Two new tax efficiency tools are available to help advisers in portfolio management, specifically with the complex decision making as-sociated with their clients' stock holdings.
Two new tax efficiency tools are available to help advisers in portfolio management, specifically with the complex decision making as-sociated with their clients' stock holdings.
One application is from Scivantage Inc. of Jersey City, N.J. The company rolled out its Maxit product three months ago in pilot programs, and it is being provided to advisers through four broker-dealers.
Another, Efficient Tax, is also web based, with a focus on taxes, and is available directly to advisers. ET, as its creator affectionately refers to it, is provided by Efficient Tax LLC of Anchorage, Alaska, and is meant to help advisers and their investor clients address the tax consequences of a potential stock sale. Calculations are based on potential growth projections as compared with the value of what could be written off in terms of a sell loss.
Casey Boland, a fee-only adviser with Hengehold Capital Management LLC, said that based on a cursory review of both vendors' websites and the limited examples of output available, the applications would appeal mainly to advisers who feel that their in-house technology was inadequate or lacking depth in these areas. Hengehold of Cincinnati manages more than $250 million in assets.
"It's hard to find a program that is all encompassing. We use live gain/loss information from Advent [Software Inc. of San Francisco] that's based on yesterday's close, and I'm pretty confident using it," Mr. Boland said.
He added that while the real-time adjusted cost data available in the Scivantage system would be nice to have, it wasn't enough to sway him from using the solution he currently employs from Advent.
Mr. Boland is confident that the Efficient Tax application will be of interest to advisers as a tool to supplement their decision-making process when contemplating the sale of stocks from a client's portfolio.
"I think where this tool could be helpful is for advisers who need help applying a more disciplined ap-proach on sell decisions," he said.
Mr. Boland added that he'd like to see more examples of calculations than the single example available at the website and that an online video demonstration of the software would also be helpful, which is something the software's creator is considering.
The Maxit application provides a suite of automated real-time tools using adjusted-cost-basis and tax-based data meant to help financial advisers track their clients' capital gains and generate Schedule D's for tax filing. These tools are fully integrated with a broker-dealer's portfolio management platform and at present represent no additional fees or cost to the adviser.
The adjusted-cost-basis calculations take into account an investor's combined holdings, the period held, current market prices, the investor's tax bracket, relevant Internal Revenue Code and portfolio net gain/loss activity to help an adviser plan how to minimize taxes when contemplating a buy, hold, sell or when confronting some other lot relief method.
Cameron Routh, senior vice president of strategic products for Scivantage, declined to provide the names of the firms providing the technology but said that eight broker-dealers should be offering it by the end of the second quarter of 2008.
"The key to our Maxit engine is the additional input from our team of corporate-actions analysts," Mr. Routh said. These analysts monitor every major corporate action, such as mergers and acquisitions."
The system takes all the transactions and events, and then applies the relevant tax rules and tax ratios, according to Mr. Routh.
Maxit's calculations are based on the adjusted costs of stocks rather than the original costs of those stocks used by offerings from other companies, including ADP Clearing and Outsourcing Services Inc. of New York, Advent Software Inc. of San Francisco, Albridge Solutions Inc. of Lawrenceville, N.J., and a component of the WealthStation application from SunGard Data Systems Inc. of Wayne, Pa.
Mr. Routh said that a wealth management tool that will leverage the Maxit engine is in development and should be launched sometime during the second quarter of 2008.
That tool, he said, will allow advisers to take a more passive role in monitoring their clients' portfolios for tax efficiency throughout the year, rather than the more active role they currently have to take at the end of the year.
"Basically, anytime that we can use software that is more automated and saves us on manual input and takes the legwork out of manual calculations, we are interested in knowing more," said Sabrina F. Lowell, an adviser with Mosaic Financial Partners Inc., a San Francisco firm with $360 million in assets under management.
She added that both applications seem to provide such impetus.
While her firm currently uses iRebal re-balancing software (from ThinkTech Inc., a company now owned by TD Ameritrade Holding Corp. of Omaha, Neb.) for calculations similar to those done by the Maxit product, she said that it would be of interest as a possible alternative.
"There can be real opportunity for an investor in taking a tax loss at the appropriate time on a given stock," said David Gottstein, chief operating officer of Efficient Tax.
"What I'm really trying to do with the software is help the adviser quantify the opportunity cost of doing nothing [with a client's stock holdings]."
Mr. Gottstein said that the online tool — built on his own patented technology — was meant to take advantage of optimum selling opportunities that can occur throughout the year.
The software uses original cost basis, short-term and long-term capital gains rates, and the amount of time held along with modeling based on a future growth algorithm created by Mr. Gottstein to determine if $1 currently invested in a given security might return more, accounting for taxes, if it were sold and invested in some other security.
This calculation, he said, will help the investor and adviser reach an optimized tax efficiency calculation to weigh more accurately how much extra return is needed in order to more than offset the tax liability associated with selling a taxable asset.
Mr. Gottstein has not finalized pricing for use of the software and instead wants to reach advisers interested in its use with a free trial.
Advisers can obtain more information by viewing the respective websites, efficienttax.com and scivantage.com.
Davis D. Janowski is the technology reporter for InvestmentNews. If you'd like to read a full review of the products in this story, he can be reached at djanowski @crain.com.
