Looking for a Financial Advisor Who Specializes in Personal Indexing?

If you could invest for your retirement with the potential to pay lower taxes while gaining greater control over what goes into your portfolio, would you be interested?

Thanks to a combination of advances in technology and trading tools available in the marketplace, a financial advisor who specializes in building personal index portfolios may be able to save you money on taxes with lower costs than mutual funds and ETFs, plus greater flexibility to choose the stocks and bonds in your account.

While the process may sound complicated and expensive, the reality suggests otherwise when you find the right financial advisor who specializes in personalized indexing and offers their services at a fair cost.

If you’re preparing to hire a financial advisor, should you hire an advisor who can build a personal index portfolio for you? Let’s learn more about this investment approach to help you decide if hiring an advisor who specializes in personalized indexing is right for you.

📊 Get to Know Financial Advisors Who Create Personal Index Portfolios

This page is organized into sections to help you quickly find the information you need and get answers to your questions:

1. Q&A with Financial Advisors Who Specialize in Personal Indexing
2. Get Answers to Your Questions About Personal Indexing
3. Browse Related Articles

– Financial Advisors Who Specialize in Personal Indexing –

Q: Beyond the mechanics of creating Personal Index Portfolios, can you describe the types of people who may benefit most from this style of investing?

Todd: There are three broad categories of where Personal Index Portfolios add a lot of value:

1. Tax Alpha

One is that personal indexing can produce tax alpha. A core part of our advisory service is active tax management which is the combination of tax-loss harvesting, gains harvesting, gains deferral, holding period management, tax-lot identification, charitable gifting identification, and monitoring IRS rules in the context of a client’s unique tax budget and asset allocation.

It’s a lot of work, but it pays off by improving the tax efficiency of portfolios.  Many studies have shown that this process can improve after-tax returns by up to 1% per year or more on average.

2. Transitioning Portfolios

The second is transitioning portfolios — the process of building an index-like portfolio around a client’s existing holdings with embedded capital gains and then transitioning fully over multiple tax years with the benefit of active tax management.

A special case is where a client has a highly appreciated single stock, typically acquired either as an executive or through the sale of a business.  Personal indexing is a great process for building an index-like portfolio around a low basis stock position and then using tax-loss harvesting techniques to efficiently offset gains as we systematically reduce the concentration.  Over time this technique can diversify a concentrated holding into an index-like portfolio while retaining complete control over net realized capital gains.

3. Client Preferences

The third category is for clients who have unique personal preferences or environmental, social, or faith-based values they want to be reflected in their portfolio. Owning a Personal Index Portfolio of individual stocks allows us to manage these constraints in a tax and risk-controlled process.

It gets fun when we are able to perform a “portfolio rescue,” helping a client transition from a large broker-dealer type firm where they have multiple separately managed accounts, mutual funds, built-in gains, etc. with no clear direction or tax oversight. We can combine their assets into one account, making the paperwork as simple as possible, providing comprehensive tax management while at the same time implementing social or faith-based screens. Often this dramatically lowers their overall cost structure as well.

Q: How does the cost of building and maintaining a Personal Index Portfolio for a typical client compare to an investment portfolio traditionally offered by many financial advisors?

Todd: Our baseline when constructing portfolios is to use low-cost index ETFs as building blocks.  In that scenario, an all-ETF portfolio with a 70/30 allocation has an internal expense ratio of a little less than 5bps.

When we swap out the US large-cap ETF for an individual stock tracking portfolio the internal expense ratio of the entire portfolio goes down to about 3.5bps since the portfolio of individual stocks doesn’t have an expense ratio. 

We provide Personal Index Portfolios, active tax management, environmental, social, and faith-based investing at no additional cost above our investment advisory fee.

Q: For people interested in hiring you to create a Personal Index Portfolio who are already invested in mutual funds and/or ETFs, what does the transition process look like, and are there tax implications to consider?

Todd: For each new client, we analyze multiple scenarios detailing the tradeoffs between portfolio drift and realized capital gains when transitioning a clients’ existing holdings. Those scenarios represent a range of potential decisions from high capital gains and low drift to low capital gains and high drift.

The result of this scenario analysis is a written transition plan and an annual tax budget we use to manage the process within our active tax management framework. This gives the client control over annual net realized gains while understanding the risk and return tradeoffs involved.

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