Personalized Multiple Account Portfolio Optimization

Abstract

I develop a multi-account alpha-tracking error framework that simultaneously optimizes across an investor’s multiple accounts with different tax treatments, existing holdings, tax lots, and opportunity sets while considering taxes and trade costs in a single optimization. The objective function includes an optional term for an investor’s nonpecuniary preferences, such as various environmental, social, and governance (ESG) characteristics. By running the multi-account optimizer regularly, it also serves as a personalized asset location optimizer, tax-loss harvester, portfolio rebalancer, roll-over optimizer, and new client onboarding transition optimizer that simultaneously considers the numerous interconnected tradeoffs to produce ongoing personalized portfolio management.

Keywords: alpha-tracking error optimization; asset location; fund-of-funds optimizer; manager structure optimization; rebalancing; tax efficiency; tax loss harvesting; transition management