Callan Family Office, a $6.5 billion registered investment advisor founded in 2022 by former Abbot Downing executives, has launched a tax overlay management program to maximize the after-tax returns for the ultra-high-net-worth families it serves. Callan has partnered with Aris Investing, a tech-enabled SMA platform, to power the new program.
Daniel Burke, investment partner at Callan Family Office, said he has been working to solve this tax problem for 20 years. His team has been doing the work manually for some time, coordinating clients’ taxes across different active and passive strategies.
“The program empowers Callan Family Office’s investment partners to make personalized, tax-aware trading decisions in client portfolios instead of outsourcing portfolio implementation to third-party asset managers with a partial view of clients' assets,” Callan Family Office said in a statement. “This gives clients greater control over the size and timing of capital gains taxes in their portfolios and optimizes outcomes across complex ownership structures, with CFO investment partners using firsthand knowledge of the family's overall financial situation to deliver a tailored solution for equity portfolio management.”
To launch the new program, Callan Family Office had to coordinate with several partners, including the institutional investment managers they’ve used for decades. The RIA needed those managers to deliver their model portfolios so they could implement those trades, a huge undertaking for those managers. But they did it because of the longstanding relationship they’ve had with the RIA’s executives and Callan LLC, the investment consulting firm, Burke said.
Callan Family Office also needed client participation. The more specific the clients’ goals and tax preferences are, the more powerful the technology.
When the RIA launched in 2022, it chose Addepar for data aggregation, analytics and portfolio reporting. That technology has allowed the firm to see assets aggregated across a multi-generational taxable portfolio.
Aris was the final partner to get in place, Burke said, and Callan Family Office decided to buy a stake in the tech platform because of the intellectual capital that would be exchanged.
The model portfolios are delivered through Aris, which then looks at the tax data, active manager holdings and portfolio weights. Aris then takes the client-specific parameters that Callan Family Office has inputted and conducts the tax optimization on a daily basis to surface what decisions need to be made. However, the RIA’s investment partners ultimately implement those decisions.
Burke said previously, they found that because their clients’ investment strategies were not coordinated, there were many tax inefficiencies.
“The easiest example that we get is your tax sales harvesting manager harvests a loss because a stock is down; it sells off,” Burke said. “An active manager sees that the name has sold off; it's a name that they've wanted to buy for a long period of time, so they go and buy it. Because stock's down, it's on sale, and that washes out the loss that was just realized in our direct indexing portfolio. And so we lose the ability to harvest that loss. That's a scenario. It's a tax inefficiency that's caused by an inability to control the timing of those trades.”
“Armed with this overlay technology, we see those trades, and we can route, time and implement them in a way that avoids inefficiency like that,” he said.
UHNW families have complicated tax situations, with many things going on in their lives that create taxable events.
“That type of tax planning then really necessitates having tight control and the ability to determine when you want to defer and even sometimes when you want to accelerate gains in order to optimize the big picture,” Burke said.
Callan Family Office was created in 2022 when Jack Ginter, former president of Abbot Downing, a business of Wells Fargo, left the wirehouse. He sought to build an independent wealth management firm that would provide high-touch and customized services for UHNW families, foundations and endowments, akin to those found at a large private bank. The team formed a strategic partnership with Callan LLC, an investment consulting firm to institutional and investment advisor clients, to use the Callan name as well as its industry research, education and institutional-quality investment guidance. The firm has its own SEC registration, ownership and management, separate from Callan LLC.
