From SMAs to ETFs: The Ultimate Wealth Strategy for Family Offices

March 26, 2025 EDT

High-net-worth family offices often thrive on long-term financial stewardship, but after years of market growth, a unique challenge may arise: portfolios burdened by significant unrealized capital gains. Rebalancing without incurring substantial tax liabilities? That’s the dilemma. Families with generational wealth, long-held equity positions, or concentrated stock holdings often find themselves locked into positions that no longer align with their evolving financial goals.

Asset Growth to Asset Gridlock

Here’s the reality: success in wealth accumulation can create a gilded cage. While impressive unrealized gains may reflect strong past performance, they can also restrict portfolio flexibility, making it difficult to realign with changing risk tolerances, philanthropic goals, or succession planning needs. High-net-worth families should consider seeking strategies that maintain their legacy while optimizing tax efficiency and investment flexibility.

Fortunately, there’s a solution: launching your own ETF.

This approach may allow family offices to restructure investments in a tax-efficient manner while enhancing portfolio management.

Move Your Money, Not Your Tax Bill

Launching an ETF may enable individuals or entities to transfer appreciated assets into a structured investment vehicle without triggering immediate capital gains taxes. When applied to SMAs, this strategy allows family offices to transition client assets into an ETF while deferring tax consequences that would typically arise from liquidating securities.

ETFs: Key Benefits for Family Offices

✔Tax Deferral on Appreciated Assets

Many family office portfolios include highly appreciated securities, creating a potential tax burden when restructuring. Launching an ETF facilitates the tax-free transfer of these assets into a structured investment vehicle via the 351 Exchange process, which may allow for continued growth without an immediate tax event. This helps preserve wealth across generations and aligns with long-term estate planning goals.

✔Enhanced Tax Efficiency

ETFs are among the most tax-efficient investment vehicles due to their in-kind creation and redemption mechanisms. Unlike SMAs, which generate annual tax liabilities through buying and selling activities, ETFs often minimize taxable distributions and may potentially optimize after-tax returns for ultra-high-net-worth families.

✔Operational Streamlining

Managing multiple SMAs with bespoke strategies can often be time-consuming and costly. Converting these accounts into a unified ETF consolidates holdings, reducing administrative burdens, enhancing reporting efficiency, and freeing up resources to focus on strategic wealth management.

✔Customizable Investment Strategies

ETFs provide flexibility to tailor investment objectives through sector-specific exposure, ESG alignment, or global diversification. By launching an ETF, family offices can maintain personalized investment strategies while leveraging the efficiency of a scalable, institutional-grade structure.

✔Increased Liquidity and Accessibility

An ETF structure enhances liquidity, transparency, and accessibility compared to individually managed SMAs. Once established, the ETF is listed on a national exchange, providing family offices with more flexible access to their investments while improving governance and succession planning.

The ETF Launch Playbook: How to Execute the Transition

Formation of the ETF: Our team will guide you through the ETF creation process, coordinating with experienced service providers, legal counsel, and auditors to chaperone a seamless transition.
Asset Transfer: Securities from SMAs are transferred into the ETF via the 351 Exchange process in exchange for ETF shares, allowing for a tax-deferred transition.
Client Transition: Family office clients receive shares of the ETF, maintaining their exposure to desired investment strategies within a more efficient and scalable structure.

The Next Chapter in Family Wealth Management: Custom ETFs

For family offices, launching an ETF is a sophisticated strategy that strives to enhance tax efficiency and simplify portfolio management, contributing to long-term wealth preservation. By leveraging this approach, families have the opportunity to future-proof their investments, maintain intergenerational wealth transfer goals, and optimize their financial structures.