#236 - Direct Indexing Strategies with Greg Kanarian, JD, CFA

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Our guest today is my friend and former

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colleague, Greg Canarian.

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Greg is an investment strategist at Natixis Investment

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Managers, representing the firm's direct indexing strategies.

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Greg joins us to talk about all things

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direct indexing, what it is, common benefits and

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tax advantages of direct indexing, which clients it

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may or may not be appropriate for, what

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personalization, customization options are available, and more.

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If you've been curious about direct indexing, but

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haven't taken time to learn much about it,

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this episode is for you.

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What's it time for?

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It's time for a Wicked Pisa podcast.

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Wicked Pisa podcast.

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Wicked Pisa podcast.

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It's time for a Wicked Pisa podcast.

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Welcome to the Wicked Pisa podcast, a production

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of the Financial Planning Association of New England,

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intended for financial planning advisors.

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Hello, and welcome to another episode of the

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Wicked Pisa podcast.

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I'm your host, Kathleen Keneally, founder of Catapult

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Financial Planning and current board member and director

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of programming for the FPA of New England.

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Co-hosting with me today is FPA New

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England past president and current head of the

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AMR team at Wealth Enhancement Group, Chris Boyd.

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Our guest today is my friend and former

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colleague, Greg Canarian.

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Greg is an investment strategist at Natixis Investment

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Managers, representing the firm's direct indexing strategies.

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In his role at Natixis, Greg collaborates closely

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with the direct indexing portfolio management team and

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client relationship managers, acting as an expert on

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all investment solutions that incorporate direct indexing.

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In addition to promoting the benefits of direct

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indexing with clients and prospects, Greg also researches

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and writes about relevant investment, tax, and financial

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planning topics.

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Before joining the Natixis Investment Strategies Group in

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2024, Greg served as a portfolio consultant at

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Natixis for 12 years.

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He was also a portfolio consultant with Deutsche

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Bank and before that was a financial planning

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associate with Pillar Financial Advisors.

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Greg has a BS in finance from Babson

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College and a JD from Suffolk University Law

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School.

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He currently serves on the investment committees for

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Boston's Armenian Heritage Park, St. Stephen's Armenian Apostolic

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Church, and Camp Hiaston.

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He is a CFA charterholder and is FINRA

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Series 7 and 66 licensed.

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Greg, welcome to the Wicked PISA podcast.

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We're really excited to have you here.

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Thank you guys for inviting me.

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I usually start off by asking our guests

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to tell us about themselves and their professional

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journeys, not only for our listeners' sake, but

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for my own, but this is a special

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circumstance because in the interest of full disclosure

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to our listeners, I've known you since almost

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the beginning of both of our professional careers.

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Greg and I are both graduates of Babson

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College and we met as financial planning associates

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at Pillar Financial Advisors, but you started there

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about two years before I did, so you've

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got a couple of years on me, but

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I'm totally going to date ourselves and that

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was more than 20 years ago at this

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point.

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Did you ever think that either one of

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our 20-something-year-old selves would believe

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it if we were like, we're going to

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talk on this podcast called the Wicked PISA

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podcast in 20-something years?

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I don't even think podcasts existed back then.

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I don't think they did.

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I mean, I remember one of my first

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projects at Pillar was evaluating 529 plans that

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had just come out and we just were

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looking for data and to be able to

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evaluate different states' plans to offer those to

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clients.

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And yeah, there's so many things that have

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evolved in our industry since then, but yeah,

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it's been an interesting last 20 years.

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Yeah, it's been quite the ride.

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I know you became the expert on 529

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plans and I sort of became the office

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expert on Roth conversions, and I think we

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both benefited from having bosses that were really

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good at getting us really involved and in

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the weeds about topics and giving us room

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to run.

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For our listeners that haven't known you for

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quite as long as I've known you, why

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don't you tell us a little bit about

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yourself and how you found yourself as the

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direct indexing expert for Natixis?

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Sure, yeah.

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So I started my career with Pillar.

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They gave me a lot of opportunity to

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write the two principles of the firm.

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One was a CPA, one was an attorney

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by training.

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And so we had exposure to some really

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high net worth, sophisticated clients.

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So I was learning from all my mentors

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at Pillar at the time.

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And one of the things that I decided

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to do was pursue my JD.

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And so I started doing that at night.

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I moved over to Deutsche Bank where they

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had a very generous tuition reimbursement program.

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So I pretty much had that all paid

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by Deutsche Bank doing it at night.

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So in a similar role, I was helping

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financial advisors build asset allocations for their clients

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at Deutsche Bank doing financial planning.

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I finished my JD there.

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I also was pursuing the CFA at the

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same time.

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So I had this kind of dual study

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sessions going on for a number of years.

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Clearly an academic slouch here.

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Yeah.

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Well, you know what?

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I like to say I'm good at taking

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exams during golf season.

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So my handicap certainly has suffered over the

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years because of that.

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But yeah, I had a good experience at

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Deutsche Bank and then have been at Natixis

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ever since.

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Joined here in 2011 as really a consultant

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doing asset allocation, investment work for financial advisors

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who oftentimes are more focused on their clients

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and maybe put together a bunch of mutual

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funds, but don't really know how everything interacts

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together.

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So we provide a consulting service to them.

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And then in the last year, I transitioned

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into this role for direct indexing, which very

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much kind of aligns with my personal beliefs

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and index based investing.

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And so also the components of direct indexing,

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which is tax lost harvesting and kind of

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using the tax code to your benefit really

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kind of plays to my interest in the

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legal aspects and structuring of portfolios, making sure

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clients are getting the most tax efficient portfolio

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that they can.

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Tell us a little bit more about, from

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a high level, what direct indexing is.

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How do you describe it?

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How would you define it?

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We hear about index funds a lot, and

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that has become very second nature, at least

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in the consumer world.

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And I'm sure some of our listeners have

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heard about direct indexing.

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But for those who haven't, tell us more

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about what that actually involves and how would

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you describe it?

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Sure.

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So I say that direct indexing is an

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equity strategy designed to match the performance of

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an index on a pre-tax basis, but

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outperform it on an after-tax basis.

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And that outperformance on an after-tax basis

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comes through several different tax management techniques.

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Number one is tax lost harvesting.

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Gain deferral is number two.

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Avoiding wash sales, number three.

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And earning qualified dividends, number four.

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Those are the types of things that I

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talk about with advisors and clients.

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And if we just kind of break the

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words out, direct means clients own individual stocks

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in their own account.

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And that's important because when there's an opportunity

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to harvest a loss, the client gets that

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loss.

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That loss is theirs to use on their

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own tax return, as opposed to if they

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owned an actively managed mutual fund and a

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portfolio manager harvested a stock for a loss,

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it gets stuck in that fund.

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Mutual funds can only distribute capital gains to

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investors.

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And we can get into the scenarios what

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that looks like.

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So direct means clients own individual stocks.

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They have their own cost basis.

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The indexing part means we're just trying to

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replicate the performance of an index, but we

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do it by owning a subset of securities.

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Maybe it's 150, maybe it's 300, but we

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don't want to own all 500 stocks in

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the S&P 500, because when that tax

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loss harvesting happens, when we sell a loser,

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we need to replace it with a stock

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that we don't already own to avoid this

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wash sale rule.

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And if you just look at the market

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over the past several years, we know the

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Magnificent Seven has driven a lot of the

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performance of these indices.

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So you don't need to own all 500

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stocks to get performance that looks like the

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index.

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And so using a representative set, typically we

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have computers and optimization systems that help us

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track the index pretty closely, but also gives

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us a flexibility to do that tax loss

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harvesting.

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It sounds like there's at least some level

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of active management in the sense that you're

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not buying all 500 stocks, but you've got

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to pick which subset of those stocks that

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you are going to buy.

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Is that also done by algorithms, computers?

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Is that a portfolio manager making that decision?

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Yeah, exactly.

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So every firm that does this is going

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to have some kind of algorithm.

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We call ours a multi-factor algorithm.

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So it looks at different characteristics of the

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index.

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But yeah, the idea is to own a

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representative number of securities.

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Generally, you're going to match market cap weights

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similar to the index that you've selected.

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S&P 500 is the most common, but

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you can certainly do this for other indices.

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And also you want to make sure your

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sector weightings are very similar to the index

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within bands.

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In terms of having conviction around individual stocks,

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no, it doesn't matter.

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So you're not saying, hey, I want to

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own Apple instead of Microsoft.

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You're just going to own a subset of

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stocks.

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And if one of those goes down, a

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common example is if you own Home Depot,

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we harvest that at a loss.

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You're going to replace it with something similar.

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So it might be Lowe's or Coke or

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Pepsi.

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But you really don't care which stock you

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own because you're just trying to maintain your

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beta exposure.

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Could you elaborate the question of what indexes

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are commonly utilized?

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So I have no doubt the S&P

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500 is most common and most popular.

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What are other commonly utilized indices?

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Our firm typically uses the S&P indices.

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So the S&P 500 is the most

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popular.

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S&P 1500, which includes the 400 mid

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cap stocks and the 600 small cap stocks.

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So getting more of an all cap exposure.

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You can do this on a global basis.

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So a combination of U.S. and international,

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you could do it on just international stocks,

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or you could just segregate them out, large

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cap in one account, mid cap in another

272
00:10:48,860 --> 00:10:51,640
account, small cap in another account.

273
00:10:52,720 --> 00:10:57,320
But if you look at data for where

274
00:10:57,320 --> 00:11:00,860
outperformance is more likely to happen, it tends

275
00:11:00,860 --> 00:11:03,140
to be in those less efficient areas, so

276
00:11:03,140 --> 00:11:04,900
small caps in international.

277
00:11:05,320 --> 00:11:07,740
So you might want to hire an active

278
00:11:07,740 --> 00:11:10,760
manager to manage your funds there, whereas the

279
00:11:10,760 --> 00:11:12,240
large cap space, as you know, is pretty

280
00:11:12,240 --> 00:11:12,640
efficient.

281
00:11:12,880 --> 00:11:16,140
So it's very common to have this core

282
00:11:16,140 --> 00:11:19,180
large cap holding in a tax efficient direct

283
00:11:19,180 --> 00:11:19,440
index.

284
00:11:19,560 --> 00:11:19,680
All right.

285
00:11:19,720 --> 00:11:22,620
So focusing on the S&P 500 for

286
00:11:22,620 --> 00:11:25,520
the sake of discussion as the commonly utilized,

287
00:11:25,680 --> 00:11:28,760
and you expressed the notion that you really

288
00:11:28,760 --> 00:11:31,120
don't have to have all 500 stocks to

289
00:11:31,120 --> 00:11:32,460
represent the index.

290
00:11:32,740 --> 00:11:35,600
300, I think you said, was a common

291
00:11:35,600 --> 00:11:38,620
estimate for how many stocks one might hold

292
00:11:38,620 --> 00:11:40,480
to represent that.

293
00:11:40,820 --> 00:11:43,480
How do clients react to the idea that

294
00:11:43,480 --> 00:11:46,860
there's 300 names showing up in their brokerage

295
00:11:46,860 --> 00:11:47,280
statement?

296
00:11:47,540 --> 00:11:49,120
Do they have trouble with that or is

297
00:11:49,120 --> 00:11:49,780
it appealing?

298
00:11:50,140 --> 00:11:53,540
It is for some clients, a turnoff.

299
00:11:54,040 --> 00:11:57,260
But when Kathleen and I started, our clients

300
00:11:57,260 --> 00:11:59,380
were getting statements sent to them in the

301
00:11:59,380 --> 00:11:59,680
mail.

302
00:12:00,320 --> 00:12:01,800
So it might be a 50 page statement,

303
00:12:01,920 --> 00:12:02,160
right?

304
00:12:02,300 --> 00:12:03,920
You can suppress statements.

305
00:12:04,540 --> 00:12:05,560
So at the end of the year, you're

306
00:12:05,560 --> 00:12:06,960
going to get your 1099 and you're going

307
00:12:06,960 --> 00:12:08,800
to see all the activity that has happened

308
00:12:08,800 --> 00:12:11,160
and your CPA is going to deal with

309
00:12:11,160 --> 00:12:11,440
that.

310
00:12:12,340 --> 00:12:14,800
Some clients might say, this is too much

311
00:12:14,800 --> 00:12:15,620
for me to handle.

312
00:12:16,320 --> 00:12:20,120
But when we're focusing on clients that this

313
00:12:20,120 --> 00:12:22,340
works the best for, it tends to be

314
00:12:22,340 --> 00:12:24,740
those in higher tax brackets.

315
00:12:25,200 --> 00:12:28,300
So the 32% tax bracket generally or

316
00:12:28,300 --> 00:12:28,860
higher.

317
00:12:29,480 --> 00:12:32,020
So these are people that have higher income

318
00:12:32,020 --> 00:12:35,720
and they're used to sophisticated strategies.

319
00:12:36,210 --> 00:12:42,380
And so seeing 150, 300 stocks is not

320
00:12:42,380 --> 00:12:44,420
a turnoff knowing that it's going to help

321
00:12:44,420 --> 00:12:44,800
them.

322
00:12:45,080 --> 00:12:47,740
So they're complaining until they get their tax

323
00:12:47,740 --> 00:12:50,340
statement when they realize, oh, we realized some

324
00:12:50,340 --> 00:12:52,320
capital losses that I wouldn't have been able

325
00:12:52,320 --> 00:12:53,100
to do otherwise.

326
00:12:54,220 --> 00:12:54,800
Exactly.

327
00:12:55,720 --> 00:12:55,880
Yeah.

328
00:12:56,180 --> 00:12:57,360
And that's a good point.

329
00:12:57,480 --> 00:13:00,900
People with that kind of capital or income

330
00:13:00,900 --> 00:13:04,740
may, in some instance, have an attraction to

331
00:13:04,740 --> 00:13:08,200
the idea of individual security selection being a

332
00:13:08,200 --> 00:13:10,040
component of their portfolio.

333
00:13:10,600 --> 00:13:10,700
Yeah.

334
00:13:10,800 --> 00:13:13,080
And like it provides a lot of optionality

335
00:13:13,080 --> 00:13:14,960
when you have all these individual stocks, that's

336
00:13:14,960 --> 00:13:15,700
what you're looking for.

337
00:13:15,780 --> 00:13:18,360
You're looking for the volatility of stocks going

338
00:13:18,360 --> 00:13:18,940
up and down.

339
00:13:18,940 --> 00:13:21,880
So you can harvest these losses, but also

340
00:13:21,880 --> 00:13:24,080
provides opportunity for charitable giving, right?

341
00:13:24,120 --> 00:13:26,540
So now you've got individual tax slots that

342
00:13:26,540 --> 00:13:28,160
you can look at at the end of

343
00:13:28,160 --> 00:13:30,840
the year when you're doing charitable giving, you

344
00:13:30,840 --> 00:13:32,480
can pick out those tax slots that have

345
00:13:32,480 --> 00:13:35,660
appreciated the most and donate those, get those

346
00:13:35,660 --> 00:13:38,300
out of the portfolio and avoid paying capital

347
00:13:38,300 --> 00:13:39,460
gains taxes on those.

348
00:13:40,260 --> 00:13:41,760
How much does one...

349
00:13:41,760 --> 00:13:42,680
Oh, sorry, Kathleen.

350
00:13:43,280 --> 00:13:44,340
No, I was just going to say, and

351
00:13:44,340 --> 00:13:46,120
to be fair, like how many clients actually

352
00:13:46,120 --> 00:13:48,220
look at their statements on a regular basis

353
00:13:48,220 --> 00:13:51,380
instead of just once a year, but go

354
00:13:51,380 --> 00:13:51,480
ahead.

355
00:13:51,480 --> 00:13:52,420
That's probably fair.

356
00:13:52,560 --> 00:13:53,620
That's probably a fair point.

357
00:13:55,460 --> 00:13:58,400
My question was going to be, you indicated

358
00:13:58,400 --> 00:14:01,760
that this may not be for everyone.

359
00:14:02,360 --> 00:14:05,280
Where does it make sense in terms of

360
00:14:06,760 --> 00:14:11,720
account size or client's wealth or whatever the

361
00:14:11,720 --> 00:14:13,840
benchmark criteria might suggest?

362
00:14:14,180 --> 00:14:17,320
When should advisors be turning on a light

363
00:14:17,320 --> 00:14:19,600
bulb of this might be a good fit

364
00:14:19,600 --> 00:14:22,620
for a direct indexing occasion?

365
00:14:23,160 --> 00:14:26,000
Fees for these accounts are all very reasonable.

366
00:14:26,240 --> 00:14:27,260
So you're going to pay a little bit

367
00:14:27,260 --> 00:14:29,100
more than an index-based fund or an

368
00:14:29,100 --> 00:14:31,940
ETF, a lot less than an active manager.

369
00:14:32,480 --> 00:14:35,480
A lot of the platforms and managers will

370
00:14:35,480 --> 00:14:38,060
offer these at $100,000 and $250,000

371
00:14:38,060 --> 00:14:38,560
minimum.

372
00:14:39,240 --> 00:14:42,120
So for clients that most advisors are working

373
00:14:42,120 --> 00:14:45,340
with, it's usually a pretty easy hurdle, but

374
00:14:45,340 --> 00:14:47,260
there are several use cases.

375
00:14:47,900 --> 00:14:50,500
So the first is, I just want an

376
00:14:50,500 --> 00:14:53,860
efficient large-cap equity holding.

377
00:14:54,380 --> 00:14:56,700
So instead of an index-based mutual fund

378
00:14:56,700 --> 00:15:01,360
or index-based ETF, I can have this

379
00:15:01,360 --> 00:15:04,860
strategy that's going to, again, match the performance

380
00:15:04,860 --> 00:15:07,560
of the index, but it's going to generate

381
00:15:07,560 --> 00:15:08,400
losses.

382
00:15:08,920 --> 00:15:11,920
And so even in years where the market

383
00:15:11,920 --> 00:15:15,900
is up, we're able to produce net losses

384
00:15:15,900 --> 00:15:16,600
for the client.

385
00:15:17,000 --> 00:15:21,060
So I don't have the final numbers for

386
00:15:21,060 --> 00:15:23,380
2023, but if you look at like, sorry,

387
00:15:23,480 --> 00:15:25,300
in 2024, but if you look at 2023,

388
00:15:25,620 --> 00:15:28,180
the market's up 23%.

389
00:15:28,180 --> 00:15:30,700
You put $100,000 in at the beginning

390
00:15:30,700 --> 00:15:32,960
of the year, it's worth 123,000 at

391
00:15:32,960 --> 00:15:33,600
the end of the year.

392
00:15:34,020 --> 00:15:38,320
Depending on the manager, you have likely produced

393
00:15:38,320 --> 00:15:41,200
net losses in the tune of two to

394
00:15:41,200 --> 00:15:42,780
3% for that client.

395
00:15:43,020 --> 00:15:46,160
So their portfolio is appreciated 23%, but they're

396
00:15:46,160 --> 00:15:49,580
showing, call it $2,000 in losses for

397
00:15:49,580 --> 00:15:50,380
their tax returns.

398
00:15:51,120 --> 00:15:54,100
So that's kind of a core efficient holding

399
00:15:54,100 --> 00:15:57,140
in the large-cap space.

400
00:15:57,360 --> 00:16:00,080
But also think about a client that maybe

401
00:16:00,080 --> 00:16:02,720
has a known future capital gain event.

402
00:16:03,840 --> 00:16:05,180
Maybe they're going to sell a business in

403
00:16:05,180 --> 00:16:05,740
five years.

404
00:16:06,240 --> 00:16:09,300
Maybe they have a piece of investment real

405
00:16:09,300 --> 00:16:11,140
estate, and they're going to get out of

406
00:16:11,140 --> 00:16:12,140
investment real estate.

407
00:16:12,280 --> 00:16:13,840
They're not going to do the 1031 exchange.

408
00:16:14,020 --> 00:16:15,620
So they're going to sell that for a

409
00:16:15,620 --> 00:16:18,660
gain, or maybe they're going to sell some

410
00:16:18,660 --> 00:16:20,880
stock or exercise some options.

411
00:16:21,420 --> 00:16:24,300
So now we're using direct indexing as a

412
00:16:24,300 --> 00:16:26,900
lost harvesting engine planning for a known future

413
00:16:26,900 --> 00:16:29,720
capital gain event in building up this war

414
00:16:29,720 --> 00:16:30,780
chest of losses.

415
00:16:31,640 --> 00:16:34,740
And we're in the industry, so we talk

416
00:16:34,740 --> 00:16:36,880
about losses, but when I'm talking to clients,

417
00:16:37,160 --> 00:16:40,520
and I'm talking about tax savings, tax benefits,

418
00:16:40,860 --> 00:16:43,280
tax write-offs, those are the types of

419
00:16:43,280 --> 00:16:44,320
words that we're going to use.

420
00:16:44,440 --> 00:16:46,340
So we're going to generate this war chest

421
00:16:46,340 --> 00:16:49,200
of tax write-offs to mitigate that cost

422
00:16:49,200 --> 00:16:49,740
in the future.

423
00:16:50,640 --> 00:16:54,780
Also, if an advisor is bringing over a

424
00:16:54,780 --> 00:16:58,300
client from another firm, so maybe they want

425
00:16:58,300 --> 00:17:00,960
a business, one business, a client has this

426
00:17:00,960 --> 00:17:03,619
collection of individual stocks, or maybe there was

427
00:17:03,619 --> 00:17:06,920
a large cap value manager, separately managed account,

428
00:17:07,040 --> 00:17:09,660
that the new advisor wants to fire.

429
00:17:09,980 --> 00:17:12,640
They have this collection of individual stocks they

430
00:17:12,640 --> 00:17:14,819
don't know to do with, 100 large cap

431
00:17:14,819 --> 00:17:15,660
value stocks.

432
00:17:15,920 --> 00:17:18,599
They can use direct indexing as a sponge.

433
00:17:19,180 --> 00:17:21,220
Those 100 stocks are probably members of the

434
00:17:21,220 --> 00:17:22,119
S&P 500.

435
00:17:22,859 --> 00:17:25,160
So it's a way to transition those in

436
00:17:25,160 --> 00:17:26,260
a tax-efficient manner.

437
00:17:26,260 --> 00:17:29,860
You'd sell the losers, you'd keep the winners,

438
00:17:30,220 --> 00:17:32,600
and then you'd start diversifying around them.

439
00:17:33,380 --> 00:17:36,900
Or if you have a concentrated stock or

440
00:17:36,900 --> 00:17:39,600
a low basis stock that the client or

441
00:17:39,600 --> 00:17:41,960
the advisor thinks it's time to de-risk.

442
00:17:42,680 --> 00:17:44,960
So let's use an example of Microsoft.

443
00:17:45,300 --> 00:17:49,260
So let's say you have Microsoft stock, $20

444
00:17:49,260 --> 00:17:51,720
,000 worth with a cost basis of $5

445
00:17:51,720 --> 00:17:54,580
,000.

446
00:17:55,100 --> 00:17:56,420
So big capital gain.

447
00:17:57,140 --> 00:18:00,200
For a $100,000 account, we'd have $20

448
00:18:00,200 --> 00:18:03,000
,000 in Microsoft, and if you give us

449
00:18:03,000 --> 00:18:07,220
$80,000 in cash, we would buy other

450
00:18:07,220 --> 00:18:08,880
stocks in the S&P 500 that we

451
00:18:08,880 --> 00:18:09,280
don't own.

452
00:18:10,380 --> 00:18:12,240
So now we've built this kind of completion

453
00:18:12,240 --> 00:18:12,800
portfolio.

454
00:18:13,080 --> 00:18:15,220
We'd look at those stocks on a quarterly

455
00:18:15,220 --> 00:18:17,440
basis, and we would loss-harvest them.

456
00:18:18,380 --> 00:18:20,300
Anytime a stock's down 4% or 5

457
00:18:20,300 --> 00:18:23,420
% on a short-term basis, harvest those

458
00:18:23,420 --> 00:18:27,440
losses, and that allows us to simultaneously take

459
00:18:27,440 --> 00:18:28,380
a gain in the Microsoft.

460
00:18:29,000 --> 00:18:31,520
So for the client, it's a tax-neutral

461
00:18:31,520 --> 00:18:32,300
impact.

462
00:18:33,120 --> 00:18:37,460
So quarterly, they're seeing their Microsoft position being

463
00:18:37,460 --> 00:18:40,600
de-risk, but they're not having to recognize

464
00:18:40,600 --> 00:18:43,540
any net gains because we've used losses that

465
00:18:43,540 --> 00:18:45,100
we've harvested to offset.

466
00:18:45,660 --> 00:18:47,720
So those are some common examples and use

467
00:18:47,720 --> 00:18:50,120
cases of how advisors are doing this.

468
00:18:50,680 --> 00:18:52,240
It seems like it makes a lot of

469
00:18:52,240 --> 00:18:55,180
sense if people come to you with a

470
00:18:55,180 --> 00:18:57,140
portfolio of individual securities.

471
00:18:57,920 --> 00:19:01,260
But in my experience over the years, I've

472
00:19:01,260 --> 00:19:05,220
seen a lot of clients that have large

473
00:19:05,220 --> 00:19:09,200
-cap mutual funds that have crazy embedded gains

474
00:19:09,200 --> 00:19:11,320
and would be a lot more difficult to

475
00:19:11,320 --> 00:19:14,640
kind of unwind those to move into a

476
00:19:14,640 --> 00:19:16,540
direct indexing strategy, for example.

477
00:19:16,660 --> 00:19:18,060
Do you see that in the work that

478
00:19:18,060 --> 00:19:19,740
you do and the clients that you're doing

479
00:19:19,740 --> 00:19:20,200
this with?

480
00:19:20,380 --> 00:19:22,080
Is it sort of just a lost cause?

481
00:19:22,180 --> 00:19:24,620
Should people even bother trying to do it

482
00:19:24,620 --> 00:19:26,600
if they have a portfolio of mutual funds

483
00:19:26,600 --> 00:19:27,840
with crazy embedded gains?

484
00:19:28,400 --> 00:19:29,560
Yeah, so that's a good question.

485
00:19:29,940 --> 00:19:32,680
The question's always, are you over-concentrated in

486
00:19:32,680 --> 00:19:33,100
an area?

487
00:19:33,280 --> 00:19:35,480
So if it's an individual stock, it's probably

488
00:19:35,480 --> 00:19:37,720
an easier case to make that, yeah, we

489
00:19:37,720 --> 00:19:40,120
could de-risk or diversify.

490
00:19:40,560 --> 00:19:44,120
If it's a diversified holding that's done okay,

491
00:19:44,440 --> 00:19:46,860
there might not be a reason to get

492
00:19:46,860 --> 00:19:48,180
rid of that security.

493
00:19:48,880 --> 00:19:53,420
Oftentimes, it's a question with the client, are

494
00:19:53,420 --> 00:19:58,100
you willing to recognize some gains upfront to

495
00:19:58,100 --> 00:20:00,680
create some cash and liquidity to fund a

496
00:20:00,680 --> 00:20:02,060
direct indexing account?

497
00:20:02,780 --> 00:20:04,540
And we're always going to need some kind

498
00:20:04,540 --> 00:20:07,040
of cash to be able to start the

499
00:20:07,040 --> 00:20:10,120
process by individual tax slots, again, to be

500
00:20:10,120 --> 00:20:11,060
able to loss harvest.

501
00:20:11,720 --> 00:20:15,240
But if it's an ETF position that has

502
00:20:15,240 --> 00:20:18,700
large embedded gains or like a diversified mutual

503
00:20:18,700 --> 00:20:22,400
fund, then it's a conversation with the client,

504
00:20:22,740 --> 00:20:25,200
are you willing to recognize some gains?

505
00:20:25,520 --> 00:20:30,200
But the mutual fund structure, as you know,

506
00:20:30,200 --> 00:20:33,200
holding these things in taxable accounts can be

507
00:20:33,200 --> 00:20:36,180
very tax inefficient as well.

508
00:20:36,300 --> 00:20:38,480
And the example I always use is you

509
00:20:38,480 --> 00:20:42,160
go back to 2022, you have the S

510
00:20:42,160 --> 00:20:43,700
&P down 18%.

511
00:20:43,700 --> 00:20:45,960
If you looked at the large cap blend

512
00:20:45,960 --> 00:20:49,560
universe of actively managed funds, 100% of

513
00:20:49,560 --> 00:20:51,800
those lost money in 2022.

514
00:20:52,120 --> 00:20:52,960
They were all down.

515
00:20:53,660 --> 00:20:56,720
83% of those paid a capital gain.

516
00:20:56,820 --> 00:20:58,560
You've got a client that owns a mutual

517
00:20:58,560 --> 00:21:01,880
fund, their NAV went down, but they're at

518
00:21:01,880 --> 00:21:03,240
the end of the year given a capital

519
00:21:03,240 --> 00:21:04,240
gain distribution.

520
00:21:04,700 --> 00:21:07,680
Because when you are sharing cost basis with

521
00:21:07,680 --> 00:21:10,440
other investors, if they hit the eject button,

522
00:21:11,140 --> 00:21:14,440
the portfolio manager is forced to sell securities

523
00:21:14,440 --> 00:21:15,420
to raise cash.

524
00:21:15,780 --> 00:21:18,380
And they're often recognizing gains to do that.

525
00:21:19,020 --> 00:21:20,120
And at the end of the year, if

526
00:21:20,120 --> 00:21:23,540
you own that in a taxable account, you're

527
00:21:23,540 --> 00:21:24,820
going to be hit with a capital gains

528
00:21:24,820 --> 00:21:25,160
tax.

529
00:21:25,700 --> 00:21:28,260
So I think the industry is getting away

530
00:21:28,260 --> 00:21:32,740
from the inefficiencies of those actively managed funds,

531
00:21:32,800 --> 00:21:34,320
which is why you've seen obviously a lot

532
00:21:34,320 --> 00:21:36,940
of money going into ETFs and now direct

533
00:21:36,940 --> 00:21:39,340
indexing for those that are more tax sensitive.

534
00:21:39,720 --> 00:21:41,340
I could benefit from a little bit of

535
00:21:41,340 --> 00:21:42,740
the remedial math here.

536
00:21:42,880 --> 00:21:45,360
I have trouble getting my head around the

537
00:21:45,360 --> 00:21:48,380
idea that on the one hand, I'm going

538
00:21:48,380 --> 00:21:50,600
to make money but on the other hand,

539
00:21:50,660 --> 00:21:51,720
I'm going to lose money.

540
00:21:52,080 --> 00:21:53,560
How do I do both?

541
00:21:53,800 --> 00:21:56,040
It just seems like and still keep up.

542
00:21:56,160 --> 00:21:56,520
You know what I mean?

543
00:21:56,540 --> 00:21:59,040
Something about it seems like bad math.

544
00:21:59,280 --> 00:21:59,920
You know what I mean?

545
00:22:00,900 --> 00:22:01,960
How's it work?

546
00:22:02,180 --> 00:22:04,480
Maybe you can elaborate and get me past

547
00:22:04,480 --> 00:22:05,020
some of this.

548
00:22:05,360 --> 00:22:08,020
And is it that we're just putting off

549
00:22:08,020 --> 00:22:11,040
gains that are happening elsewhere and I'm going

550
00:22:11,040 --> 00:22:13,160
to have the same problem of embedded capital

551
00:22:13,160 --> 00:22:14,340
gains later on?

552
00:22:15,040 --> 00:22:16,420
Or I've thrown a lot.

553
00:22:16,520 --> 00:22:17,840
You can pick which one.

554
00:22:17,880 --> 00:22:18,120
Yeah, yeah, yeah.

555
00:22:18,260 --> 00:22:19,660
It's a great question.

556
00:22:19,780 --> 00:22:21,540
So if we use an example, if you

557
00:22:21,540 --> 00:22:25,580
buy Coke and it's down 10%, you sell

558
00:22:25,580 --> 00:22:25,880
it.

559
00:22:26,360 --> 00:22:29,080
And if you replace it with Pepsi and

560
00:22:29,080 --> 00:22:31,380
the market bounces back, right?

561
00:22:32,060 --> 00:22:35,560
Maybe it's more just market movement that's giving

562
00:22:35,560 --> 00:22:38,160
me the opportunity to have this loss you're

563
00:22:38,160 --> 00:22:38,340
saying.

564
00:22:38,680 --> 00:22:39,040
Exactly.

565
00:22:39,420 --> 00:22:41,480
So you capture that loss while you exist.

566
00:22:41,580 --> 00:22:43,120
You replace it with something else.

567
00:22:43,560 --> 00:22:46,940
And if that security bounces back, then you're

568
00:22:46,940 --> 00:22:48,700
back to the same position, right?

569
00:22:48,740 --> 00:22:50,960
If that appreciates another 10%, let's call it

570
00:22:50,960 --> 00:22:51,960
you're back to neutral.

571
00:22:52,280 --> 00:22:54,580
But you just harvest 10% in a

572
00:22:54,580 --> 00:22:54,940
loss.

573
00:22:55,700 --> 00:22:58,180
When you purchase your new security, your cost

574
00:22:58,180 --> 00:23:00,060
basis, again, to your point is lower.

575
00:23:01,580 --> 00:23:05,120
So now you have this embedded gain in

576
00:23:05,120 --> 00:23:07,040
that new security that you bought.

577
00:23:07,640 --> 00:23:11,140
But here's the kind of magic, which is

578
00:23:11,140 --> 00:23:12,740
this tax rate arbitrage.

579
00:23:13,280 --> 00:23:16,400
So as that position, you hold that position,

580
00:23:16,740 --> 00:23:20,620
you go from having a short-term capital

581
00:23:20,620 --> 00:23:23,200
gain, unrealized short-term capital gains to an

582
00:23:23,200 --> 00:23:24,960
unrealized long-term capital gain.

583
00:23:25,340 --> 00:23:28,780
Depending on your tax bracket, the difference between

584
00:23:28,780 --> 00:23:31,120
those two can be as much as 20%.

585
00:23:31,860 --> 00:23:34,760
So if you're in this year, it's basically

586
00:23:34,760 --> 00:23:38,220
$500,000 to $600,000 in income, the

587
00:23:38,220 --> 00:23:40,140
difference between what you're going to pay on

588
00:23:40,140 --> 00:23:42,020
a short-term capital gain and a long

589
00:23:42,020 --> 00:23:44,580
-term capital gain is 20% difference in

590
00:23:44,580 --> 00:23:45,280
tax savings.

591
00:23:45,880 --> 00:23:48,700
So gain deferral is a really important part

592
00:23:48,700 --> 00:23:49,540
of this process.

593
00:23:50,040 --> 00:23:53,780
And the loss that you harvested is a

594
00:23:53,780 --> 00:23:57,240
short-term loss, which will offset other short

595
00:23:57,240 --> 00:23:58,780
-term gains that you recognize.

596
00:23:58,780 --> 00:24:01,460
Those short-term gains are taxed at the

597
00:24:01,460 --> 00:24:03,140
client's ordinary income tax rate.

598
00:24:03,620 --> 00:24:06,800
The highest rate this year is 37%.

599
00:24:06,800 --> 00:24:10,140
But to your point, if you needed to

600
00:24:10,140 --> 00:24:13,160
liquidate the portfolio, you are likely going to

601
00:24:13,160 --> 00:24:14,820
have to pay capital gains.

602
00:24:15,580 --> 00:24:18,420
But this is a deferral process.

603
00:24:18,780 --> 00:24:23,460
By not having to pay Uncle Sam today

604
00:24:23,460 --> 00:24:26,380
and taxes today, you are deferring that and

605
00:24:26,380 --> 00:24:29,460
letting money compound in the market without having

606
00:24:29,460 --> 00:24:31,020
this tax track.

607
00:24:31,440 --> 00:24:33,720
You can use up to $3,000 of

608
00:24:33,720 --> 00:24:37,060
those excess realized capital losses to offset other

609
00:24:37,060 --> 00:24:37,460
income.

610
00:24:37,820 --> 00:24:40,020
So if you are in that highest tax

611
00:24:40,020 --> 00:24:42,700
bracket, there's a little bit of additional tax

612
00:24:42,700 --> 00:24:45,380
savings on your other ordinary income that's not

613
00:24:45,380 --> 00:24:48,180
even tax savings on your investment portfolio.

614
00:24:48,820 --> 00:24:51,780
That number has been static since 1978.

615
00:24:52,580 --> 00:24:54,580
So yeah, $3,000 might have been a

616
00:24:54,580 --> 00:24:55,320
big deal then.

617
00:24:56,340 --> 00:24:57,720
Today, it's not much.

618
00:24:57,840 --> 00:25:00,640
But right, you can bank these losses and

619
00:25:00,640 --> 00:25:04,520
carry them over indefinitely until you die.

620
00:25:04,640 --> 00:25:06,200
And then you got one last chance if

621
00:25:06,200 --> 00:25:08,260
you have a surviving spouse to be able

622
00:25:08,260 --> 00:25:11,020
to use them, otherwise they disappear.

623
00:25:11,740 --> 00:25:13,620
But yeah, again, like I said, one of

624
00:25:13,620 --> 00:25:15,720
the core use cases is building up these

625
00:25:15,720 --> 00:25:19,180
losses to help offset a known taxable event

626
00:25:19,180 --> 00:25:20,400
that's going to happen in the future.

627
00:25:20,860 --> 00:25:24,340
I have the impression that the tax benefits

628
00:25:24,340 --> 00:25:27,940
of tax-loss harvesting somewhat diminish over time.

629
00:25:28,080 --> 00:25:29,820
Is that an accurate impression?

630
00:25:30,540 --> 00:25:30,740
Yeah.

631
00:25:30,940 --> 00:25:34,400
So at some point, you've got a portfolio

632
00:25:34,400 --> 00:25:37,440
that hopefully is all winners, and they're all

633
00:25:37,440 --> 00:25:39,220
long-term winners.

634
00:25:39,780 --> 00:25:42,380
And I think we hear this a lot

635
00:25:42,380 --> 00:25:44,160
is like, what do you do?

636
00:25:44,260 --> 00:25:45,080
What do you do then?

637
00:25:45,840 --> 00:25:48,260
And my response is, you thank the manager

638
00:25:48,260 --> 00:25:49,540
for doing a good job.

639
00:25:50,100 --> 00:25:50,540
Great.

640
00:25:51,020 --> 00:25:53,260
Yeah, big picture perspective here, yeah.

641
00:25:53,660 --> 00:25:55,160
Their worst problems to have.

642
00:25:55,640 --> 00:25:58,240
Keeping up with the market for generating all

643
00:25:58,240 --> 00:25:59,800
these losses for me over the years, and

644
00:25:59,800 --> 00:26:01,200
then giving me a portfolio of all these

645
00:26:01,200 --> 00:26:01,900
long-term winners.

646
00:26:02,080 --> 00:26:04,300
But people get addicted to seeing these losses,

647
00:26:04,300 --> 00:26:05,360
and they want to do more.

648
00:26:05,880 --> 00:26:06,780
So what do you do?

649
00:26:07,120 --> 00:26:09,200
Well, first of all, if you can continue

650
00:26:09,200 --> 00:26:11,800
to add cash to the account, that's helpful.

651
00:26:12,060 --> 00:26:14,460
Helps you create new cost basis.

652
00:26:14,460 --> 00:26:16,640
You're going to buy new tax lots.

653
00:26:16,760 --> 00:26:19,140
If you've got dividends, if you're reinvesting those

654
00:26:19,140 --> 00:26:22,180
dividends, that helps improve the longevity.

655
00:26:22,780 --> 00:26:25,740
If you have clients that are charitably inclined,

656
00:26:26,260 --> 00:26:28,800
you take out those securities that have appreciated

657
00:26:28,800 --> 00:26:32,500
the most, donate those to charity, and replace

658
00:26:32,500 --> 00:26:34,480
- Use cash to buy them again, or

659
00:26:34,480 --> 00:26:34,840
something.

660
00:26:35,280 --> 00:26:35,380
Yeah.

661
00:26:36,280 --> 00:26:38,460
Some will say, hey, I've got a portfolio

662
00:26:38,460 --> 00:26:41,380
that generally is the S&P 500.

663
00:26:42,060 --> 00:26:45,260
Maybe I'll sell index call options against that

664
00:26:45,260 --> 00:26:47,240
portfolio to generate some cash.

665
00:26:47,600 --> 00:26:49,020
And I can use that cash as income,

666
00:26:49,020 --> 00:26:52,120
or I could take those call premiums and

667
00:26:52,120 --> 00:26:54,140
add it and create new basis.

668
00:26:54,440 --> 00:26:56,340
And you've got some other strategies that tend

669
00:26:56,340 --> 00:26:58,640
to be more sophisticated that say, hey, once

670
00:26:58,640 --> 00:27:01,840
you've got this portfolio that, in the vernacular

671
00:27:01,840 --> 00:27:04,800
of direct indexing, is what they call ossified.

672
00:27:05,120 --> 00:27:06,980
Basically, it becomes bone, right?

673
00:27:07,100 --> 00:27:10,300
There's no more losses to squeeze out.

674
00:27:10,800 --> 00:27:13,280
Well, what if we start shorting stocks?

675
00:27:13,600 --> 00:27:16,620
Because if you short stocks, it's a good

676
00:27:16,620 --> 00:27:18,840
way to lose money because the market generally

677
00:27:18,840 --> 00:27:19,460
goes up.

678
00:27:19,740 --> 00:27:21,400
And then we take the short proceeds and

679
00:27:21,400 --> 00:27:23,500
we buy another basket of long securities.

680
00:27:23,740 --> 00:27:25,220
So we still, we have this kind of

681
00:27:25,220 --> 00:27:28,940
extension strategy added on to the direct indexing.

682
00:27:29,040 --> 00:27:32,220
So we've been doing this for 22 years.

683
00:27:32,860 --> 00:27:37,440
We have over $20 billion in AUM today,

684
00:27:37,540 --> 00:27:39,480
but the first 15 years, we had less

685
00:27:39,480 --> 00:27:40,680
than a billion dollars.

686
00:27:41,360 --> 00:27:43,620
So only recently have we seen a really

687
00:27:43,620 --> 00:27:46,740
strong increase in AUM.

688
00:27:46,820 --> 00:27:48,180
So we're not at that point where we're

689
00:27:48,180 --> 00:27:51,660
seeing a lot of these ossified accounts, but

690
00:27:51,660 --> 00:27:55,580
it's something that the industry is keenly focused

691
00:27:55,580 --> 00:27:56,340
on.

692
00:27:56,740 --> 00:27:59,940
Are there opportunities or ways to extend the

693
00:27:59,940 --> 00:28:01,900
longevity of these direct indexing accounts?

694
00:28:02,800 --> 00:28:04,780
And I imagine if you, you know, you

695
00:28:04,780 --> 00:28:06,680
might run into that problem if you only

696
00:28:06,680 --> 00:28:09,940
have one direct indexing account that contains like

697
00:28:09,940 --> 00:28:11,540
US large cap stocks, for example.

698
00:28:11,720 --> 00:28:14,600
But if you have sort of a portfolio

699
00:28:14,600 --> 00:28:17,780
of a few different direct indexing accounts that

700
00:28:17,780 --> 00:28:20,240
all track a different index, like you've got

701
00:28:20,240 --> 00:28:22,460
US large cap in one, small cap in

702
00:28:22,460 --> 00:28:25,880
another, international in another, you have these different

703
00:28:25,880 --> 00:28:28,600
sleeves that in theory should be all zigging

704
00:28:28,600 --> 00:28:30,280
and zagging at different times.

705
00:28:30,380 --> 00:28:32,700
So even if you don't have losses in

706
00:28:32,700 --> 00:28:34,560
your US large cap account, you might have

707
00:28:34,560 --> 00:28:36,520
some in your small cap or international that

708
00:28:36,520 --> 00:28:39,140
you can use to offset each other.

709
00:28:39,920 --> 00:28:42,320
If you have somebody, if you have clients

710
00:28:42,320 --> 00:28:47,160
that are doing that, does the direct indexing

711
00:28:47,160 --> 00:28:50,160
manager look at those three accounts across the

712
00:28:50,160 --> 00:28:51,540
board or do they really just look at

713
00:28:51,540 --> 00:28:54,680
each one in a silo and not necessarily

714
00:28:54,680 --> 00:28:59,140
consider it's one client with three different accounts?

715
00:29:00,120 --> 00:29:01,620
Yeah, that's a really good question.

716
00:29:02,060 --> 00:29:05,980
So well, the first point that I want

717
00:29:05,980 --> 00:29:11,540
to highlight is this is not a area

718
00:29:11,540 --> 00:29:13,900
where you split the ticket.

719
00:29:13,900 --> 00:29:17,760
In other words, you can be searching for

720
00:29:17,760 --> 00:29:20,600
a large cap value manager, you narrow it

721
00:29:20,600 --> 00:29:23,300
down to five that you like, and you

722
00:29:23,300 --> 00:29:26,160
say, oh, just spread money among two or

723
00:29:26,160 --> 00:29:26,480
three.

724
00:29:27,080 --> 00:29:28,980
You don't do that with direct indexing.

725
00:29:29,040 --> 00:29:32,320
You go with one manager because you can't

726
00:29:32,320 --> 00:29:35,320
have two large cap direct indexing accounts because

727
00:29:35,320 --> 00:29:37,180
you're going to have a wash sale nightmare.

728
00:29:37,760 --> 00:29:38,640
So that's number one.

729
00:29:38,880 --> 00:29:39,800
So we're not going to do that.

730
00:29:40,160 --> 00:29:41,880
But to your point, yeah, I'm going to

731
00:29:41,880 --> 00:29:43,600
have a large cap, I'm going to have

732
00:29:43,600 --> 00:29:45,100
a mid cap, I'm going to have a

733
00:29:45,100 --> 00:29:46,920
small cap, maybe an international.

734
00:29:47,100 --> 00:29:51,100
International is a great opportunity for loss harvesting

735
00:29:51,100 --> 00:29:52,640
over the past five years.

736
00:29:52,920 --> 00:29:54,820
So you're going to keep those things all

737
00:29:54,820 --> 00:29:55,220
separate.

738
00:29:55,820 --> 00:29:57,540
And the manager is just going to focus

739
00:29:57,540 --> 00:30:01,640
on each of those indices to track, and

740
00:30:01,640 --> 00:30:05,780
you're not going to have much movement among

741
00:30:05,780 --> 00:30:06,420
securities.

742
00:30:06,840 --> 00:30:11,940
But if you have a mid cap stock

743
00:30:11,940 --> 00:30:15,860
that performs really well, that might get kicked

744
00:30:15,860 --> 00:30:17,380
out of the index, at which point the

745
00:30:17,380 --> 00:30:20,200
manager would recognize the capital gain because it's

746
00:30:20,200 --> 00:30:21,260
no longer in their universe.

747
00:30:21,940 --> 00:30:23,020
So if you have more of an all

748
00:30:23,020 --> 00:30:24,600
cap strategy, you can kind of let the

749
00:30:24,600 --> 00:30:27,720
winners run without having to recognize capital gain.

750
00:30:27,720 --> 00:30:32,120
But next level is a unified managed account,

751
00:30:32,280 --> 00:30:32,500
right?

752
00:30:32,720 --> 00:30:36,240
In a UMA, you have an overlay manager

753
00:30:36,240 --> 00:30:39,520
that's able to see everything that's going on.

754
00:30:39,860 --> 00:30:42,520
And you might even have an actively managed

755
00:30:42,520 --> 00:30:44,400
strategy involved in there.

756
00:30:44,500 --> 00:30:47,140
Maybe you've got an active small cap manager

757
00:30:47,140 --> 00:30:50,920
that you think can add alpha sitting alongside

758
00:30:50,920 --> 00:30:54,280
an index based small cap manager, in which

759
00:30:54,280 --> 00:30:57,660
case they can do tax lot exchanges and

760
00:30:57,660 --> 00:30:59,660
making sure that there isn't going to be

761
00:30:59,660 --> 00:31:02,540
a wash sale happening between multiple different strategies.

762
00:31:03,180 --> 00:31:06,460
So we at New Texas do that.

763
00:31:06,680 --> 00:31:07,840
We do it on a couple of different

764
00:31:07,840 --> 00:31:11,420
asset management platforms and some other direct indexing

765
00:31:11,420 --> 00:31:13,400
providers can do that oversight as well.

766
00:31:13,740 --> 00:31:16,180
But yeah, it can get tricky and complicated.

767
00:31:16,800 --> 00:31:20,140
You mentioned that your firm has been offering

768
00:31:20,140 --> 00:31:23,680
a program for direct indexing for a long

769
00:31:23,680 --> 00:31:24,600
time, Texas.

770
00:31:25,400 --> 00:31:28,060
There are other brands names that people may

771
00:31:28,060 --> 00:31:31,140
know that are also offering a direct indexing

772
00:31:31,140 --> 00:31:32,020
solution.

773
00:31:32,420 --> 00:31:34,540
How do we identify points of differentiation?

774
00:31:34,980 --> 00:31:37,800
What should I be paying attention to?

775
00:31:38,200 --> 00:31:39,940
And what should I look for when I'm

776
00:31:39,940 --> 00:31:41,560
trying to decide who do I go with?

777
00:31:42,080 --> 00:31:44,480
The first thing I'd say is the client

778
00:31:44,480 --> 00:31:47,180
experience and customer service, right?

779
00:31:47,240 --> 00:31:50,040
So this isn't as easy as dropping a

780
00:31:50,040 --> 00:31:51,660
ticket, typing in a ticker.

781
00:31:52,020 --> 00:31:55,480
You are establishing a relationship with a firm

782
00:31:55,480 --> 00:32:00,320
because you have individual clients that are going

783
00:32:00,320 --> 00:32:02,940
to be receiving service from that firm.

784
00:32:03,700 --> 00:32:09,560
And so this is not the easiest sale,

785
00:32:09,700 --> 00:32:12,560
but once the advisor gets used to it

786
00:32:12,560 --> 00:32:15,500
and understands the process, they tend to really

787
00:32:15,500 --> 00:32:17,180
start using it in their practice.

788
00:32:17,700 --> 00:32:20,120
So before we open any account, what we're

789
00:32:20,120 --> 00:32:21,100
going to do is we're going to talk

790
00:32:21,100 --> 00:32:23,200
to the end client and do what we

791
00:32:23,200 --> 00:32:25,280
call a tax transition analysis.

792
00:32:26,080 --> 00:32:27,820
What's your portfolio look like today?

793
00:32:28,200 --> 00:32:29,820
What's your target index?

794
00:32:30,640 --> 00:32:31,940
And how are we going to get you

795
00:32:31,940 --> 00:32:32,280
there?

796
00:32:32,640 --> 00:32:34,920
Are we going to need to take any

797
00:32:34,920 --> 00:32:36,200
gains along the way?

798
00:32:36,600 --> 00:32:37,600
How much do you have in losses?

799
00:32:38,020 --> 00:32:39,820
And we're going to show them what that

800
00:32:39,820 --> 00:32:42,960
transition would look like today's portfolio to the

801
00:32:42,960 --> 00:32:43,720
future portfolio.

802
00:32:44,220 --> 00:32:46,440
And also along the way, the client might

803
00:32:46,440 --> 00:32:47,720
want to add some customization.

804
00:32:48,560 --> 00:32:51,340
Maybe they want to, next year they decide

805
00:32:51,340 --> 00:32:55,720
they want to exclude a particular stock or

806
00:32:55,720 --> 00:32:57,780
add a business involvement screen.

807
00:32:57,880 --> 00:32:59,500
Maybe they don't want anything to do with

808
00:32:59,500 --> 00:33:01,360
animal testing in their portfolio.

809
00:33:01,960 --> 00:33:03,640
So these are all things that will come

810
00:33:03,640 --> 00:33:05,380
up that you want to be able to

811
00:33:05,380 --> 00:33:08,560
have a good customer service and also be

812
00:33:08,560 --> 00:33:10,840
able to show the client what their portfolio

813
00:33:10,840 --> 00:33:14,500
results look like, not just pre-tax returns,

814
00:33:14,620 --> 00:33:16,540
but after tax returns and what we call

815
00:33:16,540 --> 00:33:19,260
tax alpha and being able to outperform.

816
00:33:19,960 --> 00:33:21,240
So that's number one.

817
00:33:21,660 --> 00:33:24,920
And then I'd say is flexibility and customization

818
00:33:25,660 --> 00:33:29,620
to be able to handle things like concentrated

819
00:33:29,620 --> 00:33:34,200
stocks or to transition portfolios over time.

820
00:33:34,200 --> 00:33:38,420
Some managers will just focus on tracking error,

821
00:33:38,960 --> 00:33:41,240
meaning, hey, I'm going to run this portfolio

822
00:33:41,240 --> 00:33:43,900
for you, but I want the tracking error

823
00:33:43,900 --> 00:33:45,200
to be very low.

824
00:33:45,340 --> 00:33:47,460
I want the portfolio to look very much

825
00:33:47,460 --> 00:33:48,880
like the index.

826
00:33:49,300 --> 00:33:51,120
So if you have a position, a concentrated

827
00:33:51,120 --> 00:33:54,140
stock that you want to diversify or de

828
00:33:54,140 --> 00:33:57,700
-risk, you need to hold it outside of

829
00:33:57,700 --> 00:33:59,060
the direct indexing account.

830
00:33:59,160 --> 00:34:00,360
They're not going to accommodate it.

831
00:34:00,600 --> 00:34:03,060
But in terms of managers, what they do,

832
00:34:03,780 --> 00:34:05,380
they're all going to do the tax-loss

833
00:34:05,380 --> 00:34:05,800
harvesting.

834
00:34:06,120 --> 00:34:07,719
They're all going to do rebalancing.

835
00:34:07,900 --> 00:34:09,360
Everybody's going to have a different flavor.

836
00:34:10,199 --> 00:34:12,080
I think our strategy tends to be the

837
00:34:12,080 --> 00:34:15,820
most aggressive when it comes to tax-loss

838
00:34:15,820 --> 00:34:16,260
harvesting.

839
00:34:16,900 --> 00:34:18,320
And what I mean by that is if

840
00:34:18,320 --> 00:34:21,199
you have a big position, and I've always

841
00:34:21,199 --> 00:34:24,159
been using this example, just this week, it

842
00:34:24,159 --> 00:34:24,840
came true.

843
00:34:25,239 --> 00:34:28,179
If you have Nvidia that's down 20%, some

844
00:34:28,179 --> 00:34:30,739
managers will say, okay, if we've got a

845
00:34:30,739 --> 00:34:34,179
loss in Nvidia, I'm going to trim it,

846
00:34:34,620 --> 00:34:35,920
but I'm not going to sell out of

847
00:34:35,920 --> 00:34:40,159
it completely because it's too big of an

848
00:34:40,159 --> 00:34:41,159
index name.

849
00:34:42,400 --> 00:34:44,460
If I don't own it even for 31

850
00:34:44,460 --> 00:34:46,760
days during the wash sale period, I'm going

851
00:34:46,760 --> 00:34:48,840
to create very high tracking error.

852
00:34:49,540 --> 00:34:57,640
So there's this tug between tracking the index

853
00:34:57,640 --> 00:35:00,100
very closely and tax-loss harvesting.

854
00:35:00,320 --> 00:35:02,460
So everybody has a different philosophy around things

855
00:35:02,460 --> 00:35:02,940
like that.

856
00:35:03,320 --> 00:35:05,260
So that's another thing to take a look

857
00:35:05,260 --> 00:35:05,480
at.

858
00:35:06,060 --> 00:35:08,680
I'm curious from a practical perspective, if this

859
00:35:08,680 --> 00:35:11,420
is something that I was interested in using

860
00:35:11,420 --> 00:35:13,200
for some of my clients.

861
00:35:13,660 --> 00:35:15,420
I custody with Schwab.

862
00:35:15,560 --> 00:35:17,240
I know there are people out there that

863
00:35:17,240 --> 00:35:20,400
custody with Fidelity or other custodians.

864
00:35:20,600 --> 00:35:22,860
Can you talk us through the logistics and

865
00:35:22,860 --> 00:35:26,200
the practical aspects of employing this strategy?

866
00:35:26,460 --> 00:35:28,280
What does it actually look like from a

867
00:35:28,280 --> 00:35:31,760
paperwork perspective, from an onboarding perspective?

868
00:35:32,540 --> 00:35:34,240
Do you work with all custodians?

869
00:35:34,380 --> 00:35:36,140
I'm sure separate accounts get set up.

870
00:35:36,240 --> 00:35:37,000
Do you do reporting?

871
00:35:37,360 --> 00:35:39,860
I'm curious about what that looks like in

872
00:35:39,860 --> 00:35:42,540
everyday life, working with a direct index account.

873
00:35:42,880 --> 00:35:43,020
Yeah.

874
00:35:43,180 --> 00:35:45,440
So I'm fortunate that we have a team

875
00:35:45,440 --> 00:35:48,580
of 10 here that do all that onboarding.

876
00:35:48,960 --> 00:35:51,040
But yeah, it's very much a hand-holding

877
00:35:51,040 --> 00:35:52,940
process to get these accounts set up.

878
00:35:53,360 --> 00:35:56,280
Often direct indexing managers will be available on

879
00:35:56,280 --> 00:35:59,200
a variety of different platforms, the Schwabs, the

880
00:35:59,200 --> 00:36:01,780
Fidelities, the independent platforms, the wirehouses.

881
00:36:02,760 --> 00:36:05,600
And it usually starts with the advisor indicating

882
00:36:05,600 --> 00:36:10,020
their interest in a particular index, and then

883
00:36:10,020 --> 00:36:12,360
determining how they're going to fund the account.

884
00:36:12,720 --> 00:36:14,720
If it's funded with cash, great.

885
00:36:15,240 --> 00:36:17,600
If it's funded with securities, then we're going

886
00:36:17,600 --> 00:36:18,620
to want to take a look at those

887
00:36:18,620 --> 00:36:19,680
securities in advance.

888
00:36:19,840 --> 00:36:21,600
We're going to want to see the cost

889
00:36:21,600 --> 00:36:25,100
basis on the individual tax lots when they

890
00:36:25,100 --> 00:36:27,200
were purchased to be able to do this

891
00:36:27,200 --> 00:36:29,020
tax transition analysis.

892
00:36:29,540 --> 00:36:31,780
The intake paperwork is also going to say,

893
00:36:32,220 --> 00:36:34,800
hey, do you want to exclude any individual

894
00:36:34,800 --> 00:36:35,500
stocks?

895
00:36:36,400 --> 00:36:37,760
So hey, I want to own the S

896
00:36:37,760 --> 00:36:41,160
&P 500, but I work for Moderna.

897
00:36:41,400 --> 00:36:44,080
So let's not own Moderna in this portfolio.

898
00:36:44,820 --> 00:36:47,380
Or I work for Moderna, so let's not

899
00:36:47,380 --> 00:36:49,800
own Moderna, but let's also not own any

900
00:36:49,800 --> 00:36:54,640
other biotechs in the particular GIX industry or

901
00:36:54,640 --> 00:36:55,080
sector.

902
00:36:56,060 --> 00:36:59,740
Or I want to add a business involvement

903
00:36:59,740 --> 00:37:00,220
screen.

904
00:37:00,400 --> 00:37:03,260
I don't want anything to do with alcohol

905
00:37:03,260 --> 00:37:07,940
or tobacco, abortion, contraceptives, all that stuff.

906
00:37:09,560 --> 00:37:12,940
And then once that's all figured out, this

907
00:37:12,940 --> 00:37:15,520
tax transition analysis is going to give you

908
00:37:15,520 --> 00:37:16,940
a sense for what the portfolio is going

909
00:37:16,940 --> 00:37:17,520
to look like.

910
00:37:18,000 --> 00:37:22,640
The account's funded, it's traded, and then from

911
00:37:22,640 --> 00:37:24,520
there it's going to be tax loss harvested

912
00:37:24,520 --> 00:37:26,040
on a periodic basis.

913
00:37:26,880 --> 00:37:32,460
Some firms do daily, monthly, quarterly, but you're

914
00:37:32,460 --> 00:37:33,940
going to be able to take advantage of

915
00:37:33,940 --> 00:37:34,920
that market volatility.

916
00:37:36,160 --> 00:37:42,280
And then the client statement can be requested.

917
00:37:42,740 --> 00:37:47,000
So we don't send these out to every

918
00:37:47,000 --> 00:37:50,200
client, but depending on what platform you're using

919
00:37:50,200 --> 00:37:53,060
it on, you can have access to a

920
00:37:53,060 --> 00:37:56,380
portal that will show you all the tax

921
00:37:56,380 --> 00:37:57,500
loss harvesting activity.

922
00:37:57,660 --> 00:37:58,800
So it's going to show you why we

923
00:37:58,800 --> 00:37:59,780
traded a security.

924
00:38:00,280 --> 00:38:01,880
Was it because of a tax loss harvest?

925
00:38:02,320 --> 00:38:04,120
Was it because the security went out of

926
00:38:04,120 --> 00:38:04,660
the index?

927
00:38:05,000 --> 00:38:06,100
Was it a rebalance?

928
00:38:07,480 --> 00:38:11,500
Or the advisor can request a custom quarterly

929
00:38:11,500 --> 00:38:13,420
report that we can run and send to

930
00:38:13,420 --> 00:38:13,640
them.

931
00:38:14,080 --> 00:38:16,580
We also talk to advisors and clients and

932
00:38:16,580 --> 00:38:21,520
explain, we can do quarterly reviews explaining what

933
00:38:21,520 --> 00:38:23,380
we did and why we did it.

934
00:38:23,980 --> 00:38:25,800
But you mentioned a couple of things that

935
00:38:25,800 --> 00:38:27,660
I'd love to just circle back on, on

936
00:38:27,660 --> 00:38:28,160
a couple of these.

937
00:38:28,240 --> 00:38:30,460
And I think you kind of already in

938
00:38:30,460 --> 00:38:32,260
your last response kind of hit on the

939
00:38:32,260 --> 00:38:33,480
whole, I was going to bring up the

940
00:38:33,480 --> 00:38:34,680
whole ESG question.

941
00:38:34,840 --> 00:38:37,520
It seems like direct indexing is a great

942
00:38:37,520 --> 00:38:40,260
opportunity for people who want to have control

943
00:38:40,260 --> 00:38:42,920
of where they want their money not invested

944
00:38:42,920 --> 00:38:47,720
or planned, that kind of values kind of

945
00:38:47,720 --> 00:38:47,960
thing.

946
00:38:48,400 --> 00:38:53,580
But you mentioned previously this using qualified dividends,

947
00:38:53,920 --> 00:38:55,960
and we didn't really talk much about that

948
00:38:55,960 --> 00:38:58,960
and just love to have you elaborate on

949
00:38:58,960 --> 00:39:00,880
that a little bit more.

950
00:39:01,340 --> 00:39:06,360
And then the frequency of loss harvesting, you

951
00:39:06,360 --> 00:39:08,720
said, I think you said something about quarterly,

952
00:39:09,740 --> 00:39:11,800
and I was thinking that didn't sound like

953
00:39:11,800 --> 00:39:13,360
as frequent as I would have expected.

954
00:39:13,880 --> 00:39:16,160
So could you hit on either or both

955
00:39:16,160 --> 00:39:17,940
of those kind of topics a little more?

956
00:39:18,420 --> 00:39:18,780
Yeah, sure.

957
00:39:18,900 --> 00:39:21,280
So 80% of the stocks in the

958
00:39:21,280 --> 00:39:24,820
S&P pay a dividend, and whether that

959
00:39:24,820 --> 00:39:28,280
dividend is treated as qualified or non-qualified

960
00:39:28,280 --> 00:39:30,340
depends on your holding period.

961
00:39:30,780 --> 00:39:32,460
So if you've held a stock for 61

962
00:39:32,460 --> 00:39:34,400
days and it pays you a dividend, it's

963
00:39:34,400 --> 00:39:35,980
going to be treated as a qualified dividend,

964
00:39:35,980 --> 00:39:37,400
and that is going to be taxed at

965
00:39:37,400 --> 00:39:40,220
the preferential long-term capital gain rate.

966
00:39:41,040 --> 00:39:45,360
And again, if you're in that 35%

967
00:39:45,360 --> 00:39:48,820
bracket, you're going to be receiving that dividend

968
00:39:48,820 --> 00:39:50,640
and you're going to pay 15% on

969
00:39:50,640 --> 00:39:52,660
it, so you're going to save 20%

970
00:39:52,660 --> 00:39:55,540
in taxes as opposed to if you held

971
00:39:55,540 --> 00:39:56,980
it for less than 61 days.

972
00:39:57,340 --> 00:40:00,540
So that's something that shouldn't be overlooked.

973
00:40:01,020 --> 00:40:03,940
Earning qualified dividends can, again, help your after

974
00:40:03,940 --> 00:40:05,240
-tax performance.

975
00:40:06,480 --> 00:40:07,240
So that's number one.

976
00:40:07,600 --> 00:40:10,060
The second question around...

977
00:40:10,060 --> 00:40:11,360
Well, it sounds like maybe you just answered

978
00:40:11,360 --> 00:40:14,420
part of that as to why quarterly, right?

979
00:40:14,880 --> 00:40:15,600
There you go.

980
00:40:15,660 --> 00:40:17,520
Those are related considerations.

981
00:40:18,240 --> 00:40:18,840
It is.

982
00:40:19,100 --> 00:40:23,180
So the more frequently frequent that you're trading,

983
00:40:23,420 --> 00:40:26,940
you're less likely to earn qualified dividends.

984
00:40:27,780 --> 00:40:30,200
The more likely if you have other active

985
00:40:30,200 --> 00:40:33,180
managers trading individual stocks.

986
00:40:34,060 --> 00:40:35,800
Again, if you have a large-cap growth

987
00:40:35,800 --> 00:40:37,480
separately managed account and you have a large

988
00:40:37,480 --> 00:40:40,720
-cap direct indexing strategy, you could run into

989
00:40:40,720 --> 00:40:42,800
wash sales if you're trading more frequently.

990
00:40:43,620 --> 00:40:47,180
But I think it's less about the frequency

991
00:40:47,180 --> 00:40:49,940
of the trading and more about the magnitude

992
00:40:49,940 --> 00:40:52,180
of losses or the taxes saved.

993
00:40:53,540 --> 00:40:55,660
So what I mean by that is every

994
00:40:55,660 --> 00:40:57,520
firm is going to have a threshold.

995
00:40:59,200 --> 00:41:01,280
Short-term losses are worth more than long

996
00:41:01,280 --> 00:41:01,820
-term losses.

997
00:41:02,180 --> 00:41:04,700
So if a security is down 5%

998
00:41:04,700 --> 00:41:07,140
on a short-term basis, that is attracted

999
00:41:07,140 --> 00:41:09,100
to us to harvest a loss.

1000
00:41:09,440 --> 00:41:12,000
For another firm, it might say, hey, if

1001
00:41:12,000 --> 00:41:14,080
it's down 2%, I'm willing to take that

1002
00:41:14,080 --> 00:41:14,440
loss.

1003
00:41:15,460 --> 00:41:17,560
And then long-term losses are worth less

1004
00:41:17,560 --> 00:41:19,140
because they're going to be taxed, they're going

1005
00:41:19,140 --> 00:41:21,420
to offset gains at a lower rate.

1006
00:41:21,800 --> 00:41:22,960
So you're going to want those securities to

1007
00:41:22,960 --> 00:41:25,000
be down more before you harvest them.

1008
00:41:25,860 --> 00:41:29,340
And markets tend to exhibit momentum characteristics.

1009
00:41:30,560 --> 00:41:34,420
So if you harvest monthly and the stock

1010
00:41:34,420 --> 00:41:37,600
continues to go down, then you just kind

1011
00:41:37,600 --> 00:41:40,040
of left some money on the table, but

1012
00:41:40,040 --> 00:41:40,880
you never really know.

1013
00:41:41,180 --> 00:41:45,420
So it goes back to the manager's strategy

1014
00:41:45,420 --> 00:41:49,480
in balancing this idea of wash sales and

1015
00:41:49,480 --> 00:41:50,760
how long you're willing to be out of

1016
00:41:50,760 --> 00:41:53,500
a stock, how much is a loss worth

1017
00:41:53,500 --> 00:41:54,060
to you.

1018
00:41:54,700 --> 00:41:57,300
If you look at how much somebody might

1019
00:41:57,300 --> 00:42:00,860
be able to expect in losses, if you

1020
00:42:00,860 --> 00:42:04,100
think about just a cash-funded account, so

1021
00:42:04,100 --> 00:42:06,520
no restrictions, we're just taking all the market

1022
00:42:06,520 --> 00:42:07,740
volatility as it comes.

1023
00:42:08,460 --> 00:42:12,100
Over the long term, we say, think about

1024
00:42:12,100 --> 00:42:14,580
20 to 25, sorry, over like a three

1025
00:42:14,580 --> 00:42:16,800
to five year period, consider 20 to 25

1026
00:42:16,800 --> 00:42:18,400
% of the portfolio's value.

1027
00:42:19,080 --> 00:42:20,280
We can generate the losses.

1028
00:42:21,580 --> 00:42:24,480
So if you've got a million dollar portfolio

1029
00:42:24,480 --> 00:42:26,260
at the end of three to five years,

1030
00:42:26,320 --> 00:42:29,280
depending on market volatility, you could have anywhere

1031
00:42:29,280 --> 00:42:32,880
from 200 to $250,000 of losses that

1032
00:42:32,880 --> 00:42:33,740
have been generated.

1033
00:42:34,720 --> 00:42:38,420
Meanwhile, that strategy is going to perform in

1034
00:42:38,420 --> 00:42:39,520
line with the index.

1035
00:42:40,190 --> 00:42:44,100
So just because we have a year like

1036
00:42:44,100 --> 00:42:46,600
the last two years where the market's up

1037
00:42:46,600 --> 00:42:50,920
23%, there's still volatility that happens intra-year.

1038
00:42:51,200 --> 00:42:53,140
This isn't just an end of the year

1039
00:42:53,140 --> 00:42:53,620
activity.

1040
00:42:54,080 --> 00:42:55,300
So you harvest those losses.

1041
00:42:56,200 --> 00:42:59,140
And a lot of firms will also accommodate

1042
00:42:59,140 --> 00:43:01,200
lost harvesting requests.

1043
00:43:01,600 --> 00:43:03,200
So we tend to do it more on

1044
00:43:03,200 --> 00:43:06,680
a quarterly basis, but the client can say,

1045
00:43:07,260 --> 00:43:08,940
hey, do you mind harvesting some losses?

1046
00:43:09,060 --> 00:43:10,560
I see it in the account and we

1047
00:43:10,560 --> 00:43:11,900
will accommodate that.

1048
00:43:12,080 --> 00:43:14,200
Again, it's a relationship.

1049
00:43:14,600 --> 00:43:17,120
It's not just setting it and forgetting it

1050
00:43:17,120 --> 00:43:19,880
with an index fund or ETF or a

1051
00:43:19,880 --> 00:43:20,520
mutual fund.

1052
00:43:20,760 --> 00:43:23,100
You have some say in the process.

1053
00:43:23,240 --> 00:43:26,480
The client can take that investable universe or

1054
00:43:26,480 --> 00:43:28,640
that opportunity set and narrow it into an

1055
00:43:28,640 --> 00:43:32,980
investable universe based on their own personal values

1056
00:43:32,980 --> 00:43:34,960
or specific needs.

1057
00:43:34,960 --> 00:43:36,060
Thank you so much, Greg.

1058
00:43:36,140 --> 00:43:38,560
We've covered so much today in our conversation.

1059
00:43:38,960 --> 00:43:40,640
We really appreciate you being here.

1060
00:43:40,760 --> 00:43:42,820
As we wrap up, is there anything else

1061
00:43:42,820 --> 00:43:44,860
that you want to share with our listeners

1062
00:43:44,860 --> 00:43:46,500
that we didn't ask you about that we

1063
00:43:46,500 --> 00:43:48,500
should definitely make sure to get in before

1064
00:43:48,500 --> 00:43:50,580
we end our conversation?

1065
00:43:51,000 --> 00:43:53,780
I think every advisor has a client where

1066
00:43:53,780 --> 00:43:56,720
direct indexing is going to be a good

1067
00:43:56,720 --> 00:43:57,100
fit.

1068
00:43:57,360 --> 00:44:02,480
It helps advisors take the underperformance conversation off

1069
00:44:02,480 --> 00:44:02,920
the table.

1070
00:44:03,420 --> 00:44:05,500
You don't have to worry about apologizing for

1071
00:44:05,500 --> 00:44:08,680
a manager that underperformed, and you're elevating the

1072
00:44:08,680 --> 00:44:11,420
level of conversation from how did I do

1073
00:44:11,420 --> 00:44:13,740
relative to the index to now how much

1074
00:44:13,740 --> 00:44:18,300
after-tax outperformance did you provide?

1075
00:44:19,200 --> 00:44:22,540
Going back to this idea of owning individual

1076
00:44:22,540 --> 00:44:25,520
stocks in a portfolio, you guys know that

1077
00:44:25,520 --> 00:44:27,940
the most important, at least in my opinion,

1078
00:44:28,060 --> 00:44:30,840
most important job that an advisor has is

1079
00:44:30,840 --> 00:44:32,740
keeping their clients invested in the market.

1080
00:44:34,420 --> 00:44:38,880
Direct indexing, I think, really addresses the behavioral

1081
00:44:38,880 --> 00:44:39,540
aspect.

1082
00:44:40,580 --> 00:44:44,000
When there's market volatility, clients get nervous, and

1083
00:44:44,000 --> 00:44:45,940
they want their advisors to be doing something

1084
00:44:45,940 --> 00:44:46,560
for them.

1085
00:44:47,060 --> 00:44:48,240
They want to see activity.

1086
00:44:48,820 --> 00:44:49,540
What are we doing?

1087
00:44:49,600 --> 00:44:50,780
Are we going to fire this manager and

1088
00:44:50,780 --> 00:44:51,500
move somewhere else?

1089
00:44:52,220 --> 00:44:54,200
You know that the best thing to do

1090
00:44:54,200 --> 00:44:55,580
is usually just sit tight.

1091
00:44:56,340 --> 00:45:00,420
Well, with direct indexing, you can see trades

1092
00:45:00,420 --> 00:45:00,940
happen.

1093
00:45:01,560 --> 00:45:03,780
When there's market volatility, we're turning those lemons

1094
00:45:03,780 --> 00:45:04,540
into lemonade.

1095
00:45:05,520 --> 00:45:09,020
It is taking advantage of this market volatility

1096
00:45:09,020 --> 00:45:12,680
and generating these tax losses or these tax

1097
00:45:12,680 --> 00:45:15,220
write-offs for the client to use in

1098
00:45:15,220 --> 00:45:15,540
the future.

1099
00:45:15,700 --> 00:45:19,080
I think it's really important to help keep

1100
00:45:19,080 --> 00:45:20,000
clients invested.

1101
00:45:20,180 --> 00:45:23,300
I think it solves a pretty cool use

1102
00:45:23,300 --> 00:45:25,000
case in that respect.

1103
00:45:25,540 --> 00:45:27,300
Greg, do you ever have to do education

1104
00:45:27,300 --> 00:45:29,900
to the client to explain, this is actually

1105
00:45:29,900 --> 00:45:31,880
a good thing, we're selling this thing while

1106
00:45:31,880 --> 00:45:32,420
it's down?

1107
00:45:32,700 --> 00:45:35,100
I think sometimes clients get hung up on

1108
00:45:35,100 --> 00:45:38,580
the idea of, now you realize that loss,

1109
00:45:38,800 --> 00:45:42,160
as if that's not helpful when it actually

1110
00:45:42,160 --> 00:45:42,560
is.

1111
00:45:43,140 --> 00:45:43,280
Yeah.

1112
00:45:43,640 --> 00:45:48,820
With indexing, we don't care about the individual

1113
00:45:48,820 --> 00:45:50,000
stock that we're harvesting.

1114
00:45:52,120 --> 00:45:53,620
We're agnostic there.

1115
00:45:53,780 --> 00:45:55,580
But if you had a conviction, certainly, about

1116
00:45:55,580 --> 00:45:57,980
a particular stock that you owned, and you

1117
00:45:57,980 --> 00:45:59,860
saw that down and you didn't want to

1118
00:45:59,860 --> 00:46:03,620
part with it, that's another story.

1119
00:46:03,960 --> 00:46:06,620
But advisors have been tax-loss harvesting for

1120
00:46:06,620 --> 00:46:09,860
clients forever, usually at the end of the

1121
00:46:09,860 --> 00:46:10,080
year.

1122
00:46:10,260 --> 00:46:13,500
Clients know this is something that my advisor

1123
00:46:13,500 --> 00:46:14,480
usually does for me.

1124
00:46:14,780 --> 00:46:16,940
It's just, we're doing it on a systematic

1125
00:46:16,940 --> 00:46:18,380
basis throughout the year.

1126
00:46:20,740 --> 00:46:23,500
Yeah, so not as much education on that.

1127
00:46:23,640 --> 00:46:27,620
But it does take some education to talk

1128
00:46:27,620 --> 00:46:29,260
to clients, explain what's going to happen.

1129
00:46:29,740 --> 00:46:33,120
Once they see it working, they usually love

1130
00:46:33,120 --> 00:46:33,940
it and stick with it.

1131
00:46:34,700 --> 00:46:36,420
Greg, I bet there's some people who'd like

1132
00:46:36,420 --> 00:46:38,040
to know how to learn more.

1133
00:46:38,220 --> 00:46:40,760
You should certainly give them some insight as

1134
00:46:40,760 --> 00:46:42,340
to how to reach you and learn more

1135
00:46:42,340 --> 00:46:44,060
about your firm's offerings.

1136
00:46:44,940 --> 00:46:45,300
Sure, yeah.

1137
00:46:45,400 --> 00:46:47,180
So they can check out Natixis, and we

1138
00:46:47,180 --> 00:46:49,660
have a direct indexing kind of microsite.

1139
00:46:50,400 --> 00:46:55,280
I'm also active on LinkedIn, posting articles and

1140
00:46:55,280 --> 00:46:59,100
blog posts and covering my travels and who

1141
00:46:59,100 --> 00:47:00,200
I'm speaking with.

1142
00:47:00,440 --> 00:47:02,080
And so you can find me on LinkedIn

1143
00:47:02,080 --> 00:47:03,000
at Greg Canarian.

1144
00:47:03,980 --> 00:47:04,540
Perfect.

1145
00:47:04,980 --> 00:47:05,760
Thank you, Greg.

1146
00:47:06,260 --> 00:47:08,600
And just one piece of housekeeping before we

1147
00:47:08,600 --> 00:47:10,240
wrap up, I just want to remind all

1148
00:47:10,240 --> 00:47:12,700
of our listeners, well, invite you really to

1149
00:47:12,700 --> 00:47:16,760
join us for Taxes and Tombstones, Estate Planning

1150
00:47:16,760 --> 00:47:19,520
for a Wicked Smooth Exit, which will be

1151
00:47:19,520 --> 00:47:22,300
our first Wicked Good half-day talk of

1152
00:47:22,300 --> 00:47:22,940
2025.

1153
00:47:24,140 --> 00:47:26,520
You'll find us at the Conference Center at

1154
00:47:26,520 --> 00:47:29,020
Waltham Woods on Thursday, March 20th.

1155
00:47:29,220 --> 00:47:30,500
I'm really excited about the lineup.

1156
00:47:30,720 --> 00:47:33,980
We have Fiduciary Trust Counsel Tricia Smock, who

1157
00:47:33,980 --> 00:47:36,680
will dive into the recent changes to Massachusetts

1158
00:47:36,680 --> 00:47:37,860
estate tax laws.

1159
00:47:38,320 --> 00:47:41,520
Kate Huffnagle, the digital wrangler, will discuss helping

1160
00:47:41,520 --> 00:47:44,480
individuals and families with the practical aspects of

1161
00:47:44,480 --> 00:47:45,620
getting their affairs in order.

1162
00:47:46,300 --> 00:47:48,860
And I'm really excited about our keynote speaker.

1163
00:47:49,000 --> 00:47:51,240
Natalie Choate will join us to share her

1164
00:47:51,240 --> 00:47:55,340
expertise on Post-Secure Act Retirement Distribution Planning.

1165
00:47:55,760 --> 00:47:59,240
So please visit fpanewengland.org for more information

1166
00:47:59,240 --> 00:48:00,160
and to register.

1167
00:48:00,440 --> 00:48:01,740
And we hope to see you there.

1168
00:48:01,880 --> 00:48:03,820
Greg, thanks again so much for taking the

1169
00:48:03,820 --> 00:48:06,380
time to join us today to talk about

1170
00:48:06,380 --> 00:48:09,100
direct indexing and to share your experience and

1171
00:48:09,100 --> 00:48:09,820
wisdom.

1172
00:48:10,320 --> 00:48:12,120
It was lovely to see you, as it

1173
00:48:12,120 --> 00:48:12,720
always is.

1174
00:48:12,760 --> 00:48:14,220
And I hope we can catch up for

1175
00:48:14,220 --> 00:48:14,740
drinks soon.

1176
00:48:15,120 --> 00:48:15,440
Sounds good.

1177
00:48:15,540 --> 00:48:16,680
Thank you so much for having me.

1178
00:48:17,120 --> 00:48:18,880
If you'd like to learn more about the

1179
00:48:18,880 --> 00:48:23,020
Financial Planning Association or FPA New England, visit

1180
00:48:23,020 --> 00:48:27,880
our websites, financialplanningassociation.org for the National Association

1181
00:48:27,880 --> 00:48:30,500
or fpanewengland.org.

1182
00:48:30,900 --> 00:48:33,320
You can learn more about our organization and

1183
00:48:33,320 --> 00:48:34,860
all the upcoming chapter events.

1184
00:48:35,420 --> 00:48:36,180
We hope you'll join.

1185
00:48:36,760 --> 00:48:39,080
That's fpanewengland.org.

1186
00:48:39,460 --> 00:48:41,520
Until next time, have a wicked good day.