Senior Client Success Associate Kyle Cawley offers insight into how our platform helps advisors navigate the complexities of the tax transition conversation with their clients. 

by Kyle Cawley

‍

Key Takeaways: 

1. Tax Transition Analysis: Ethic provides a comprehensive analysis of a client's existing portfolio, showing how transitioning to an Ethic portfolio could impact tax status, sustainability, and performance. This supports advisors in leading informed conversations with clients.
2. Tailored Scenarios: Ethic offers multiple scenarios, allowing advisors to double down on personalization. From fully aligning with sustainability values to tax-aware strategies, clients are offered a full range of options to balance their financial, tax, and sustainability goals.
3. Advisor Empowerment: With the flexibility to customize portfolio transitions, advisors are equipped to guide clients through personalized strategies. This can help clients visualize the long-term scope of the transition, not just what the portfolio will look like tomorrow.

‍

A Pathway to Personalized Investing

Our ability to run a thorough analysis on a client’s existing holdings and provide detailed insights on how transitioning those holdings into an Ethic portfolio will impact their tax status has proved extremely helpful to our clients. This service can be an essential tool for advisors as it allows them to show their clients not only how working with Ethic can support aligning their investments with their values but also how that transition may impact performance and tax outcomes. In short, it puts advisors in the driver’s seat for the transition conversation. 

Providing Tailored Scenarios for Informed Decision-Making

When running a tax transition analysis, we deliver multiple scenarios to illustrate the trade-offs between sustainability, tax, and performance objectives. This is not a one-size-fits-all solution; instead, it is a comprehensive, flexible approach that empowers clients to see a range of outcomes and choose the one that best aligns with their priorities.

When working with a new advisor or end-client, our team collaborates closely with them to look under the hood of their initial portfolio. This is especially insightful for advisors who may not have a clear understanding of how well the current portfolio aligns with the client’s preferred benchmark. Through this process, advisors gain valuable insights into which scenario is right for their client’s financial and tax goals.

Beyond financial performance, our impact metrics provide an additional layer of depth to this conversation. By evaluating the client’s current portfolio against their sustainability objectives, we can demonstrate how the client’s investments currently perform in areas they care about — whether that’s climate change, animal rights, women’s equity, or another value. The result? Clients can see a side-by-side comparison of their initial portfolio, a potential Ethic portfolio, and various scenarios to help visualize the trade-offs and full scope of the portfolio’s potential.  

Our Offering

Our tax transition analysis is structured around several key scenarios, allowing clients to weigh their options based on their personal sustainability and financial goals. While we are able to be flexible in the range of what we can show an advisor and end-client, a transition analysis will typically include:

1. Initial Portfolio
   The initial scenario provides a reference point by evaluating the client’s current portfolio. This allows clients to understand their starting position and how it aligns with their sustainability strategy.
2. Model Portfolio
   This scenario assumes the portfolio is fully cash-funded, meaning all existing positions are liquidated. It offers a baseline to understand how the new investment strategy could perform in terms of both tracking error and sustainability objectives. This provides a clear picture of the transition’s potential benefits and trade-offs.
3. Gains for Full Impact
   For clients deeply committed to sustainability, the Gains for Full Impact scenario shows what it would take to transition to a portfolio that is 100% aligned with their sustainability values. This scenario highlights the minimum gains required to hold only positions that match the client’s values. We’ve found that this can be particularly appealing for those willing to realize gains for a fully sustainable portfolio.
4. Tax Aware
   For clients with a limited gains budget, the Tax Aware scenario is key. This approach seeks to minimize the tax burden by retaining positions flagged as misaligned with the client’s sustainability goals and gradually transitioning out of them over time. This incremental strategy enables clients to balance their sustainability objectives with tax considerations, making it an effective long-term plan that advisors can regularly revisit.

A Comprehensive, Flexible Approach

We’ve found that our tax transition analysis is popular with advisors because it allows us to provide the clarity and flexibility that we strive to offer all our clients. Advisors and clients are empowered with a great deal of optionality through this approach. It enables them to tailor a portfolio transition to fit their unique tax, performance, and impact goals. Whether it’s focusing primarily on value-alignment, tax awareness, or striking a balance between the two, our tools allow us to offer a personalized solution for each client. Furthermore, this approach supports advisors in leading a conversation with their clients on how a portfolio can transition over time, not just in the short term. 

We built our revamped platform, Prospect Plus, with our community in mind to make it even easier for advisors to request new scenarios. Advisors can directly select a specific scenario or start from scratch with new inputs, making the proposal process more seamless and intuitive.

Ultimately, these tax transition analyses simplify the conversation about switching to a personalized strategy. By clearly illustrating what the transition would look like, advisors and clients can proceed with more confidence, knowing the full range of implications for both their values and their portfolio’s performance.

‍

‍