Podcast: Tax Loss Harvesting 101


Click here to listen to the podcast. Highlights include:

Why is tax management important?

Taxes can be a drag on investment returns. In fact, according to the National Bureau of Economic Research, taxable clients lose on average more than 1% of their returns per year due to taxes, a fairly large amount, especially as it accumulates over time. For this reason, UBS Asset Management believes that taxable clients can benefit from various tax management techniques aimed at reducing the impact of taxes on investment returns. The two main techniques discussed include active deferral of gains and active harvesting of tax losses.

One of the great advantages of a separately managed account (SMA) is that clients own the cost basis of each security in the account. In taxable accounts, this means that clients can therefore submit a request for tax loss collection at any time of the year. The idea is that capital losses realized in a taxable account can be used to offset capital gains realized in that account or even capital gains realized elsewhere. Even if realized losses are not utilized in the current tax year, they can be carried forward to future tax years. Therefore, tax loss harvesting can be an important tool for taxable clients. Given the current market environment, there are many opportunities to reap tax losses, but these opportunities can fade quickly and sometimes they disappear by the end of the year. When UBS Asset Management reviewed tax loss collection activity, they found that only around 15% of clients on average submitted tax loss collection requests and that 95% of these requests occurred in the fourth quarter. This means that most clients do not take advantage of market volatility throughout the year to reap losses.

In addition to the harvesting of tax losses, active deferral of gains is another important tax management technique in which unrealized capital gains are deferred in a way that manages risk to avoid unnecessary capital gains taxes. . Portfolio turnover may generate taxes for our taxable clients, particularly when invested in an active strategy. Industry-wide, the norm is to always trade accounts receivable against a pattern, which means that positions in accounts receivable are sold even if they represent a short-term gain with only a few days until they only become long-term gains, where the taxes are roughly half. UBS Asset Management believes this doesn’t make sense for taxable clients, that they need to be more thoughtful and come up with solutions that consider the tax impact of every decision on an account.

What is the UBS Asset Management PTM service?

PTM is a service offered by UBS Asset Management (UBS AM) on many of their ACCESS strategies. It was launched in 2010 with the aim of offsetting the negative impacts of taxes for clients by deferring short and long-term capital gains and harvesting capital losses in a way that manages risk throughout the year, to help customers keep more of what they earn. UBS AM has approximately $13 billion in assets under tax management across a wide range of solutions from active equity and multi-asset portfolios to indexed equity portfolios.

Ultimately, the service is personalized as it reviews each client account individually for tax management opportunities at the tax batch level. In addition to reviewing each account individually from a tax and risk perspective, PTM also takes into account client-specific tax rates and any external gains and losses they have. This way, if a client has reported realized gains externally, UBS AM can also attempt to offset those gains, making the account with PTM a global tax planning tool. The key to the whole process is that it is risk-aware, which means that its main objective is to deliver the pre-tax returns of a selected strategy, but with lower taxes.

Main contributor: Editorial UBS


This article is for informational and educational purposes only and should not be considered investment advice or the basis for making any investment decisions. The views and opinions expressed may not be those of UBS Financial Services Inc. UBS Financial Services Inc. does not verify or guarantee the accuracy or completeness of the information presented.

As a company providing wealth management services to its clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as a broker registered with the SEC. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate agreements. It is important that you understand how we conduct our business and that you carefully read the agreements and information we provide to you about the products or services we offer. For more information, please see the client relationship summary available at ubs.com/relationshipsummary or request a copy from your UBS financial advisor.

UBS Financial Services Inc. is a subsidiary of UBS AG. FINRA member. SIPC member.

UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult your personal tax and/or legal advisers regarding your particular situation.

Revision Code: IS2201951


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