Black Diamond’s Rebalancer Enhances Tax Season Efficiency

In 1952, American economist Harry Markowitz introduced the Modern Portfolio Theory (MPT), which reshaped how advisors think about risk and returns. However, managing risk is only half the equation—tax efficiency plays just as big a role in maximizing after-tax returns. Today’s top advisors don’t just think about asset allocation; they think about tax allocation, too. The right strategy can boost returns, reduce liabilities, and align portfolios with long-term goals.

One approach is to generate tax alpha by strategically selecting which account types hold certain positions. Managing taxes effectively in an investment portfolio isn’t only valuable—it’s essential. But doing it right takes time, precision, and the right tools.

The Future of Portfolio Management is Here

Thankfully, in the decades since Dr. Markowitz introduced MPT and the idea of using advanced statistical methods to manage risk, technology has made transformative improvements that allow the management of a client’s risk exposure and tax efficiency much more effectively. SS&C Black Diamond’s Rebalancer is an incredibly sophisticated application designed to simplify the management of taxes and risk through the following core features:

• Asset location decisions
  When building the portfolio strategy, determining the amount of exposure needed for a given asset is essential, but the account type in which the asset is purchased can be just as important. Holding assets expected to appreciate in a tax-advantaged account can be extremely valuable when it comes time to sell the position. Rebalancer allows advisors to pre-set the asset location preferences so that, when the system buys or sells assets, it does so within the tax-optimal account.
• Tax-aware rebalancing
  Rebalancing a client’s portfolio can involve trading across multiple accounts as a single entity to align with the investment strategy. Rebalancer manages risk across multiple accounts and recommends trades within different accounts to ensure the proper risk exposure while simultaneously following client-specific rules set to control and manage their realized and unrealized gains/losses, asset location, and wash sales.
• Tax loss harvest identification
  Tax loss harvesting is a method of realizing losses that offset any gains realized for the year. This can be critical in generating tax alpha by reducing tax liability while maintaining the client’s position on the Efficient Frontier. Rebalancer makes identifying and taking advantage of tax loss harvesting opportunities a breeze. Depending on the asset classification, advisors can predefine opportunity criteria by a specific dollar amount or percentage loss. A daily scan across all holdings and tax lots identifies current opportunities, enabling efficient loss harvesting and asset replacement while ensuring compliance with the IRS’ Wash Sale regulations.

Smart Advisors Think Beyond Tax Season

As the weather warms and the days get longer, it serves as an annual reminder that tax season is upon us. However, tax-efficient portfolio management isn’t a season—it’s a strategy. With Black Diamond’s Rebalancer, advisors can stay ahead, keeping client portfolios optimized, compliant, and profitable—year-round.

To learn more about how Black Diamond’s Rebalancer can improve your client’s portfolios and tax returns, call us at 1-800-727-0605, email us at info@advent.com, or request your personal demo.