Understanding Strategic Tax Management™

Placemark’s Strategic Tax Management™ is an optional service for clients wishing to mitigate the impact of taxes on their portfolios. Simply stated, the Strategic Tax Management™ service is a custom portfolio management feature designed to reduce tax exposure, especially short-term gains, with the goal of improving the client's after-tax returns. Placemark considers the client's unique tax circumstance using client-provided federal and state tax rates and then makes custom trade decisions at an individual tax lot level to try to improve the client’s after-tax return, while seeking to maintain and implement the model portfolios and trade recommendations of selected managers and any other customization mandates placed on the account by the client and advisor. Primarily, this is achieved through ongoing loss harvesting, gain/loss matching, and delaying implementation of trade recommendations that would result in short-term gains realization until they get to long-term status, if there are no offsetting short-term losses that can be harvested.


Placemark helps the advisor and client gain control over tax exposure by:
 
Coordinating Taxes Across Managers The selected equity investment managers act as sub-advisors on your clients’ accounts, providing Placemark with their models. Since Placemark has discretionary control over the account, Placemark can provide a customized tax solution at the individual client level.
Gain/Loss Matching Placemark attempts to offset gains and losses within an account throughout the entire calendar year by matching gains with losses, if possible or selling at a loss later to offset previous gains.
Deferring Gains If no losses are available, Placemark can potentially defer the sale of securities that would result in short-term gains until they reach a favorable long-term gain status.
Establishing Tax Mandates Clients can control the realization of gains by setting thresholds, or tax mandates, on the amount of long- or short-term gains realized within the account. In addition, clients may elect to set a mandate on their overall tax bill.

The Process

Placemark operates as the Overlay Portfolio Manager in client accounts and is responsible for implementing model portfolios and making client- and account-specific trade decisions. Placemark receives model portfolios from participating separate account managers (sub-advisors) and then constructs portfolios for each client that utilize the model portfolios, customizing the holdings and trades based on the individual client’s investment policy. For client accounts that use Placemark’s Strategic Tax Management™ service, Placemark weighs the tax impact of transactions against the risk of not complying with the manager’s sell recommendation. If selling a security based on a sub-advisor’s model change will result in a substantial short-term capital gain, Placemark will typically seek to offset that gain with existing realized losses, harvest new short-term losses, or potentially defer the sale until it reaches long-term capital gains status or an offsetting loss can be harvested.