11 Hot Takes on Portfolio Management

I recently presented at the T3 conference in Las Vegas. The title of my presentation, "Hot takes! All the ways you're doing portfolio management wrong" was meant to be humorous, but the content was entirely serious. It's not a shocking observation that most advisory firms aren't especially good at rebalancing portfolios. What's shocking is just how bad most firms are. According to an analysis from my firm, Smartleaf, when firms implement a more systematic approach to tax management, they see reductions of over 60% in their clients' capital gains tax bills. More surprising is that they also see a 60% reduction in the return dispersion of accounts with similar risk objectives. This shouldn't be possible. It makes sense that portfolios would have a trade off between taxes and dispersion. The fact that advisors can simultaneously improve tax outcomes and dispersion has a sobering implication: most return dispersion is not caused by customization or tax management. It's just noise. An indicator of just how bad the industry is at the basics of portfolio management. How do you know if your portfolio management practices are up to standard? Here's one test. You should be able to document that for most clients, you save or defer more in taxes than you charge in advisory fees. Most advisors fall far short of this standard — they can't even measure the value of their tax management, much less show that it is greater than their fees. What does it take to do better? The key is automation. Almost all elements of personalization and tax management can be automated. And if you automate something, you can do more of it. You can provide every client, of every size, with tax optimization and high levels of personalization. At the same time, you can lower costs and strengthen compliance. Most importantly, you can have more time with clients and prospects.