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Thursday, December 7, 2023

FAQ: Custom Model Portfolios

What are custom model portfolios? How does this program work?

This program allows advisors to customize portfolios of almost any ETFs, while utilizing Betterment for Advisors’ suite of automated features including:

  • automated rebalancing
  • tax-loss harvesting
  • asset location / tax coordinated portfolios
  • tax-optimized sales for withdrawals
  • glide path rebalancing and more.

More information about this program is available here.

How do I create custom model portfolios for my clients? How do I get started with the program?

In this white-glove program, firms will work closely with relationship managers, trading specialists, and engineers at Betterment to set up your firm’s portfolio models. Please fill out this form to get started.

How is this program different from Flexible Portfolios?

Previous functionality allowed advisors to customize portfolios using ETFs that are part of the Betterment Core Portfolio Strategy. Now, advisors can use almost any ETF (as long as there is sufficient liquidity and trading volume). Also, custom model portfolios are now eligible for tax-efficient automated features like Tax Loss Harvesting (TLH+) and Tax Coordinated Portfolios (TCP).

What are the program requirements?

In order to support these custom model portfolios, firms need $2.5 million in client assets to be transferred to Betterment within 90 days.

I have more questions – who can I talk to and where can I learn more?

Please fill out this form, and our custom portfolio specialists will follow up with you.

Security Selection:

What securities are supported? 

Only ETFs are supported at this time. Mutual funds, single stocks, and other securities are not available.

What ETFs are supported?

Almost all ETFs are supported, as long as there is sufficient liquidity and trading volume.

How many different asset allocations can be included in one portfolio?

For each custom portfolio, firms can define anywhere from 1 to 101 asset allocations.

Betterment Automated Features:

What is Tax Loss Harvesting (TLH+)? How does this feature work with custom model portfolios?

Tax-loss harvesting is the practice of selling a security that has experienced a loss—and then buying a similar asset to replace it. The switch does two things: it allows the investor to realize, or “harvest”, a valuable loss while keeping the portfolio balanced at the desired allocation.

Capital losses can lower your clients’ tax bill by offsetting gains and reducing ordinary taxable income up to $3000 per year. The custom model portfolios program allows firms to designate primary, secondary, and tertiary ETF tickers to be used for TLH+. More information about Betterment’s TLH+ is available in the links below:

TLH Information Page

TLH White Paper

How does a Tax Coordinated Portfolio (TCP) work?

Tax-Coordinated Portfolio is designed for investors who are saving for retirement in more than one type of account, including taxable accounts, traditional IRAs, or Roth IRAs generally with the same time horizon.

Once you set it up, Betterment will look across all of the accounts grouped under retirement and automatically reorganize which assets are held in which accounts.

Of these three types of accounts, each are taxed differently: (1) taxable accounts, (2) traditional IRAs or 401(k)s, and (3) Roth IRAs or 401(k)s. With Tax-Coordination, the assets are then arranged (unequally) across all coordinated accounts to maximize the after-tax performance of the overall portfolio. We do this in a way that keeps the overall allocation the same while boosting after-tax returns.

We’ve outlined the potential benefits of Tax Coordination and some reasons you may not want to use it here. To gain a better understanding of the methodology of our algorithm, please review our white paper. For more information on our estimates and Tax-Coordinated Portfolio generally, see full disclosure here.

How does Betterment rebalance client portfolios? How does automated rebalancing work?

More information about Betterment’s automated rebalancing feature is available here.

How can Betterment’s automated features benefit my clients?

Research about the added value of Betterment’s automated features is available here.

What capital market assumptions are used for balance and spending power projections?

Firms can work with our team to input their own capital market assumptions, or Betterment’s team can provide assumptions.

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