Tax Efficiency
One family, for example, may allocate 50 percent to equities, with a maximum of 60 percent and a minimum of 40 percent, Braman says. What’s in that allocation will look similar for different clients. “By and large, in public equities, we’re using ETFs, because they are the lowest cost,” he says. “And they are the most tax efficient.”
Making the case for ETFs, Braman points to data from S&P Dow Jones Indices, which showed that, as of mid-2014, 87 percent of U.S. large-cap active managers trailed the Standard & Poor’s 500 Index for five years after fees. After taxes, he says, almost none of the active managers beat the U.S. benchmark.
Within the bond allocation, Braman says, the largest slice is municipal bonds, thanks to their tax advantages. For real assets, most Ballentine clients have about 6 percent in master limited partnerships, 4 percent in real estate investment trusts and 1 percent in commodities.
Private Pools
Braman says that Ballentine tends to make smaller allocations to alternatives than many wealth management shops. The reason: Private pools aren’t tax efficient, he says. “Most of the gains come as short-term gains or income,” he says.
Alternatives, though, are valuable for their low volatility and low correlation to the broader markets, he says. “Traditionally, we have been a fund-of-funds shop,” Braman says. “We’ve used the Corbin Pinehurst fund for probably seven years,” he says, referring to a fund-of-funds run by New York–based Corbin Capital Partners. Braman says the seven-year return on the fund was similar to that of the S&P 500, with about a third of the volatility.
Edwards-Pitt, author of “Raised Healthy, Wealthy & Wise,” a book that aims to help well-to-do parents bring up grounded children, says the value generated in careful planning can sometimes dwarf investment performance. “We found a $50 million estate-planning mistake in a client who signed up with us,” she says. “The holistic approach is necessary to get the best results.”