TaxIQ is an innovative suite of tax management solutions designed to help advisors deliver tax savings to clients with features like automated tax loss harvesting and tax-sensitive rebalancing.
During a recent TaxIQ webinar, we received dozens of insightful questions from members of the Altruist community who were curious to know more about this technology—from configuration options to what features are available to how the tool is priced.
We didn’t have time to cover all of that ground during the webinar, so we took the most frequently asked questions from the community and answered them below to shed more light on how TaxIQ works and what's on the roadmap moving forward.
Configuration and Settings
Q: Is there any review or approval process before any trades are made by TaxIQ?
A: Not currently, but we have rebalance preview capabilities on the roadmap.
Q: Will it be possible to add TaxIQ without having a model assigned? I have a UHNW client that has some significant gains in a non-retirement account. My concern is that assigning a portfolio to the account will trigger a rebalance and create gains that I do not want my client to incur.
A: No, an account must have a portfolio assigned in order to make use of TaxIQ. We are working on a gains budget feature which will give advisors more explicit control over the amount of gains an account can realize over a given period of time.
Q: Are the timing of sell and buy trades for TLH simultaneous (or close to it)?
A: Yes. When a rebalance occurs, we seek to carry out both buys and sells in the same trading day.
Q: How do we disable DRIPS? Is drip able to be turned off by model or by account?
A: Email support@altruist.com to disable DRIPS. DRIPS are an account setting.
Features and Capabilities
Q: Can we set custom rules for tax loss harvesting?
A: Yes, there is some customization available. Advisors can set custom tax rates, and min trade size can be used to control trading size, generally.
Q: Does having Tax Loss Harvesting turned on mean the tool is going to actively seek losses all the time? Or only when it comes time to rebalancing?
A: Currently only when it comes time to rebalance. However, we are working on proactive TLH capabilities that will trigger a rebalance with TLH based on the availability of tax loss harvesting opportunities.
Q: How will TLH handle fixed income securities? When will fixed income support be rolled out?
A: Individual fixed income securities are not supported in model portfolios or TLH (which operates on model portfolios). However, fixed income ETFs and mutual funds are. We also have some exciting announcements coming up about individual fixed income trading, so keep an eye out for those.
Q: Will either event or drift models rebalance if cash is needed to cover fees?
A: At this time, an account will not rebalance in anticipation of fees. However, when an account's cash balance falls above or below the provided settings, it may trigger a rebalance and bring cash back to its target level.
Q: Is it possible to have security exclusions inside of the direct indexing models?
A: Yes
Q: Are taxable corporate accounts eligible for TaxIQ?
A: Yes
Q: Will TaxIQ keep an account of tax losses if not all used in one calendar year?
A: Not at this time, though we are considering allowing advisors to provide carry forward loss amounts for the rebalancer to take into consideration.
Q: Is the wash sale awareness aware enough to look across a client’s different accounts?
A: Not currently, but this capability is currently in development.
Pricing
Q: Can you confirm that if we use a model marketplace strategy that the 10 bp Tax IQ fee is waived?
A: TLH is included at no additional charge for the portion of an account allocated to any fee-based Model Marketplace model.
Q: Can the 10 BPS fee be passed onto the client?
Yes, this setting is configurable as a firm-level default and can be changed individually at the account level as well.
Q: Will there be reporting to show the benefit/efficacy of the TLH for the client?
A: Yes, this is currently in development.
Fund Substitution
Q: Is Altruist going to have suggested fund substitutes or will it be on the advisor to assign them?
Altruist does not suggest fund substitutes. For certain model portfolios in the Model Marketplace the model manager has selected substitutes. In all cases, the advisor has the option to add or change substitutes.
Q: Regarding fund substitutes – if, in your example, VOO was sold to harvest a loss and replaced with SPY, which is categorized as “Equivalent,” and then the client deposits additional funds for investment, would those new dollars be invested in the Primary asset, or the substituted fund?
A: The rebalancer gives preference to the primary security, all things equal. Given no other considerations, like avoiding wash sales, new dollars would go towards the purchase of the primary security.
Q: With regard to substitutes, if you loss harvest out of a preferred security into a substitute, is there an alert received 30 days later that you can now go back into the preferred security that was sold out of? Perhaps an automated way to set this to automatically happen?
A: Managing substitute securities is done automatically as part of rebalancing. Once past the wash sale period, an account may liquidate the substitute and return to its preferred security during its next rebalance (as triggered by an event or drift).
Q: Can one fund (say a total market equity fund) be used as a fund substitute for multiple positions if we have a portfolio with large cap, mid cap, and small cap allocations?
A: No, an individual fund can only be used as a substitute for one primary security in a portfolio.
Q: When Tax Loss Harvester is paired with Altruist’s Direct Indexing Model, does the Direct Indexing Model already have fund substitutes to maximize the loss and to keep tracking error within healthy margin (similar to other direct indexing models at contra-custodians)?
A: The rebalancer automatically purchases other securities in the Direct Index with the goal of keeping tracking error low while harvesting losses.
The future of tax management
TaxIQ offers a new approach to tax management: simple, effective, and efficient. While already a powerful tool, the product roadmap is full of features to make this software even more impactful for advisors. If you have more questions about how TaxIQ works, or want to see if TaxIQ is a good fit for your firm, schedule a chat with our team.
Tax laws and regulations are complex and subject to change, which can materially impact investment results. Altruist believes the information provided herein is accurate but does not guarantee that the information herein is accurate, complete, or timely. Altruist makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Advisors are solely responsible for monitoring client accounts to ensure Rebalancer and TaxIQ Tools and settings are operating as intended. Neither Altruist nor its affiliates provide tax or legal advice or discretionary management of customer accounts. Customers are encouraged to consult their attorney, tax professional and/or investment advisor regarding their individual circumstance. Review the “Altruist TaxIQ Tools and Rebalancer Disclosures” on altruist.com/legal for more information.
