Frequently Asked Questions

Smartleaf provides an advanced portfolio management solution that enables wealth managers to efficiently implement investment decision across all client accounts within one business day – while simultaneously supporting unprecedented levels of customization and tax management. Our goal is to help wealth managers efficiently implement their best thinking. We’ve done our job if every portfolio is managed as if the portfolio manager had unlimited time every day to devote to analysis and rebalancing.

And we help wealth managers document the work they do and the value they provide their clients. With Smartleaf, you can show each client that you review their portfolios daily, and you can show how much you’ve saved them in taxes.

For each portfolio you’re managing:

• You select a “target.” The “target” is simply the hypothetical portfolio you would buy for a client if they started with cash and no restrictions. Typically, there are somewhere between 5 and 50 different targets per firm, one for each client type (e.g. “Aggressive Growth” or “High Net Worth - Taxable -Aggressive Growth”, etc.).
• You specify any customization criteria you want to apply. This includes “never buys,” “never sells,” tax & expense management preferences, minimum trade size, etc.
• Every day, Smartleaf compares the portfolio to its target and, consistent with the customization parameters you’ve set for that portfolio, suggests specific tax-lot level trades that will keep the portfolio close to its target.

Every portfolio tracks – with adjustments for tax, expenses and customization criteria –a blend of one or more model (idealized) portfolios provided by investment analysts. This approach separates research (market beating ideas expressed in the form of model portfolios) and customization (tax management, social criteria constraints, etc.).

This lets you take advantage of the best investment research available while making it easy to customize your clients’ portfolios for individual tax management, risk management and specific investment selections. It automates customization and tax management, making it possible for you to simultaneously increase customization and consistency.

This “start with models then customize” approach is sometimes called “overlay portfolio management” (OPM).

Smartleaf automates the transition and rebalancing of complex, customized and tax-managed portfolios. Your firm benefits from greater nimbleness, lower costs, greater consistency and enhanced compliance.

We enable firms, if they wish, to expand the market segments they serve. Greater efficiency makes it possible to profitably serve lower net worth clients. Greater customization and tax management makes it possible to go upmarket.

We enable your firm to manage every account as if it were your only account – to manage wealth without compromise in the manner you think best serves your clients.

And we do this with a system that is easy to implement.

1. Managing a customized portfolio is no more time consuming than managing an uncustomized portfolio, so your clients’ portfolios can:
   • Enjoy industry leading tax management that generates higher after-tax returns
   • Be customized without compromise to fit each client’s needs
   • Environmental/Social/Governance (ESG) constraints
   • Security & sector constraints
   • Custom asset allocation
   • Custom product selections
   • Benefit from the recommendations of your investment policy committee, even when the portfolio is customized
   • Get access to “best of breed” third-party research that complements your proprietary strategies (open architecture)
2. Smartleaf reduces the time you spend on rebalancing and compliance, so your clients get more time with their advisors.
3. You will be able to document your work and value, which gives your clients increased confidence and comfort that they are in good hands.

Other portfolio management solutions are “command based”, and they don’t’ do anything unless you enter specific commands, like “sell F and buy IBM” or “rebalance my large cap holdings to model weight”. These command-based systems will then generate the trades needed to execute your command across a specified set of accounts and also show you the impact on each account so you can make adjustments as needed.

In contrast, Smartleaf acts more like an automated assistant. You set up parameters for each account, then Smartleaf reviews every account every day and generates actionable trades obeying your parameters and instructions. It’s more efficient, supports higher levels of customization, higher levels of tax management and lower levels of dispersion.

Yes, Smartleaf can add alpha (market beating ideas) by enabling you to more easily:

• Implement your alpha-generating ideas, including tactical asset allocation, model selection or stock selection
• Become open architecture (if you’re not already) and/or make your existing open architecture program more flexible and less costly
• Add “tax alpha” by providing more consistent tax management

Yes. Smartleaf Experience Engine lets you show the work you do and the value you provide. We generate automated reports that let you show your clients:

• How much you save them in taxes.
• That you review portfolios daily and efficiently address issues as they arise
• Explanation of individual trades

Yes, the Smartleaf solution is powerful enough to support automated rebalancing platforms—and not just for simple ETF portfolios. Smartleaf can automate the management of complex portfolios, including:

• Individual equities
• Open architecture UMA
• Tax sensitive transition
• Environmental/Social/Governance (ESG) social criteria constraints

Yes, and in a manner that adds no operational complexity. With overlay, becoming open architecture simply means incorporating models from third parties, and Smartleaf handles all the operational details (contracting, data upload, billing and invoicing). Third-party models can be combined easily with proprietary models. You can offer your clients portfolios that mix any combination of equities, mutual funds, ETFs, ADRs, fixed income and other assets. Smartleaf’s overlay management system lets you customize and tax manage the account regardless of the source of the models.

No. “Models-based” does not mean every portfolio is the same. In fact, because the Smartleaf approach automates customization—including transition, tax management and social criteria constraints—customization is easy, and that means you can offer more of it.

Not to worry, you do have a model portfolio, though you may not think of it as a model. A “model portfolio” for any client is just the portfolio you would buy for that client starting with all cash and no customization needs. While you may never have had an actual client walk in with all cash and no customization needs, if this did happen, you’d be able to come up with a solution. That’s your model portfolio. More precisely, it’s your model portfolio for that client type, e.g. “Aggressive growth” or “Taxable Aggressive Growth” or “High Net Worth Taxable Aggressive Growth”. Most firms will have somewhere between 5 and 50 model portfolios.

No. Implementing firm-wide investment decisions is easy. Whenever a firm-level target is updated, the changes cascade down to every portfolio following that target, regardless of how customized it may be.

No. Smartleaf is tax and expense sensitive and automatically avoids churn. Smartleaf is a system for generating actionable, customized trades, which includes eliminating “noise” or churn trades.

There are two basic approaches to overlay portfolio management:

1. With sub-account overlay, each client account is divided into sub-accounts. Each sub-account is typically assigned one model, and each sub-account is rebalanced and traded separately.
2. With holistic overlay, there are no sub-accounts. Instead of multiple sub-accounts each tracking one model, the unified account follows a single blend of multiple models.

Smartleaf employs the holistic approach, which greatly simplifies implementation and operations. More importantly, by enabling risk trade-offs across the entire portfolio, it supports a higher level of tax and customization and lower levels of drift and dispersion.

Smartleaf implementations are simple and non-invasive, and we’ll work with you every step of the way.

Integration is limited to:

• A daily upload from your system of record
• An export from Smartleaf of a trade file to your trade management system

Smartleaf is offered as a hosted service with a full disaster-recovery capability, so no new software is installed on your premises. There is no reconciliation process, and none of your other systems depend on the Smartleaf system.