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Each client has unique attributes that have important implications for portfolio construction. The following are simplified examples of the dimensions we consider:

Client attributes

Client-specific risks

  • Employment earnings
  • Pension benefits and other anticipated receipts
  • Stock options and restricted stock
  • Carried interest
  • Concentrated holdings of public
    securities

Tailoring

 

  • Model these exposures as part of a clients’ total economic portfolio
  • Tailor around these holdings with offsetting and lower correlation securities

Benefits and examples

 

  • Lower uncompensated risk
  • Example: Equity portfolio tailored around financial services and highly correlated sectors for senior executives in financial services.

 

Tax posture

  • Marginal tax rates (federal, state, local)
    • Ordinary income
    • Treasury bond income
    • Out-of-state municipal bond income
    • Capital gains
    • Dividends

 

  • Tailor asset allocation to reflect differences in tax rates
  • Example:

 

  • Risk and return trade-offs based on after-tax return for each client
  • Example:

 

Personal objectives

  • Planned spending: annual expenses, one-time purchases, and fixed-duration spending (e.g., education)
  • Liabilities, pledges, and commitments
  • Charitable giving
  • Wealth transfer

 

  • Potential solutions evaluated by the after-tax, after-inflation spending and gifting they permit over relevant time frame
  • Large nominal expenditures may be matched by fixed income with same maturity

 

  • Reduce gap between objectives and potential range of portfolio outcomes
  • Example: Planned real estate purchases hedged with correlated instruments