A new breed of managed account solutions called the model portfolio, which is the next generation of separately managed accounts, is highlighting their tax benefits, The Wall Street Journal reports.
In the first generation of SMAs, financial advisers requested tax-related trades in less than 20%, but in this new iteration, that’s 37%.
The process of using SMAs for tax-related trades have been complicated because it means the broker or a third-party firm must track the tax liability for each part of a client’s investment portfolio. But with model portfolios, the SMA asset managers hand over their trading instructions to a brokerage or third-party overlay manager who handles all the trades. In theory, this is supposed to make tax-related trades easier to handle since they are centralized in a unified managed account.
“It’s a problem with traditional SMAs that no one uses the tax-management features,” said Jean Sullivan, a managing principal of Dover Financial Research and author of a report on model portfolios for the Money Management Institute.
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