Griffin Kelly at Daily Upside covered the expanded Vanguard and Envestnet partnership aimed at one of the biggest obstacles to model portfolios: moving a legacy account into a standardized model can trigger a large capital gains bill. Broadridge expects model assets to reach $18.6 trillion by 2030, so the problem is not small.
I gave him a recent example from my practice. A client held $2.8 million of a single stock bought for a few dollars a share in 1997. The model made perfect sense from a diversification standpoint, but the tax bill did not. The easy move is to reset and take the tax hit all at once, but that is rarely the right answer.
What actually works for legacy clients is a multiyear migration. Gradually unwind the concentrated position while running the rest of the account toward the model, use gains-realization budgets that stay under bracket and Medicare surcharge thresholds, harvest losses where they exist, and consider charitable gifting of appreciated shares for clients who give anyway. The destination is the same. The route respects the tax code.
Tools that automate tax-aware transitions help, and I welcome them. They do not replace the judgment about how fast a specific client should get there.
Read the full article at Daily Upside →
