How physicians can maximize long-term wealth‍ through better tax management

Five key features of Forme’s tax managed solution
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Integration of legacy holdings

Transferring accounts from one advisory firm to another may create significant tax liability for physicians, as many advisors require investors to liquidate their existing holdings or limit them to only what’s in the advisor’s model. At Forme, we use state-of-the-art technology to optimize your portfolio based on what you already own. As illustrated below, this tech-driven process incorporates your existing holdings, portfolio preferences, and tax considerations in constructing your portfolio – enabling us to be as tax efficient as possible and avoid realizing unnecessary capital gains.

Tax transition  

Although holding legacy positions may be tax efficient, this approach can result in portfolio drift from the investor’s target objective over time. To help manage this risk without incurring a large, initial tax bill, Forme can leverage smart technology to automatically transition a portfolio over multiple calendar years to defer tax liabilities into future years. Below is a sample of our proposal that illustrates several tax transition scenarios, helping investors determine the best approach for them.

Proactive tax loss harvesting

Most advisory practices that claim to be tax efficient only harvest losses for clients at year end. However, Forme uses advanced technology to continuously review portfolios to identify securities trading at a taxable loss throughout the year. For example, in 2020 the market fell signifiantly in April and May, but ended the year up by double digits. By harvesting losses proactively throughout the year, we are able to capitalize on events like 2020’s midyear decline. Moreover, as illustrated in the graph below, during years when the market is up more than 10%, on average, 32% of stocks finish negative for the year. This example highlights the additional opportunities to harvest losses that exist at the security level even when an SMA portfolio generates double-digit gains.

Capital gains budget

Physicians do not like tax surprises. To limit such outcomes, Forme can set a customized capital gains budget for each client within the tax-smart trading technology. By establishing a specific capital gains budget unique to a client’s circumstances and goals, greater predictability around taxes can be achieved.

Minimizing short-term gains

Short-term capital gains are taxed as ordinary income, which is typically a much higher tax rate for physicians than the rate on long-term capital gains. We proactively minimize the realization of short-term gains through a tech-driven process that carefully selects which positions and what tax lots to sell.