Issue link: https://envestnet.uberflip.com/i/1533174
Frequently Asked Questions (FAQs) FOR ONE ON ONE USE WITH A CLIENT'S FINANCIAL ADVISOR © 2023 Envestnet. All rights reserved. 1 Tax Managing FSP Sleeves in a UMA – FAQ Q1: What do you mean by "Tax Managing FSP Sleeves in a UMA"? What's an FSP? What's a UMA? • An "FSP" is a "Fund Strategist Portfolio" and is a type of investment product that provides advisors and clients access to professional investment managers. An FSP is a model portfolio that is typically comprised of a set of mutual funds and/or ETFs. Most FSP portfolios employ a long-term, strategic asset allocation approach, but some take a dynamic or tactical approach and actively shift allocations to try to take advantage of short-term market movements. • A "UMA" is a "Unified Managed Account" and is a managed investment account that allows many different types of investment products to be held in a single custodial account. Investment products may include Equity SMAs, Bond SMAs, FSPs, individual Mutual Funds, individual ETFs, etc. In a typical UMA, each investment product is assigned its own "sleeve". The set of investment products and their target weight selected by the client for their UMA is called the "UMA Target Allocation Model". • Managed accounts typically do not consider the tax consequences of trading activity. This can be a significant impediment to Advisors & Clients moving to a managed account. • Envestnet is a pioneer in offering a "Tax Overlay Service" which empowers clients with a meaningful level of control over the tax consequences of their managed account, considering tax consequences at account inception and during every subsequent trade review event. • Keep in mind, there is a tradeoff to incurring less tax cost, which is potential performance differences between the client's account and their UMA Target Allocation Model. Q2: Hasn't Envestnet offered a UMA Tax Overlay Service for many years? What is changing? • Yes, Envestnet has offered a Tax Overlay service for UMAs. However, its focus has historically been on Equity SMA sleeves in the UMA Target Allocation Model. FSPs and other investment products like Bond SMAs and individual Mutual Funds or ETFs have not been able to be actively tax managed. • W ith this enhancement, FSP Sleev es w ill begin being activ ely tax managed, similar but not ident ical t o how Equit y SMA Sleev es ar e act iv ely t ax managed. • Indiv idual Mutual Fund & ETF Sleeves, Bond Sleeves, and other Sleev e Types will continue to not be act iv ely t ax managed. Q3: How were FSP Sleeves managed before in a UMA Tax Overlay account? How will that change? • In the past, in a UMA employing the Tax Overlay Service, FSP Sleeves had to be funded at inception with cash or their model holdings. The FSP Sleeve could not retain holdings that were not-in-model. This is changing. With this enhancement, FSP Sleeves in a UMA Tax Overlay account will be able to retain certain securities that are not-in-model. • Additionally, in the past, in accounts employing the Tax Overlay Service, FSP Sleeves would be traded to align with model changes made by the FSP Manager. No consideration was given to the tax cost of those trades. This is changing. With this enhancement, FSP Sleeves in a UMA Tax Overlay account will have a reasonable level of flexibility to deviate from the FSP Manager's model holdings and weights. • To summarize, going forward in accounts employing the Tax Overlay Service w her e t he Fir m has conf igur ed t he applicable Br and V alue t o enable " FSP Tax Management in UMA s" : • FSP Sleeves will not have to fund at inception solely with cash or their model holdings • FSP Sleeves will be able to retain certain non-model holdings • FSP Sleeves will not have to strictly adhere to all changes made by the money manager to the FSP portfolio's holdings and weights • FSP Sleeves will be allowed some deviation from the FSP portfolio's model holdings and weights Q4: Is there a cost for this service? • There is no incremental cost for this enhancement. Accounts already enrolled in Tax Overlay will experience no change in cost. • The Tax Overlay Service is an optional service that has an additional cost (typically 0.10% annually of account value) when added to a portfolio. * █████████████████ Ì200001ATB^Î