MFO wants access to bigger investment palette, increased tax efficiencies. Houston-based multifamily office Kanaly Trust has retained wealth-management platform provider Fortigent to support its move to an open-architecture investment environment.

Kanaly, which was founded in 1976, says the move was prompted by its view that a 26-year bull market for financial assets is at or near an end and that its clients' tax burdens are likely to increase, making access to alternatives and overall tax efficiency matters of first importance.

"We formed this partnership with Fortigent to provide our clients with an even broader and more distinct investment platform centered [on] open-architecture wealth-management products and solutions," says Kanaly's president and CEO David Doll. "In addition, we consider tax efficiency to be a paramount concern for our clients and we are pursuing a Fortigent-sponsored [unified management account (UMA)] platform that will take Kanaly's tax consideration to the next level."

Head winds

UMAs are fee-based, single-account investment products that typically feature combinations of separately managed accounts, mutual funds and ETFs.

Fortigent, working with overlay and indexed-investment manager Parametric, expects to make a tax-efficient UMA available to all its institutional clients later this year. It already supports a tax-efficient UMA for Jenkintown, Pa.-based multifamily office Pitcairn.

As broad-market returns decline and taxes go up, Kanaly sees tax management as an increasingly important part of the investment-management paradigm. "Given the sunset of the Bush tax cuts and our views on leadership from Washington in the years ahead, we've probably seen the low point for supply-side based taxes for a generation," says Doll.

Fortigent's focus on helping firms provide efficiencies for their clients through asset location -- putting less tax-efficient investments in tax-deferred (or tax-exempt) vehicles, for instance -- and active overlay management is "key to providing value to our clients in the coming years," Doll adds.

In 2002, David Stein, CIO of Seattle-based Parametric, co-wrote a paper suggesting that active overlay management can add 0.30% to 0.60% in after-tax return each year over a 10-year period. Steve Kauffman, Parametric's director of overlay management, says data focusing on a more recent five-year period shows the after-tax increase that results from active overlay comes closer to 1.2%.

Kanaly Trust manages about $2 billion in assets and serves as trustee or executor for estates totaling more than $2.5 billion.

Rockville, Md.-based Fortigent, which started out as the back office of multifamily office Lydian Wealth Management (now Convergent Wealth Advisors), has approximately $20 billion on its platform. Kanaly is its forty-second institutional client. -FWR

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