1: The account types must match on both sides. For example: if you have a Roth IRA at your current firm you will need to make sure that you have a Roth IRA at Wealthfront to receive the funds. [There are a few exceptions to this rule.]
2: The account title must match on both sides. This means that your name, Social Security Number, and address must match on both sides. Please make sure that the account title on file with your current firm is updated if you legally changed your name or recently moved.
3: Remove or leave positions that are not compatible with your Wealthfront account. Currently, our tax efficient transfer system is only able to handle securities that trade on a US exchange. This means we can easily transfer and trade most US stocks and ETFs. If you own low priced stocks, individual bonds, UITs, options, private investments, hedge funds, or any other exotic investment product, they must be sold prior to initiating the transfer or must be left in your external account. We offer partial transfers from many firms, but if you submit a partial transfer you should make sure that you leave enough funds with your current firm to meet any account minimums they may have.
Special note on mutual funds: We can sell many mutual funds but we can’t sell them all. Currently, our tax efficient conversion process does not handle mutual funds and they will be sold upon arrival at Wealthfront. We recommend that you sell mutual funds before you transfer your account, as it can sometimes take longer to liquidate these positions when they arrive.
4: Please make sure there are no restrictions on your account. If you have a managed account, your current firm may prevent the account transfer while you are still enrolled in their service. If you have questions about this please contact your current account representative and make sure that your account is ready to transfer out.
5: Please make sure that there is no pending activity in your account during the transfer or immediately before you submit the request. If you make trades, withdraw or deposit cash during the transfer this will likely cause your current firm to reject the transfer. Please make sure that all trades are settled and all repeating withdrawals/deposits are canceled prior to initiating the transfer.
6: Please make sure that all margin debt and fees are resolved with your current firm. We do not accept accounts with large debits.
Once your account is ready to transfer please log into your Wealthfront account and click “Transfer or Rollover.” Transfers are 5-10 business day automated process that is initiated on the receiving side (Wealthfront in this case).
This material was prepared to support the marketing of Wealthfront's investment products, as well as to explain its tax-loss harvesting strategies. This content is not intended as tax advice, and Wealthfront does not represent in any manner that the tax consequences described herein will be obtained or that Wealthfront's tax-loss harvesting strategies, or any of its products and/or services, will result in any particular tax consequence. The tax consequences of the tax-loss harvesting strategy and other strategies that Wealthfront may pursue are complex and uncertain and may be challenged by the IRS. This white paper was not prepared to be used, and it cannot be used, by any investor to avoid penalties or interest.
Prospective investors should confer with their personal tax advisors regarding the tax consequences of investing with Wealthfront and engaging in these tax strategies, based on their particular circumstances. Investors and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor's personal tax returns. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. When Wealthfront says it replaces investments with "similar" investments as part of the tax-loss harvesting strategy, it is a reference to investments that are expected, but are not guaranteed, to perform similarly and that might lower an investor's tax bill while maintaining a similar expected risk and return on the investor's portfolio. Expected returns and risk characteristics are no guarantee of actual performance.
The charts showing potential tax savings ("Annual Tax Alpha") from the tax-loss harvesting strategies are historical simulated returns based on backtesting and do not rely on actual trading using client assets. The results are hypothetical only. Several processes, assumptions and data sources were used to create one possible approximations of how Wealthfront's tax-loss harvesting strategy might have benefited investors in the past, and a different methodology may have resulted in different outcomes. These results were achieved by means of the retroactive application of a model designed with the benefit of hindsight. The results of the historical simulations are intended to be used to help explain possible benefits of the tax-loss harvesting strategy and should not be relied upon for predicting future performance.
We simulated the potential after-tax benefits of our tax-loss harvesting services and found that asset-class tax-loss harvesting it added an average of at least 1.55% annually and stock-level tax-loss harvesting combined with asset-class tax-loss harvesting added an average of at least 2.03%. We used several assumptions to create these possible approximations, but did not rely on actual client trading history. These results are based on a study Wealthfront conducted for the years between January 2000 and August 2014, assuming a Wealthfront account with a risk score of 7 an initial deposit of $100,000, additional quarterly deposits of $10,000, and periodic rebalancing for asset-class tax-loss harvesting and an initial deposit of $500,000, additional quarterly deposits of $50,000, and periodic rebalancing for stock-level tax-loss harvesting combined with asset-class tax-loss harvesting. Dividends and interest were not considered.
To compare the possible benefit of continuous vs. annual year-end tax-loss harvesting, we use the same assumptions for the historical simulation for the years between January 2000 and December 2012 but with tax-loss harvesting opportunities examined daily vs. annually at year-end.
Different methodologies may have resulted in different outcomes. For example, we assume that an investor's risk profile and target allocation would not have changed during the time period shown; however, actual investors may have experienced changes to their allocation plan in response to changing suitability profiles and investment objectives. Furthermore, material economic and market factors that might have occurred during the time period could have had an impact on decision-making. Actual investors on Wealthfront may experience different results from the results shown. There is a potential for loss as well as gain that is not reflected in the hypothetical information portrayed. Investors evaluating this information should carefully consider the processes, data, and assumptions used by Wealthfront in creating its historical simulations.
While the data used for its simulations are from sources that Wealthfront believes are reliable, the results represent Wealthfront's opinion only. The return information uses or includes information compiled from third-party sources, including independent market quotations and index information. Wealthfront believes the third-party information comes from reliable sources, but Wealthfront does not guarantee the accuracy of the information and may receive incorrect information from third-party providers. Unless otherwise indicated, the information has been prepared by Wealthfront and has not been reviewed, compiled or audited by any independent third-party or public accountant. Wealthfront does not control the composition of the market indices or fund information used for its calculations, and a change in this information could affect the results shown.
The chart showing the tax alpha and cumulative return for daily tax-loss harvesting clients is based on Wealthfront's estimates from existing client data since we launched our asset-class tax-loss harvesting in October 2012 through October 2013. The chart was based on the subset of our clients with tax-loss harvesting enabled in their accounts and the returns and tax alpha were estimated for their accounts only. The return estimates were based on time-weighted returns. The cumulative returns were calculated by taking the composite's daily return based on its daily balance series, where the composite's balance is the aggregated value of all the accounts under our TLH strategy. We then compound the daily return series to get the compounded return over the period. The monthly tax alpha was calculated using the net tax benefit/liability and dividing by the aggregate balance. The net tax benefit over the period includes the liquidation of positions transferred in and sold to invest the client account in the Wealthfront portfolio.
Wealthfront’s investment strategies, including portfolio rebalancing and tax loss harvesting, can lead to high levels of trading. High levels of trading could result in (a) bid-ask spread expense; (b) trade executions that may occur at prices beyond the bid ask spread (if quantity demanded exceeds quantity available at the bid or ask); (c) trading that may adversely move prices, such that subsequent transactions occur at worse prices; (d) trading that may disqualify some dividends from qualified dividend treatment; (e) unfulfilled orders or portfolio drift, in the event that markets are disorderly or trading halts altogether; and (f) unforeseen trading errors.
The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any. Wealthfront only monitors for tax-loss harvesting for accounts within Wealthfront. The client is responsible for monitoring their and their spouse's accounts outside of Wealthfront to ensure that transactions in the same security or a substantially similar security do not create a “wash sale.” A wash sale is the sale at a loss and purchase of the same security or substantially similar security within 30 days of each other. If a wash sale transaction occurs, the IRS may disallow or defer the loss for current tax reporting purposes. More specifically, the wash sale period for any sale at a loss consists of 61 calendar days: the day of the sale, the 30 days before the sale, and the 30 days after the sale. The wash sale rule postpones losses on a sale, if replacement shares are bought around the same time. The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s) accounts outside of Wealthfront and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short- term or long-term). Except as set forth below, Wealthfront will monitor only a client’s (or client’s spouse’s) Wealthfront accounts to determine if there are unrealized losses for purposes of determining whether to harvest such losses. Transactions outside of Wealthfront accounts may affect whether a loss is successfully harvested and, if so, whether that loss is usable by the client in the most efficient manner. A client may also request that Wealthfront monitor the client’s spouse’s accounts or their IRA accounts at Wealthfront to avoid the wash sale disallowance rule. A client may request spousal monitoring online or by calling Wealthfront at 844.995.8437. If Wealthfront is monitoring multiple accounts to avoid the wash sale disallowance rule, the first taxable account to trade a security will block the other account(s) from trading in that same security for 30 days.
As part of transferring your account to Wealthfront, we will apply our algorithms to sell your account, seeking to minimize any potentially negative tax impact and optimizing for other factors, and invest the proceeds into a Wealthfront portfolio. Liquidating your transferred account may cause, among other things, realized capital gains or losses in specific securities, surrender fees, and redirection of declared dividends or distributions. Also be aware selling down securities prior to transfer could subject you to the same risks.