Portfolio Services: Complex Scenarios & Practical Solutions

May 19, 2021

Many wealth advisors are drawn to the industry to perform investment selection and strategy, and over time hone their skills, developing best practices in basic portfolio management. Investment management, however, has given way to advancements in technology and is increasingly becoming more commoditized than ever.

Concurrently, an increasing number of advisors are working holistically, considering all aspects of a client’s financial life to develop a comprehensive, long-term plan. Regardless, as many advisors have come to realize they can make a meaningful difference in clients’ lives by improving outcomes beyond investment management, complex client situations arise that call for high-touch, customized solutions beyond standard portfolios.

Members of Dynamic’s Portfolio Services team are finding themselves on the frontlines of such complex client situations more often, particularly when there are millions of dollars on the line.

“The Portfolio Services team works with an ever-increasing number of advisors and RIA firms in a variety of simple to the most complex client situations,” said Dynamic Chief Operating Officer Craig Morningstar.

“Because of this, Portfolio Services team members have developed knowledge and solutions that benefit both advisors and clients. In fact, the complexity of the situations the team handles in just a few months is comparable to what many advisors may handle over the course of their practice’s lifetime.”

Here are just a few of the recent complex scenarios posed to the Portfolio Services team by advisors and the solutions devised for clients:

Scenario #1

A 70-year-old client has $9 million in taxable assets with annual income needs of $500,000. The client would like to withdraw $500,000 without touching the principal amount, designated for each of two adult children at the time of the client’s passing. The client has a moderate risk profile with a risk score of 45. The client was referred by a CPA and is in a higher tax bracket.

Solution: Marisol Fung, CIMA®, director of Portfolio Services, and her team proposed a custom solution that included a combination of Dynamic’s Jumbo-High Growth Defensive model and a municipal bond portfolio. The Jumbo-High Growth Defensive model was recommended because of its design to provide long-term growth with limited downside protection. The team reviewed each of the client’s current holdings and utilized ETFs to add tax efficiency.

To assist the advisor with the client presentation, a detailed proposal was provided that included risk and performance reports, and a Monte Carlo simulation to show whether the client would achieve the expected goals.

After refinements to the proposal due to client preferences and investment changes, the client agreed to move forward, and the Portfolio Services team implemented the portfolio.

Scenario #2

A married couple in their early 50s has about $20 million in assets in various accounts. The primary goal is long-term growth, but the clients are nervous with markets at all-time highs. The complexity in this client situation is that it involves 10-plus accounts at different custodians, including outside 401K accounts with limited investment options.

Solution: The multiple accounts were set up in a single household model to take advantage of asset allocation optimization. Positions with the highest growth potential were put in tax-exempt accounts first, then taxable accounts and lastly, non-qualified accounts. One of the accounts was managed by an SMA with a municipal bond portfolio to achieve tax-free income. Some of the assets were invested in stages using a dollar-cost averaging method to help ease the client’s concern about a toppy market.

Dynamic continues to review and rebalance the overall household, including incorporating the held away 401K accounts in the overall asset allocation.

Scenario #3

The client is in her 60s and has a current portfolio comprised of low-cost basis, concentrated individual equities. The portfolio is approximately $600,000 and the client has a 10% withdrawal rate. The goal was to come up with a solution to manage the equities in a tax-efficient manner.

Solution: The PS team devised a direct indexing solution that could manage the current holdings while taking advantage of tax loss harvesting opportunities. Direct indexing allows for efficient and automated management of individual equities. As a result, the client will be able to diversity low-cost basis holdings over time. The portfolio will mirror the performance of a broad market index with minimal tracking error.

The above scenarios are just a few of the cases Portfolio Services has worked with advisors on this year. To find out how the Portfolio Services team can help you resolve complex client situations, submit a General Inquiry service request with any relevant statements.

Photo: Ross Sneddon, Unsplash

The scenarios listed above are for informational purposes only and do not purport to contain all the relevant information that investors may wish to consider in making investment decisions and is not intended to be a substitute for exercising independent judgment with each individual client.