The Meb Faber Show - Better Investing

How to Convert an SMA to an ETF with Wes Gray & Robert Elwood | #522

Feb 23, 2024

Explore the process of converting SMAs to ETFs with insights from Alpha Architect's Wes Gray and business lawyer Bob Elwood. They discuss the advantages, tax implications, and future trends of this conversion. The conversation also covers examples of conversions, tax optimization strategies, and navigating complexities in the financial industry. Dive into growth predictions, past forecasts, and debates on investments in this informative podcast episode.

47:06

Episode guests

Bob Elwood

Wes Gray

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Episode notes

Podcast summary created with Snipd AI

Quick takeaways

Converting SMAs to ETF via Section 351 offers tax efficiency and diversified asset transfers.

ETF conversions allow for a wide range of assets, including esoteric investments, enhancing portfolio diversification.

Deep dives

The Process of SMA to ETF Conversion

The podcast episode delves into the detailed process of converting separately managed accounts (SMAs) to Exchange Traded Funds (ETFs) via Section 351. This conversion involves transferring assets from individual accounts to an ETF, maintaining tax efficiency and diversification. The speaker explains how this process allows for in-kind redemptions, enabling portfolio diversification without incurring significant taxes. The advantages of ETFs over mutual funds or SMAs in terms of tax efficiency and trading flexibility are highlighted, emphasizing the potential long-term benefits of utilizing this conversion strategy.

Introduction

3min

Converting SMA to ETF: Tax Optimization Strategies

27min

Strategies for Converting SMA to ETF and Addressing High Fees

2min

Navigating Charisma and Financial Complexity

8min

Growth Predictions, Past Forecasts, and a Debate on Investments

2min

Discussion on Book Content, Fund Information, and Podcast Wrap-up

2min

Today’s returning guest is Alpha Architect’s Wes Gray, and he’s joined by Bob Elwood, a business lawyer with a focus on investment funds.

Wes and Bob just helped complete a separately managed account to ETF conversion of $770 million, so we had to get them on the show to walk through the process! They walk through the process of doing an SMA to ETF conversion via Section 351 from start to finish. They share some of the more nuances involved in the process and answer some common questions they hear over time.

While the most popular ETF story so far this year is the Bitcoin ETF, this is arguably a bigger long-term story and a trend to watch in the next few years.

(1:39) - Welcome to our guests, Wes Gray and Robert Elwood; Wes’ prior appearances on the show: how to launch an ETF, 2023 Radio Show, 2021 Radio Show

(2:11) - Update on Alpha Architect

(2:59) - Overview of converting SMAs to ETFs via Section 351

(13:58) - Mutual fund to ETF conversions versus separate account to ETF conversions

(19:34) - Weighing the advantages and disadvantages of SMA to ETF conversions

(26:01) - Is Your Alpha Big Enough to Cover Its Taxes? A 25 Year Retrospective

(26:35) - The case for the tax-free conversion of SMAs into an ETF via Section 351

(34:35) - Alpha Architect’s connection to former Presidential candidate Vivek Ramaswamy

(36:37) - Esoteric examples of SMA to ETF conversions

(38:06) - When does it not make sense to do a conversion?

(43:23) - The future of Alpha Architect

Learn more about Bob and Wes: ETF Architect; Alpha Architect

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Past guests include Ed Thorp, Richard Thaler, Jeremy Grantham, Joel Greenblatt, Campbell Harvey, Ivy Zelman, Kathryn Kaminski, Jason Calacanis, Whitney Baker, Aswath Damodaran, Howard Marks, Tom Barton, and many more.