Tax-efficient portfolio transitions using direct indexing
December 20, 2024
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3 min read
There are many reasons why investors may want to transition their investment accounts. But realigning your assets shouldn’t result in unwanted taxes on capital gains.
Financial advisors frequently work with clients who already hold securities in a brokerage account, a separately managed account – or simply in a portfolio built up over time. In many cases the existing portfolio may no longer be suitable for the investor. It might be under-diversified, underperforming, or may no longer align with the client’s goals. But liquidating an existing portfolio and starting from scratch can create significant realized capital gains. This can result in a larger tax bill and less money left over to invest.
Natixis Investment Managers Solutions can help make portfolio transitions less taxing, by using direct indexing. With direct indexing, an investor’s complete portfolio can be transitioned into a single, index-based separately managed account, which can help minimize the tax bite.
Instead of using an off-the-shelf model portfolio, direct indexing portfolios are created individually for each investor. This means that instead of selling off the existing portfolio, investors can transfer selected securities to the new account, selling only as much as necessary for proper diversification. Current positions can be used as a foundation for building out the new indexed portfolio. And because each account is customized, investors can specify capital gains limits to minimize, delay, or avoid any net taxes.
No one should have to pay a tax penalty to transition their investment account, if possible. Using direct indexing offers the flexibility to keep the portfolio professionally managed and defer or minimize capital gains taxes to keep more of your money at work. The new index-based portfolio will incorporate your existing holdings as much as possible.
Direct indexing from Natixis Investment Managers Solutions is a smarter way to handle portfolio transitions, because it can minimize the tax bite.
