Portfolio Management Services: A Core Component of Wealth Management

Portfolio management plays a key role in the wealth management planning process in preserving and growing wealth over the long-term. We take a deliberate and consistent approach to portfolio management which we have found improves outcomes for our clients and builds trust. The main steps we take as a part of the portfolio management process include the following:

Define asset allocation

While asset allocation is simply the mix of stocks, bonds, alternatives and cash in a portfolio, there are many factors to consider when making this decision. The process involves a collaborative discussion regarding your short-term and long-term goals, risk tolerance, risk capacity and time horizon. Once those factors are calibrated, it is much easier to define an appropriate asset allocation that will provide you with the opportunity to meet your goals even through volatile markets.

Understand account types and their tax rules

As a part of the portfolio management process, it is important to identify the account type and its tax rules. For example, the reporting of interest, dividends, capital gains, contributions and distributions are different when comparing retirement accounts and non-qualified accounts such as brokerage accounts. Due to some of those tax rules, you may have an opportunity to increase your after-tax return by locating tax efficient assets, like stocks, in an after-tax account and locating tax inefficient assets, like bonds, in a pre-tax account. This describes an asset location strategy. Implementing an asset location strategy may help improve your after-tax return while maintaining your desired asset allocation on a consolidated basis.

Develop and execute a transition analysis for after-tax portfolios

This process involves reviewing the current holdings of the portfolio, including the embedded capital gains and the holding periods. It’s important to consider any client-directed holdings or exclusions, such as including or avoiding certain companies as desired by the client. Afterwards, execute trades to transition the portfolio to the recommended holdings and asset allocation.

Rebalance regularly

Rebalancing should occur regularly and can be based on portfolio contributions, withdrawals and market movements.

Implement holding or sub-asset class investment changes as needed

This could look like swapping Stock A for Stock B or adjusting the allocation between U.S. equity and international equity due to their future outlook. As mentioned above, when executing trades in an after-tax account, it is important to be mindful of capital gains and the holding period.

Two additional considerations in after-tax accounts

Look for tax loss harvesting opportunities if applicable to your tax situation. Capital losses help offset capital gains incurred in the portfolio or from selling other appreciated capital assets. Additionally, analyze the impact of capital gain distributions from actively traded mutual funds. These usually occur at year-end but can also occur earlier in the year.

Review portfolio performance and use appropriate benchmarks to understand relative performance

Lastly, discuss the impact of fund fees and management fees on investment performance. At least annually, revisit asset allocation and the individual factors (goals, risk tolerance, risk capacity and time horizon) and make changes to the portfolios if appropriate.

Following these steps allows for comprehensive portfolio management that goes beyond simply buying and selling stocks. Taking an intentional approach gives our clients peace of mind, especially during market downturns and helps improve their likelihood of achieving their financial goals.