FA Magazine September 2024 | Page 40

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that nest egg that we know that the client ’ s going to need , and include in that some equity with a dividend focus and some just pure growth , because they need that growth in their portfolio to get them to that longevity ,” she says . “ They can have that growth , but also have income on top of it .”

Ultra-high-net-worth clients — those with an average net worth of about $ 50 million — can benefit from portfolio construction based on cash-flow needs , where the current generation lives on generated income but longer duration investments and the private markets are used to continue to generate wealth . “ Those will go into trusts for the benefits of children

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Certain clients , particularly women who tend to have greater longevity concerns than men , benefit from a strong equity component in their portfolio , notes Duckworth , and generating some income off the equity side can be useful .

duce dividends , but we don ’ t particularly chase them ,” he says . “ Dividends in and of themselves just represent taxable income in the portfolio .”

Instead , Abugideiri says rather than reinvest dividends , he has them issued in cash in order to minimize the trading volume for the client . Most of that dividend income in mutual funds is generated in December , and by disbursing it to the client in January to cover the new year ’ s spending needs , less additional cash has to be raised .

“ It keeps our trading costs low and keeps the amount of taxable income that we ’ re generating as low as possible ,” he says . “ So we use them in that way tactically , but they ’ re not part of the strategy in terms of finding excess return .”

Fishman , however , says he does see value in dividends for an income-producing portfolio , as long as they ’ re tax efficient . Qualified dividends are taxed at a lower rate than interest on bonds for clients in a high tax bracket , which can enhance their appeal to high-income individuals .

“ Overall , given our outlook and our view , we think dividends-generating stocks , and dividends-generating portfolios are still really helpful ,” he says . “ And clearly you want to make sure that the dividends receive qualified dividends status so they ’ re subject to capital gains tax , not income tax .”

Women And The Ultra-Wealthy Certain clients , particularly women who tend to have greater longevity concerns than men , benefit from a strong equity component in their portfolio , notes Duckworth , and generating some income off the equity side can be useful .

“ Let ’ s really focus on that core piece , and grandchildren that haven ’ t even been born yet ,” Navarro says . “ We don ’ t do a lot of decumulation . The wealth we ’ re managing is intended to be generational .”

It remains to be seen whether the rate cut will come in September , but on some level the exact timing is irrelevant , sources say . What ’ s important is positioning income-centric portfolios to address client cash-flow needs while controlling for risk .

And that may be harder than it sounds . “ It takes a lot of work with clients right now to help them make good decisions . That includes selling holdings that might be up significantly and taking profits ,” Fishman says .

“ Overall , things have been obviously very strong this year , and you want to go ahead and use that to your advantage , as opposed to one thing you don ’ t want to do , which is just sit and pray . We can look at what ’ s underperformed — and one of them is going to be intermediateterm fixed income — and think maybe it ’ s a good time to allocate some more money in that direction .”

38 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM