Everything we do, we design in service of great, independent financial advisors and their clients. This means that top to bottom, we look at everything with a microscope to help ensure that we’re enabling the best possible experience.
That’s the reason Altruist is changing the default cost basis reporting method for all client accounts. This reporting method is used to determine the order in which tax lots are sold. We shifted the default method from first-in-first-out (FIFO) to Minimum Tax (MinTax): a method that is designed to automatically minimize the realized gains generated by taxable trades on our platform.
Most custodians offer advisors and clients the ability to elect the reporting method of their choosing, but the majority of custodians default to FIFO, which may not always be tax efficient. By relying only on when a share was bought, FIFO ignores the tax burden incurred upon clients by failing to look at the broader context.
Normally, to ensure the lowest tax bill for their clients, an advisor needs to send specific instructions to their custodian. In the absence of an instruction to sell shares from a specific lot, purchased on a specific date and for a specific price, custodians typically use FIFO.
Altruist is different. By default, starting October 4th, we’ll use the MinTax method, which sells the shares with the lowest tax burden first, rather than only looking at whether or not the lot is long term. Our new default reporting method prioritizes short-term losses before long-term losses, and long-term capital gains before short-term ones—making this generally more tax-efficient than FIFO by prioritizing the most valuable losses before the most costly gains.
Of course, if an advisor determines another one of our supported reporting methods will be most beneficial to their clients, we have them covered and can support them in updating the default method for any of their accounts.
As advisors on our platform, you can rest assured that we’re always looking for ways to make it easier for you to help create better outcomes for your clients, without additional work. To us, making this change is simply common sense.
For more information, please review the Cost Basis Reporting Method Election section of the Altruist Financial LLC Customer Agreement on our Legal page.