Hi, everyone. It's great to be here with you today. I'm Mandy Rosenberger, head of Orion's custom indexing. Today we're going to cover using custom indexing for the purposes of tax management. I'm going to spend just the first few minutes of our conversation going over a few intro slides. Then we're going to do something a little bit different. We're going to give you a demo of some new advisor facing technology that we built where you can run your own tax transition. Lastly, we're going to go over the output of that proposal, show how all this proactive tax management we're doing ties back into the reporting. We have one nice easy tax savings number you can show to the client. So with that, let's jump right into it. Now first, when I think about custom indexing and all the functionality, I like to think about it in terms of easily digesting the different features and options that you have available as part of the offering. I think about this in terms of four distinct buckets, although these buckets can overlap one another, we're going to spend most of our time talking about the first two, but real quickly when we cover everything that we have as part of the offering. Versus tax transitioning, tax transitioning would be able to take a portfolio, would say it's a portfolio A and get to portfolio B and do it over a very measured either period of time or with a defined set of capital gains. We're going to show you that in a little bit more detail here with our demo. Second would be automatic taxes harvesting. Automatic taxes harvesting would be where we go in. We automatically take losses for your client. We either use those losses to offset gains or we save those losses where you can use those in future years. Next up, which we're not going to cover in any detail today would be ESGSRI faith-based screening. So we can screen out different different things that the client may not want as part of the portfolio. And then lastly the investment customization. So let's spend some time on the tax transitioning attacks harvesting. Before we do though, we've learned the term custom indexing. Sometimes you just refers to it as direct indexing. Let me explain to you what exactly that means. And the way that I think about this again is how do I explain this to an end client as simply as possible. So the way that I do this is with this four step process where the first step is simply just saying let's select your exposure. In this case we'll pick a S&P 500 index. Just to keep it simple. Once we pick our exposure we can then unwrap that exposure. And what I mean by unwrapping it is instead of owning an ETF or a mutual fund or would be 1 ticker. What we're gonna do is we're going to unwrap that ETF. We're going to buy the names that make up that index. So that they have the names such as Apple, Amazon, Google rather than just one position in their portfolio. Now by unwrapping it, what we can do is we can move on to the third step which is now we can customize it. Today's conversation will focus a lot on customizing for tax management or tax loss harvesting, but customization could mean a lot of different things to a lot of different people. And then lastly, being professionally managed, this is where Orion will take on the responsibility for doing that Texas servicing for you. We'll do the rebalancing, we'll do the cashiering. Do the corporate actions, we're taking all this stuff that typically bogs down in practice and we're going to take that over for you as the ongoing day-to-day management. Now, how this works is that we are working with you, the advisor, hand in glove as the advisor. What we're expecting of you is that you get all the fun stuff. You get the stuff like building a portfolio, customizing the portfolio, working with the client to establish what their needs are. What we then do on the Orion side is the implementation. We do the taxes harvesting, we do the tax transitioning, we do the rebalancing, we do all the stuff that really takes time away from you being able to meet with your clients. So again, review. It's more of a partnership more than we do an outsourced offering. Now let's get into a little bit more detail on the tax management for today's conversation. I'm not going to spend a lot of time on the far right box, the tax efficient trading. But before I skip over that, let me just say that when you expect things, when you expect a portfolio to be tax efficient, it would be areas along the line of reducing wash sales or eliminating wash sales, reducing the short term gains or removing turnover, unnecessary turnover from the portfolio. That's the blocking and tackling of what we do day-to-day. So I'm going to spend a lot of time on that. I just want you to know that those are things that we're considering as part of the. Under the portfolio. Well, we're really going to spend our time on the tax conditioning, capital gain budgets and tax loss harvesting. Now I'm going to carve out some special time here to show you tax transitioning through our new technology. So let's skip over that for the time being and let's jump into the capital gain budgets. Now with respect to capital gain budget, this is a nice feature that people often don't think about. And the reason that we really like this feature is that it creates, I don't want to say predictability because that has a negative connotation in industry, but I would say it creates a reasonable assurance for that. Client that the capital gains that we set on the portfolio will be the capital gains that they either see or are close to in any given calendar year. Now that would be important for a year like 2022 with a real, we really weren't no capital gains. You had lots of impact. But if you think back to prior years, 2021 being a great example, a lot of clients weren't happy with the experience that they saw out of 2021 because they were surprised by all the capital gains that were generated. But what we can do with Captain. Budgets are attacking. Ceiling is really set a upper limit or ceiling on how much in capital gains can be realized in any given year. If we need that ceiling, if there any year like 2021, great. If we don't need that ceiling in a year like 2022, no problem it was still there in case we didn't need it. So Captain budgets are a great way of again creating that reasonable assurance around what that experience will look like for that end client. This is particularly useful for clients who are in high tax brackets or maybe they have volatility within their income where they are business owner. And they want to have some assemblance of what that income will look like in any given year. Next, we'll cover taxes harvesting. Now with respect to taxes harvesting, we get a lot of mileage out of the chart that we're showing in front of you right now. This is a great chart to show to an end client because I know that when I speak with end clients, we talk about taxes harvesting the industry. And I think as investment professionals, we all generally get what it is. But what I find is that being to an end client, that's not always the case. They don't quite fully understand the tax code and nor should they. And so if we just take a step back and tell the client, well, what is tax loss harvesting and why is it important, I find this chart to be particularly useful to helping to help make that explanation. So what you're seeing here is we took the Russell 3000 and we. Broke it apart year by year over the past 15 years. Everywhere that you see a a positive Gray column or the number of stocks that are positive for that calendar year. Anywhere you see the negative blue column or the number of stocks that were negative in there. And as you would expect, they're going to be some stocks that are up for the year, there going to be some stocks that are down for the year. We then also show the little teal circle and the little teal circle is the actual county year for all the stocks together or for the index itself, the Russell 3000. And which would stand out is that most of the years you find that the Russell 3000 is positive. But even though you have plenty years with the Russell three is up, there are still plenty of stocks which are down for the year. And so from a client's perspective, if they were investing just in the index that they own, just the Russell 3000 as an ETF or mutual fund example, they would only have one opportunity for the year to take a loss whether the index was up or down. And by the way if it started up and it corrected later on, well that's you're still at a game, so you can't take that loss. So you're very limited in terms of the losses that you can use or harvest within the portfolio. But by unwrapping that ETF, by unwrapping that index, we now have a large subset of stocks, many of which will be up, some of which will be down. We could take the loss of that are down and rotate that into other names to keep that exposure to the overall market. So by having this chart in front of a client and showing them how taxes harvesting works and the benefits of the separate account, why you want to own the underlying positions, it really helps drive home the point of how we can create a different structure. Be more tax efficient for the client. Now sometimes the question we get from clients is, well, can you quantify that what, what is the benefit of capital harvesting? Now we could talk about experiences that clients have had recently. For example, if we look at 2022, it was a great year for Texas harvesting. We saw clients in the high single digit tax alpha numbers, 6789 percent that they saw in tax offer for 2022. The 2022 I would say was probably an exception given the correction in the market. What I'd like to do when I think about long term value is go back to academic studies and this is an academic study that was done a couple years ago and I thought it was. Really good study where they show over long periods of time what is the value of taxi's harvesting. Now what you're seeing on this chart is that it looks at it over different periods. You have periods like the late 20s where there you went to the Great Depression and the market was down fairly large. You have periods of time where the market went up like after World War Two, so on and so forth. But if we look to the far right line or bar there, you can see that over a long period of time. In this case the study looked at it from 1926 to 2018, so close to an A 90 year period. That the. Long term result of taxes harvesting for 1.08%. You know, sometimes what we find when people talk about direct indexing is that number can be oversold. I've heard from throughout the number two 3%, I would say that's aggressive. But even if we think about the more conservative 1.08% number, that's a that's a a great number just from Texas harvesting. That would be essentially most what most advisors are charging and then some for the fee. So the fact that you can cover fees just from Texas harvesting alone tells you that this is something that should not be ignored. This is something that should be a cornerstone of the portfolio. And the nice thing about this tax alpha number, this ability to add value from Texas harvesting is it's not really a question of if, it's more a question of how much. If I say that a little bit differently, Texas harvesting, there's no competitive advantage to doing it. You just have to do it. So it's not a question of can we do it. The question is what's the market going to be like and how much is the market going to give us? And if we can get 1.0 percent, 1.08% / a long period of time, great. It's only 50 basis points. That's still 50 basis points that was there for the taking. Now with that, what I'm going to do is I'm going to switch over here and going to give you a quick demo of a different part of tax management custom index saying really focus on how do you tax transition up portfolio. So this view should look for mirror to everyone. What we're going to do is we're going to launch into a new experience that we created and I'm going to go to portfolio audit and we're to go down to custom indexing. And what we're going to do is we're going to look at this as how do you tax transitional portfolio. Now this is new functionality and functionality that we've built actually into a lot of different places within the Orion technology stack. I'm going to access this from portfolio audit, but there are many other ways that you can access the component which we can go into at a later point in time. I'm gonna type in a name here. Being that this is a prospect, we'll just call it sample client and I'm going to click next. Now, the first thing that we do as part of this prospect is we're asking what are you trying to accomplish? We really want to understand what are the needs of the client here so that we can ask the right questions and then structure the output on the back end to be specific to what they're trying to accomplish. Now as part of this new technology that we built, you can do things like see what it would be like if you deposit cash into the portfolio or if you just want to create a portfolio from scratch to know what that would look like, we could do that from here too. What I'm going to do though, is I'm going to focus on the tax transition piece of it. And where we can do that either over multiple years or one year for today's purpose, I'm just going to pick a one year transition. Now as part of this one year transition, I'm going to type in a capital gain target. And we're going to get started. From here what I'm going to do is I'm going to enter the holdings of the client. Now keep in mind that this is a prospect where we don't have the holdings in this system. If this were a client account on the Orion technology, we would automatically pull these holdings, cost basis and other information into the system. From here, what I did is I pasted in the tickers and the shares, but in this case, I assume that we didn't know the purchase amount of the purchase date. If you have that information, great, put it into the system. But if you don't, what we've done is we've created a couple of shortcuts for you to be able to go in here and assume that we're going to use a, let's say, default market value where we can apply that over the entire account. Or alternatively, if you don't know necessarily what they invest into the account, you could go in. You could pick a date. Let's say that we want to pick February 2nd of last year. We could. Apply that date or we go look up the closing price as of the selected date and we use that as the purchase price for the security. It's not going to be perfect compared to what the client currently owns, but at least we're going to be able to give a reasonable level of we're going to be able to, to have at least some insights as to what that tax transition would look like. So another way of saying that is hopefully you can get great data in here, accurate data in here. If not, we've given you a couple of shortcuts to be able to move forward to the next step. So now that we have the holding. We're gonna jump in, we're gonna start to customize the portfolio. Now you can customize the portfolio in a lot of different ways. It could be as simple as saying I want to exclude Ford or General Motors as an example. Maybe you want to come in here, you want to get a little bit more sophisticated. And in addition to Ford and General Motors, you want to make sure that Tesla is a, let's say between a one and 3% weight. We can customize the. Sectors. Industry. Maybe we want to go in and say energy should be at least a 5% weight. We can do that here as well. Alternatively, if we want to look at it from an ESG perspective, we could say that this this client is maybe concerned about the climate. So let's go in and let's pick a couple of different EG restrictions which are climate focused. Or maybe they want to start from the climate profile, but they come in and they're OK with nuclear power and they want to exclude, let's pick gambling stocks. So we'll we'll go with that. It will then move on to the next step. Now the next step, what we're doing is faultily saying what are they trying to get to? What portfolio are we trying to target we have with the client currently owns. So what we're going to do is we're going to use a little bit of logic and we're going to say based on what we know about that client and how they're currently invested. Let's surface to the front portfolios, which are most similar to how they're currently invested. My analogy, like my analogy for this, is kind of like Netflix, where when you log into Netflix, if you watched a couple of shows before Netflix is going to recommend what things going to watch next. They might be here trying to be a little bit more thoughtful with bringing those portfolios to the surface. Now it could be that they like the idea of investing in the quality, value portfolio. But maybe that's not exactly what they were looking for. So they can come down here and they can pick from the full suite of strategies that we have set up in the for for your firm. That could be what's off the shelf. It could also be something that custom built just for your particular firm. So maybe they want to pick a large cap core strategy we can come over here, we can compare and contrast what they currently own. Versus what the target strategy would look like, and this looks pretty good to me. Risk looks OK, dial box matches up. Sectors match up pretty closely and yeah, I think this portfolio looks good. So let's let's go with large cap core. So we're going to summarize it all up. And while we're at it, why don't we come in here and let's just let's update the number of polling with client to kind of reverse to having a lot of holdings. So we'll change that, we'll dial it down a little bit and this clients, they're actually in a 25% long-term bracket and they're at a, let's call it a 42% short term income rate. So they're pretty sensitive to taxes. Now this will be important even though the tax rate seems like it may not be that worthwhile to update. What's important about the tax rate is that not only do we get a better outcome. By knowing what the tax rates are. But when we type this back into the reporting, both either showing the transition or in the end reporting where we show the tax savings for the client. The more accurate information we have on the tax rates, the better the output and the outcome will be for the end client. So this all looks good. I'm going to click next and this is going to go through and this is going to build a series of portfolios. This should take probably between 30 or 60 seconds or so. And what it's doing is it's creating a series of different strategies or portfolios that can pick from. Now again, think about this as a tax transition. We want to go from point A to point B. Point at being current portfolio, point B being that large CAP core strategy that we chose. The challenge though is that there are a lot of points in between A&B. There's a point at a dollar in capital gains and $2.00 in capital gains and $5 and $10 and $50.00 and 505,000 and 50,000. And it's not necessarily an infinite number of portfolios, but there are a lot of portfolios in between those two choices. And So what we want to do is we want to say, let's surface a bunch of different portfolios in between those two points and then let you pick which ones right for the client. Now you might remember at the beginning, we had picked $50,000 for the target. And So what we're going to do is we're going to bring to the front the portfolio, which is closer to that $50,000 in capital gains. But the great thing about what we've built here is that knowing from experience that 50,000 is often just the starting point. What we don't want you to have to do is go through this whole process all over again if you decide that you want a different option. And so by having different options embedded within the output of the technology, we then let you go through. Look at the portfolio, make sure that it looks good. And if it's a portfolio that you're not comfortable with, if you think that it's maybe too far off from what they're looking to do. But we can go in and we can change it and we can say, well, let's, let's look at it. If it were a higher capital gains, we can go through and we can make sure that that's right portfolio or alternatively, we could come in and we could say, let's compare a couple different strategies. Let's compare portfolio 1. Against portfolio 2. In the case of portfolio 1. We have a pretty good tracking difference. We're pretty aligned to what the portfolio would look like, but we have a decent amount of capital gains that we're realizing. Well, the client may not be OK with that. So maybe we want to show them an option where we're a little bit further away from that target strategy. We have a tracking difference of two. But we really dial back the amount of capital gains. We could look at it as giving the client one option or one recommendation. Two options where they pick from it. We could even look at it in terms of giving them three options, maybe where you give them two extremes and you've got them towards the recommendation in the middle. And so based on what we have here. What we can do is we can now download a proposal. Be able to have that proposal that we can show to the client, confirm what they're looking for and then ultimately allocate that portfolio based upon what we decided here. Being that we launched this as a prospect, we only have one option to download the proposal. If this were an existing account, we'd have two buttons at the bottom. One would be the ability to download a proposal, the other one would be the ability. To accept that allocation and allocate it within the Arian system. So the nice thing about what we built here is that this is all part of the Orion technology stack. You're not moving to different systems or different places. Everything talks to each other so that this can be very seamless and easy for you to run through a transition. Allocate the account. And get it invested right away, call it within minutes, whereas industry standard is more like a couple of days or even a couple of weeks based upon how you go through that transition process. Now that I downloaded the proposal, let me switch over and quickly cover what that output looks like. So here we have the output and the first thing I'll point out is that this is branded under your firm. However you want to set up the branding, however you want to set up the colors, that's totally fine. This is something that is really built around your organization. We come in and we have a couple of slides that you've already seen, stock slides to really help illustrate to the client what is custom indexing, what are we trying to accomplish here? This is the chart I had mentioned earlier about the the tax savings. It's a really great way to present it to the client. And then starting here on slide five, we get into the details of the portfolio. You might remember that I went in and I said let's set restrictions on Ford and General Motors and I picked that the client was concerned about. About the climate. So we brought that into the output. We then go into the portfolios that we selected. And I'll zoom in here a little bit. And you might remember I chose two different portfolios. If we had picked one portfolio, one would come to this output, I picked two. So two came in. If we had pick 33 would have come into this output. And ultimately what we're doing here is we're saying let's be able to articulate. In a simple way, what is it that we want to show the client? What is a summary of the allocation? How does that look like compared to what they currently own? And then ultimately? What does that look like from a tax savings perspective? Now this is probably the most important slide because ultimately what we want to show the client is how do we quantify and measure and show the client what is the value that we're bringing to. So in this particular example, the client had close to 308,000 of capital gains. And if we were to take all those capital gains multiplied by the tax rate, then realize close to $57,000 of taxes. To make a transition. What's the example of? They're going to an ETF or an ETF portfolio or a mutual fund portfolio? It's very unlikely that what they currently own is going to map over to where they're going. So that $57,000 is a pre accurate number in terms of an expected liability if they were to map over that portfolio. It might be a little bit overstated if there's some overlap, but generally speaking we tend to find that there's not much when you're mapping to model portfolios. But we're not mapping to a model portfolio. We're taking a very customized approach to what they're trying to do. And So what we're saying is we recommended portfolio 2. And with portfolio 2, we're going to realize 41,000. 41,000 in capital gains, $8000 in tax liability, 57,000 if they would have mapped to a model 8000 with what we're doing. So now it's not about what they're paying, it's about what we're saving that client and the difference between what they're paying. In one situation versus the customer situation, we're saving them close to $49,000 in taxes. So this transition proposal is a great way of being able to take the narrative. Turn it on its head and really focus on the benefits of making a transition versus the cost of making a transition. Now what's really nice about this and wrapping things up here, is that everything that I've just walked through. On the proposal all the way on the on the proposal technology to the proposal output then ties in to the back end too on the ongoing reporting. So it's part of the custom indexing offering. What we're going to do is when I take this template report, we're going to copy it over into your database and then you're going to be able to have this report to be able to run whenever you would like to, whether it's monthly, quarterly, annually, ad hoc. This is something that will be again branded for your firm that you'll be able to use and show it to client. And there's one particular thing that I want to call out on this report, the purpose of keeping things short and that's that top right box, the cumulative tax savings. What we've done with this cumulative tax savings is really focused in on what is the bottom line that we want to show that client. We can talk about performance, we can talk about differences with tracking error, we can talk about things like the unrealized capital gains and losses in the portfolio. But ultimately what they want to know is what do I invest? What's my market value and what's the value add. And so by having that cumulative tax savings at the top right in big bold green numbers is the idea where they can look the report. And immediately understand the value that you're bringing to the table. That it put back the onion just a little bit on that cumulative tax savings. What we're looking at there is everything that we're doing in Texas harvesting. So by going in every day looking for a losses, we're keeping track of those losses and we're recording them. Second would be tax transitioning. So what I just showed you on that prior report, when we bring over positions in kind, we'll capture that information. And then we'll use that as part of the taxes as well. And then lastly, we're going to take those two numbers, tax savings from taxes harvesting, the tax savings from transitioning and going to compound them at the rate of return of the client's portfolio. Because overtime, the fact that they're not paying money to the IRS means that's money that's staying invested into the portfolio and compounding on their behalf. So when we take those three combined together, we get a cumulative tax savings overall for that client. So it's been very powerful way of being able to communicate and have more of a planning conversation rather than just a performance result. Conversation. So with that. Let me stop. And we'll see what questions the audience may have. OK. So we have a couple of questions from the audience here. One, actually we have a bunch on the new custom indexing tool. When's it going to be available? How do I access it in terms of access accessing the tool, the tool be available for firms who've signed up for custom indexing. There's no obligation to use custom indexing, but to get access to it, we need your firm to sign off on a sub advisory agreement. So we would ask that if you're interested, reach out to us. Have a conversation, the mere interested we'll get that tool turned on for you to be able to access it. And it could be accessed a number of different ways, whether that's in portfolio audit like I had showed, or risk intelligence. If you're a risk intelligence user or portfolio viewer, there are a number of different ways where you can get into that tool and use it in different ways that will be available here in just a few short weeks. We're actually going to be showing this off at ascent as well. And so if you're attending a cent, that would encourage you to attend. Attend the presentation that we'll be doing on that one. Next question is where can I get the slide that shows taxes harvesting year by year? We have that as a marketing piece, sustainable marketing piece. It's also in that proposal that I had showed. So as one of the first few pages, that text option chart was in there. So you can get access to it a couple different ways. Reach out to us, we can send you the marketing piece if you'd like that. We have a question on. Minimums and cost. So minimum is $100,000 at the account level. And then cost, I love talking about cost 15 basis points. And then the reason I love talking about cost is because what you're going to find is. Very, very competitive compared to what you're seeing out there from the competitors. So the fact that we are as part of the Orion ecosystem, we have a lot of cost efficiencies where we can deliver this at a lower cost to our client. This question on trading, does Orion trade accounts or do we trade the accounts? We are trading accounts. Orion is trading the accounts. So we are papered on the account. We do all the implementation, the taxes, harvesting, the rebalance, everything we're doing on your behalf. So it's a great way of helping bring scale and efficiency to your practice. Here's a question on which strategy this is offered on. Great question, probably a little bit more thorough of a question that I would need to take offline. But the short answer is we have a bunch of off the shelf portfolios that you can pick from, whether it's traditional indices or factor based portfolios or ESG portfolios. We can also set this technology on top of your own portfolios. And we'd want to have a conversation to understand what you're trying to do and then obviously give you a solution from there. But we have a lot of flexibility in terms of what this could be applied to. That that looks like I covered most of the questions, so I want to stop there. Want to thank you all for attending today. Just a reminder, we have our ascent conference coming up. So if you're attending, we would really love to catch up with you. If you have interest, we're going to do a one-on-one conversation. So try and schedule that ahead of time. Also, I'm going to be doing a presentation going over the new technology. I would encourage you to to to look at the presentation. It is on the 28th, I believe at 1:00 or 1:30. So look for me there and then in the meantime or is it? Follow up if you have any interest on getting access to the new technology. Again, there's no cost, there's no obligation to use it. Reach out to your relationship manager. Would love to have a conversation with you, get that set up for you and look to see how we can help you in your practice. So again, thank you for your time and I appreciate you dialing in today. _1680062396165

Harvesting losses on an ongoing basis, instead of just at year-end can result in an additional 1% of tax alpha per year.* Start taking action today so you can help lessen your client’s tax burden next year.

Join Andy Rosenberger, CFA, Head of Custom Indexing, to learn how Orion Custom Indexing offers flexible and tax-efficient strategies to help improve “after tax” client returns and reduce taxes.

* “An Empirical Evaluation of Tax-Loss Harvesting Alpha” Shomesh Chaudhuri, Terence Burnham, Andrew W. Lo.