Our team’s approach and implementation provide the ability to tailor portfolios to certain capital gain and tax-related objectives. Unlike mutual funds or other commingled security approaches, a key benefit of our separate account management is that each client holds their own securities and may direct certain trading activity to align the management of the account to their specific circumstance. Please note that each service described here is included in our management services, with no additional charge for use.
In consultation with our clients and their tax professionals, Davidson Investment Advisors can selectively sell positions to realize gains or losses. Generally, this service is used by clients and advisors looking to generate losses in a portfolio to offset capital gains realized through the course of a tax year or to carry forward into future tax years. However, in years where the market is down or where clients may have other losses available to offset embedded gains in their portfolios, our team can also realize gains in client accounts.
Harvesting may be done with a goal of maximizing realized gains/losses, or with a loss or gain target amount. Proceeds from positions sold to harvest gains or losses will be held in cash until wash sale windows expire unless otherwise directed.
Some clients may also choose to opt into our proactive tax overlay service. In this program, our portfolio management team will review client accounts periodically throughout the year for opportunities to harvest available losses. This trading activity is executed with the investment merits of realizing available losses in mind, and not just because a loss may be available at a given time. While long-term risk-adjusted performance is always the goal of our management, we have found this service to be well-received by clients looking to offset realized gains over time.
For client accounts that may be good candidates for Davidson Investment Advisors’ management services, but have large embedded capital gains, our team has a process for working to transition accounts to our management over multiple (generally 2-3) tax years. Such a transition can help ease the burden of realizing large amounts of gains in a given year and is generally executed once our team and your tax professional have agreed on a “gains budget” for the transition.
In this scenario, we will work to realize gains within the agreed-upon budget while attempting to maintain a well-diversified overall portfolio through the transition period. As our goal is to transition accounts as quickly as possible to the desired investment strategy, our team may opportunistically realize losses in transitioning client accounts such that accounts may be transitioned sooner than originally planned. If a prospect for our team’s management may benefit from this service, we ask that Financial Professionals reach out to our team in advance of account opening, so that we can work together to develop a custom transition plan.