather than implying the early-year
number holds indefinitely, consistent
with the caution on this point
discussed earlier (p. 31).
