PART 3: How to Implement a Portfolio for an Affluent Family or Foundation

This blog will be considered Part 3 of a 4-Part series pertaining to Portfolio Implementation. Please view the Part 1 blog and Part 2 blog.

When assets are transferred in from your previous investment advisor to your account with your new investment advisor you would think the question most firms ask themselves is “how quickly can I get these assets deployed into our products?” At HighView, we understand that this is still an important checkpoint that requires a high level of duty and care. We like to take a more methodical process-driven approach and we do not blindly start liquidating assets once they arrive.

As a reminder, HighView’s Portfolio Implementation Approach is as follows:

HighView’s Portfolio Implementation Approach

Part 1 of this series addressed the 3 key steps that should be taken to properly implement a portfolio. Part 2 of this series addressed the first phase of the client onboarding process Securities Transfer-In Plans.

Part 3 of this series is focused on the second phase of the client onboarding process Portfolio Transition Plans. The purpose of the Portfolio Transition Plan is to strategize and agree on how we are going to transition from the current portfolio structure to the desired/target portfolio structure in the most cost effective and tax efficient manner for the client.

Due to the time lag between when the Securities Transfer-In Plan was prepared and the Portfolio Transition Plan is prepared there could be some new securities that were transferred into the portfolio that never showed up in the client account statements used to prepare the Securities Transfer-In Plan.

This is one of the several reasons why we do not simply “blast out” of a client’s existing positions once we receive them. In fact, when preparing the Portfolio Transition Plan we consider a number of the variables that were listed in Part 2 of this series, but with key consideration to 4 broader buckets:

1) Tax Consequences or Financial Penalties

1. Tax implications
   • Are there any material unrealized capital gains that we need to be aware of prior to transferring?
   • Are there any material losses that we need to be aware of that could be used to offset any gains realized and does the client have any capital loss carryforwards that could be utilized?
2. Managing Tax Situations
   • If there are material gains that would be realized, should we split it over multiple tax years as opposed to realizing everything in a single tax year?
3. Exit/Redemption Fees
   • If there are any back-end load funds what do the redemption fees currently look like and when can the client redeem the position without financial penalty?
   • Until the assets are registered to your firm, fund companies will not (and should not) disclose information to you. This is what makes this step of the process impossible to do prior to receiving the position.

2) Client’s Risk Appetite

1. World events create volatility in capital markets and each client has their own appetite for risk. As a result, we do not try to time the markets given that our investment philosophy is primarily built on cash flow generation with a long-term approach.
   • Are the client comfortable with placing market orders or would they prefer limit orders?
   • Would the client be more comfortable liquidating positions now and remain on the sidelines for a period of time before redeploying cash proceeds?

3) Company Insiders and Special Requests

1. Company Insiders
   • Is the client deemed to be an insider of a particular company and is therefore subject to specific sale/redemption timelines and constraints.
2. Special Requests by the Client
   • Does the client have an emotional attachment to a particular security?
   • Does the client have a particular security earmarked for a specific purpose, such as a donation?

4) Overlap in Investments

1. Overlap of individual securities between our segregated manager portfolio models.
   • If an overlap exists we typically move the position into the segregated manager account and ask the manager to incorporate the position into the overall portfolio model, which could include adding to/trimming the position.

Once we have agreed upon the strategy in which securities are to be sold the portfolio transition plan is then packaged up in a document for the client’s final review before we begin placing trades.

Depending on the positions that are transferred over to us it could take weeks, months or even years to fully complete the portfolio transition plan. Our clients trust us to prudently manage and protect the wealth they’ve worked hard to accumulate, and we feel that it is our fiduciary duty to demonstrate this prudence by giving their existing portfolio assets the level of attention and care they deserve.

If our approach is something that you feel would be a good fit we welcome the opportunity to have a conversation with you.

Be sure to bookmark HighView’s blog “The Wealth Steward” to keep up to date with interesting and relevant industry topics: https://www.highviewfin.com/blog/

Stay tuned for the Part 4 blog pertaining to Portfolio Implementation. Please view the Part 1 and Part 2 blog.