At Align Financial, we’re dedicated to continuously enhancing the client experience and delivering superior results. This involves periodic upgrades to our systems and processes, incorporating the latest and most effective technological solutions available.
As our firm grows and sharpens its focus, our commitment remains steadfast: to continually refine our operations while strategically outsourcing specific tasks to technology or third-party specialists who can execute them more efficiently. This approach allows us to boost our operational efficiency while maintaining the personal connection that’s essential to managing your hard-earned wealth.
In line with these efforts, we’re pleased to announce two key enhancements to our investment management process, which will be implemented by the end of the second quarter.
How We Currently Manage Your Investments
Since 2017, Align Financial has been working closely with a Certified Financial Analyst® consultant to conduct our manager research in-house. We serve as the firm’s Investment Committee, partnering with teams at Fidelity and Vanguard, who share their expertise and resources to help guide our asset allocation and manager selection decisions.
Our team reviews and approves prudent portfolio changes annually, including periodic rebalancing to ensure a consistent risk-reward trade-off across investment strategies. Then, using our in-house trading software, we efficiently execute all trades while carefully considering each client’s unique tax situation.
Our goal in creating this investment process was to establish a systematic, evidence-based process with the tools and resources available at the time. However, technological advancements over the past seven years at firms like Fidelity have greatly expanded our capabilities, enhancing our approach to investment management.
WHAT ISN’T CHANGING
- Our core investment beliefs and approach remain unchanged
- Maintaining many of the familiar names among our managers
Our fundamental investment philosophy and process remain unchanged. At the heart of our strategy is a disciplined, evidence-based approach to investment management. We achieve this by partnering with external money managers who share our commitment to objectivity, efficiency, and minimizing costs.
Our core lineup of trusted partners continues to include familiar names like Fidelity, Vanguard, and American Funds. These institutions have a long-standing reputation for stability and reliability, making them integral to preserving the quality and integrity of our clients’ investments.
We also remain committed to fine-tuning our selection of funds and managers as needed to boost growth potential, mitigate risks, and reduce overall expenses. By carefully assessing qualitative and quantitative metrics and staying informed of new investment offerings, we ensure our clients’ investment portfolios consistently reflect our best ideas. This blend of consistency with strategic adaptation enables our investment strategies to benefit from both proven expertise and new growth opportunities.
WHAT IS CHANGING
- Upgrading investment management system
- Replacing our in-house tools with dedicated research team
- Improving tax-efficiency
Our successful three-year collaboration with Fidelity now provides us with advanced resources, replacing our in-house manager research and trading tools with their expert insights and innovative solutions.
We’re excited to announce we’re partnering with Fidelity’s Institutional Wealth Advisors Group to co-manage our clients’ investment portfolios, utilizing the same manager selection framework and rebalance methodology our team has refined over the last seven years. This partnership enables us to maintain our strategic input while gaining the expertise of a dedicated portfolio manager and a specialized research team committed to closely monitoring our clients’ investments.
Fidelity’s global reputation and privileged access to top-tier managers provide an unparalleled advantage, often giving them a seat at the table with company leaders—a level of insight we previously couldn’t achieve with some fund managers who provided limited visibility beyond standard, publicly disclosed information. This enhanced access significantly bolsters our investment strategy, enabling us to proactively identify and respond to key changes that could affect our investment selections.
We’re also introducing a new trading platform that improves efficiency. Powered by technology from 55IP, this innovative trading tool utilizes tax targets to capitalize on tax-loss harvesting opportunities throughout the year, scanning for differences between the trading price of an investment and each client’s individual cost basis. The system then executes trades based on a personalized tax target to realize losses and reduce the client’s tax liability.
Set to replace our current software later this summer, this platform has already demonstrated its effectiveness, reducing capital gains taxes by an average of 3% per household. The integration of this technology enhances our personalized approach to managing each client’s unique tax situation, unlocking even greater potential for tax savings.
How These Enhancements Impact Client Portfolios
As we enhance our investment approach and trading technology, we’re seizing this opportunity to optimize our clients’ portfolios through strategic adjustments designed to boost return potential and improve cost efficiency. Clients can anticipate the following updates to their investment portfolios, scheduled for implementation later this summer:
Large Cap Equities:
We’re replacing Parnassus Core Equity, which has become costly due to sizeable capital gains distributions, with Fidelity’s Blue Chip Growth fund. This move not only reduces expenses by approximately half but also shifts from an open-ended mutual fund to a more tax-efficient exchange-traded fund (ETF). We will complement Fidelity’s growth-oriented management style with the Vanguard Value Fund to balance risk and expand investment opportunities within the large-cap space.
Fixed Income:
In fixed income, we’re eliminating redundancies to streamline your investments. Given the similarities in approach and holdings between Dodge & Cox Income and Fidelity Total Bond fund, we’re consolidating assets into the Fidelity fund to reduce overlap and lower overall expenses. In addition, we’re replacing Lord Abbett Bond Debenture with JP Morgan Income Fund to increase yield potential.
Small/Mid Cap Equities:
Vanguard and Fidelity will continue to oversee your small and mid-sized equity funds; however, we’re strategically adjusting the underlying strategies. First, we’re replacing Fidelity Low Priced Stock with Fidelity Mid Cap Stock to reduce unintended international exposure and lower overall costs. We’re also transitioning from Vanguard Extended Market ETF to Vanguard Small Cap Blend for more dedicated small-cap exposure.
International Equities:
Historically, we’ve relied on American Funds Europacific Growth as our core international manager, valuing their extensive experience and cost-effective management approach. To complement this with a value-oriented strategy, we recently incorporated Vanguard’s International High Dividend ETF. To further strengthen your international allocation, later this year we plan to transition to Fidelity International Value Fund, which offers a more pronounced value focus than the Vanguard fund.
This strategic shift is a direct result of our new partnership with FIWA, whose analyst team has thoroughly vetted the Fidelity fund through rigorous research and analysis. While this is the only portfolio change that doesn’t directly reduce portfolio expenses, it more closely aligns with our belief in the advantages of active management, particularly in international markets.
Next Steps for Align Financial Clients
- We need your permission ASAP
- Portfolios not updating until June
- All updates expected to be completed by the end of June
Clients can refer to our recent email communication for further details on what’s required of you to ensure a smooth transition and further success in managing your investments. If you have any questions about these changes, please don’t hesitate to contact us.
We appreciate your continued trust and support as we strive to continually improve your experience and outcomes and are grateful for the opportunity to serve you and better align your money with your life.
