Robo advisor offers tax-loss harvesting to ordinary investors
Ground breaking digital wealth management platform – robo advisor – ETFmatic has become the first in Europe to offer advice based upon an individual’s tax preferences.
Currently Europe’s only robo advisor to offer ETF portfolios in pounds, Euros and US dollars, ETFmatic has now followed the lead of US platforms such as Betterment and Wealthfront in offering a service known as tax-loss harvesting which helps clients optimise their investments from the perspective of capital gains tax.
Essentially tax-loss harvesting allows an investor to crystallise a loss by selling a losing stock and offsetting that loss against profits that have been made on a winning stock, thereby wiping out any tax that may be due on its capital gain.
Typically, the asset that is sold is then replaced with a very similar asset to maintain a portfolio’s asset allocation and expected risk and return levels.
‘identifies and sells those ETFs in a client’s portfolio that have increased in value and replaces them with similar ones to ensure the same asset allocation exposure is maintained’
In delivering its service, ETFmatic takes advantage of the tax-free allowance that is offered in the UK, which for the tax year 2017/8 is £11,300; this means that those paying the higher rate of income tax, and therefore capital gains tax at 20%, could achieve a capital gains tax benefit of £2,260 per year. A portfolio held for ten years will therefore achieve a total tax benefit of £22,600 when it is liquidated.
ETFmatic is unusual in that it manages each client’s portfolio individually; here it identifies and sells those ETFs in a client’s portfolio that have increased in value and replaces them with similar ones to ensure the same asset allocation exposure is maintained.
It may also allow a client to offset the capital gains harvested by ETFmatic against losses in other parts of their overall investment portfolios.
ETFmatic will begin rolling out capital gains harvesting to clients in the 32 EU states in which it is currently present; initially, this feature will only be available to eligible clients with portfolios of £/$/€50,000 and above, who, at this time may benefit the most.
In announcing the service, Luis Rivera, CEO and Co-founder of ETFmatic, said: ‘Investors in Europe deserve cost effective portfolio management with asset allocations that make sense to them. Our aim is to offer clients more of the kinds of services that have historically only been available to individuals with several million to invest.
‘Since our launch two years ago, we have continuously been developing new solutions which add further value to our services. The new capital gains feature lays the groundwork for further tax optimisation tools around loss harvesting in the future.’
When ETFmatic launched two years ago its founders believed that everyone in Europe deserved cost effective portfolio management with asset allocations that make sense to them.
It manages each client’s portfolio individually, buying and selling ETFs to bring a portfolio as close as possible to a clients target allocation based upon their individual circumstances, objectives and attitude to risk.
‘The new capital gains feature lays the groundwork for further tax optimisation tools’
The company seeks to reduce the need for aggressive rebalancing, which may have tax consequences; this is the first service in Europe which enables ‘ordinary investors’ to adjust their portfolios by also including their tax preferences into the equation – the kind of service that has historically only been available to individuals with several million to invest.
As the first of ETFmatic’s planned ‘tax optimisations’ tools, it allows a client to set what level it harvests capital gains up to based upon the portion of their tax-free allowance allocated to their ETFmatic account.
ETFmatic describes itself as a unique brand robo advisor that seeks not only to disrupt how financial products are delivered, but also how they are customised; it aims to deliver access to some of the best ETFs in the world and charges just 0.48%p.a. on portfolios of up to £25,000, and 0.29% for those of £25,000 and above.
Its stated ambition is to enable everyone in Europe to easily convert their savings into diversified investments through low cost index funds that generate highly efficient market returns.
For more information on its tax-harvesting service, click here
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