The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Harvesting Losses

Although tax-aware managers can harvest losses that occur in their own portfolios, they will have no idea of the gain and loss positions held elsewhere in the client's accounts. As investors, however, we (or a financial advisor on our behalf) can carefully monitor activity across the portfolio and coordinate among managers to net out gains and losses, or at least minimize net gains. If Manager A has losses that can be realized and Manager B has gains he cannot offset, we can work with the two managers to net out the tax consequences across the two portfolios.

In this, as in so many other areas, the importance of engaging a qualified master custodian for our investment assets can hardly be overemphasized. Asset custody is discussed in Chapter 22, but for purposes of this discussion the importance of a master custodian lies in (a) the custodian's role as the keeper-of-record for tax cost basis information on all securities in the portfolio (including identification of tax lots), and (b) the custodian's ability to produce consolidated account statements. These services allow us to observe our tax position across the portfolio, regardless of who is managing our money or how many managers we have engaged. Often, we are able to do so online and in something approaching real time. Absent a central custodian, we are reduced to poring over paper statements that arrive at different times, or trying to download online information from many different, usually incompatible, ...