From time to time we are approached by clients with complex circumstances that requires a bit of lateral thinking on our part.
Joe and Mary are a classic case in point.
They live in Ireland but both hold US passports and so can't invest in European investment funds, but also can't purchase US ETFS in Europe due to the PRIIPS regulations which require us to provide them with a KID document that doesn't exist.
So they hold an investment account in the USA and yet they have been told that they can't purchase US ETFs!! The mind boggles!
They have a significant personally held stock portfolio which is full of capital gains. So we don't want to sell anything and pay tax at Irish Capital Gains tax rates of 33%.
So how can we "rebalance" the portfolio in order to ensure that the risk exposure remains appropriate?
Here's what we did
We scanned their existing portfolio at the stock level to create a detailed picture of their holdings. We then compared this to the FTSE All World Index and found that they were substantially underweight in a few key large company stocks relative to the index.
Fortunately, they had a lot of cash built up in the account from dividends, so we bought the stocks that were underweight and re balanced the account. Their account does not charge any commissions for dealing listed stocks. ZERO COMMISSIONS! This meant that we were able to purchase very small lots of each company.
Another by-product of this approach is that overall the annual management charge of the portfolio declines since there is no annual management charge on stocks whereas there is on ETFs.
This is catching on in the USA and is known as direct indexing. We think it has a future.