Betterment for Advisors permits advisors to specify buying and selling migration methods to simply transition their shoppers’ portfolios or funding allocations.
- Advisors have three choices when migrating a shopper to a unique portfolio or altering their allocation — every with its personal tax-optimization technique.
- Advisors can preview the tax-impact results of their elections earlier than submitting the change.
Three choices can be found, every with its personal method to managing the transition.
Reduce short-term capital beneficial properties and wash gross sales
When this technique is chosen, the shopper’s objective can be migrated in a tax-optimized manner. For taxable accounts, we’ll promote tax tons which might be at a loss or have skilled long-term capital beneficial properties, however will proceed to carry tax tons with short-term beneficial properties till they both turn out to be long-term beneficial properties or turn out to be losses. For tax-deferred accounts, we are going to migrate with out regard to embedded capital beneficial properties. No matter account kind, we are going to prioritize avoiding wash gross sales that would result in completely disallowed losses for securities held at Betterment.
For this technique, it is very important keep in mind that the account could climate excessive drift within the quick run, however Betterment’s algorithms will sometimes rebalance accessible losses or long-term beneficial properties as they come up, so long as the safety gross sales concerned won’t trigger any completely disallowed losses.
Drift objective to focus on portfolio
For this migration technique, the shopper’s objective can be regularly drifted to the goal portfolio by shopping for underweight securities with inflows / deposits by dividend reinvestments, and promoting obese securities to fund withdrawals. No securities can be bought on account of this variation. This election will usually end in excessive drift, particularly if the portfolio or allocation change includes a big change in composition of the portfolio’s holdings.
When “Drift objective to focus on portfolio” is chosen, an extra election have to be made to decide on whether or not or to not flip off automated rebalancing. That is crucial as a result of Betterment’s commonplace rebalancing algorithms function independently of the migration technique election. Selecting to disable automated rebalancing for the targets will be sure that a rebalance won’t be triggered because of excessive drift that may be attributable to deciding on “Drift objective to focus on portfolio.”
If the advisor elects to depart rebalancing on, Betterment’s automated rebalancing algorithm could take the chance to rebalance the objective shortly after the portfolio or allocation change is full. The rebalancing algorithm avoids gross sales that understand short-term capital beneficial properties or would end in completely disallowed losses for securities held at Betterment.
Rebalance with no tax-impact constraints
For this migration technique, the shopper’s objective can be rebalanced as quickly as potential to the goal portfolio. Betterment will carry out this rebalance in a tax-optimized option to the extent potential, however we won’t delay promoting shares even when doing so may result in a extra optimum tax consequence. Selecting this feature may result in the conclusion of wash gross sales for securities which have been lately bought. After buying and selling is full on the change, the account will sometimes be 100% in stability with the goal portfolio.
After any of those modifications are utilized, the technique election stays energetic till a subsequent change is made.
For every of those migration technique choices, Betterment’s Tax-Influence Preview function is out there in order that the advisor may even see an estimation of the consequences of the choice.