Every calendar year when November rolls around, it means one thing for North American wealth managers: it’s tax-loss harvesting (TLH) season. Throughout the course of the year, when sell orders are placed in clients’ accounts, a realized loss or gain is triggered based on whether a client made or lost money on the trade for a given position. Typically, but not always, as the trading year progresses, a client’s realized gains will increase as more holdings are sold. Firms typically conduct tax-loss harvesting starting in November, in order to offset realized gains with losses, and save a client from facing a big bill come tax season.
The old way to conduct TLH via spreadsheets and manual workarounds is problematic. Due to continued downward pressure on fees, in conjunction with increasing client demands and account complexities, the old way’s cost, scalability limits and error potential render it no longer a viable option. As such, it’s critical to be able to perform tax-loss harvesting for your clients in an effective, scalable and automated manner.
If your firm needs a better TLH method, a contemporary software solution made to address the needs of wealth and investment managers, such as SS&C’s Global Wealth Platform (GWP), can help. Built-in system capabilities can advance your TLH process. For example, with GWP:
- Systematically mitigate risk by automatically presenting all client positions in an intuitive TLH template that offers a point-and-click harvesting capability; avoid manual calculations, spreadsheets and human errors.
- Provide users with an aggregated realized gain/realized loss value by account for the year.
- Allow users to trigger losses based on any of three options:
- Value – total amount targeted to harvest, e.g., $20,000.
- Threshold – relieve all lots that have an unrealized loss of at least a certain amount, e.g., $2,000.
- Percentage – relieve lots that have drifted furthest from the model portfolio.
- Target both losses or gains, depending on each client’s individual circumstances.
- Ensure that client accounts are managed in accordance with their jurisdictional tax requirements, such as lot relief methodology, so that short- and long-term losses can be targeted—or avoided—in line with local tax laws.
- Select and purchase proxy securities to deploy cash during the vesting period
- Systematically disallow wash sales/superficial losses during the vesting period via corresponding compliance rules.
For your firm, having the ability to conduct annual tax-loss harvesting in a scalable, automated and risk-averse manner is critical to the success of your business. TLH provides real value to your clients, and because of that value, helps enrich and strengthen your relationships with them.
SS&C’s Global Wealth Platform was designed from the ground up as a single front-to-back office solution that fulfills all functions throughout the investor lifecycle, including TLH, portfolio accounting, pre- and post-trade compliance, order management, modeling, fee billing and more. To learn more about GWP, download our "GWP for Wealth Managers" brochure.