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Bob Veres of Inside Information: Smartleaf Made a Splash at T3 Conference

Bob Veres of Inside Information describes Smartleaf in his summary of the Spring T3 Conference.



Bob Veres of Inside Information ( wrote about Smartleaf in his summary of the Spring T3 Conference. Here's what Bob had to say about Smartleaf:

“I’m going to include Smartleaf ( in this new category. Even though the company doesn’t lead with its portfolio design functionality, that may be one of its strongest features.

I had known about Smartleaf before founder Jerry Michael’s presentation on the second day of the T3 conference, but his speech turned a few heads and constituted another ‘splash’ at the conference. Smartleaf is the tax-loss-harvesting/rebalancing program in the AdvisorEngine all-in-one platform, and most of Michael’s presentation was about sophisticated, almost turn-key tax optimization of client portfolios. He pointedly said that rebalancing should not be a quarterly or annual activity; the program you use should be looking at all client portfolios daily to see which have moved beyond your set tolerances, and which client assets have ‘achieved’ losses that make it attractive to harvest them.

He demonstrated how a single staff person can do all of this with a quick daily check of the software, set individualized tax budgets for each client—and along the way redefined ‘rebalancing’ as ‘balancing.’ Rebalancing is rigidly bringing all portfolios back to their original target allocation, while balancing is evaluating tax alpha opportunities which may lead to temporary tracking error. (In other words, the advisor has to ‘balance’ between optimal tax management and zeroing out tracking error.)

Almost in passing, Michael noted that Smartleaf will also record client preferences—ESG screens and not selling highly-appreciated legacy assets—when advisors use Smartleaf to create direct indexing portfolios. The software knows what the client doesn’t want to sell when making tax alpha recommendations. There are preset ESG screens that can be modeled before making trades. For example, Smartleaf knows what a tobacco screen is, but Michael showed how an advisor can see the tracking error if he or she, hypothetically, were to apply a traditional tobacco screen. If the software tracking error is too high, the advisor could modify the screen by re-including tobacco distributors (retail outlets and grocery stores, for example), so that the portfolio only eliminates tobacco producers. Smartleaf will readjust the proposed direct indexing portfolio to mimic the expected return/volatility of the index with the smaller number of exclusions. Suddenly, the tracking error is diminished to near zero.

These capabilities, including the ability to model tracking errors when creating multiple hypothetical direct index portfolios using a variety of exceptions and screens, are charting the same new ground that is being colonized by Nebo, and I doubt many advisory firms were aware of them before Michael’s presentation.

Many advisors will use Smartleaf to manage model portfolios, but it clearly belongs in the portfolio design category for its ability to blend various client preferences into a direct indexing portfolio, with built-in values/ESG screens and the ability to set risk parameters.”

You can download Bob's full report here

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