lucas w. mansberger, cfa®, caia®

Lucas W. Mansberger, CFA®, CAIA®VP, Investment Strategist, Sr Manager Selection Analyst

Jeff T. Pauza, CFA®, CFP®Senior Wealth Management Advisor

3

SAVING TAXES, NOT PAPER

4

W HO IS GREENLEAF TRUST?

Greenleaf Trust is dedicated exclusively to providing highly customized wealth management and trust administration to individuals, institutions, businesses, and high net worth families. Our pledge is to provide clients a superior level of personalized service, peace of mind and financial security from generation to generation.

Founded in 1998 as one of Michigan’s first independent “trust-only” banks

Headquartered in Kalamazoo, Michigan, with offices in Grand Rapids, Bay Harbor, Traverse City, Birmingham, and our affiliate Greenleaf Trust Delaware

One of the nation’s largest privately held wealth management firms entrusted with over $15 billion in assets from approximately 1,100 client relationships

WEALTH MANAGEMENT PLAN - ROADMAP

5

6

Understanding Tax Alpha

Blending Direct Indexing and Active Management

Purpose Built Wealth Management Plans

Nicholas Juhle*, CFA®

Senior Vice PresidentDirector of Investment Research

Lucas Mansberger, CFA®, CAIA®

VP, Investment StrategistSenior Manager Selection Analyst

Christopher Burns, CFA®, CPA®, CFP®

VP, Investment StrategistSenior Fixed Income Analyst

Investment Committee

Chris Burns*, CFA®, CPA® CFP ®

VP, Investment StrategistSenior Fixed Income Analyst

Seth Kritzman, CFA®

Fixed Income Analyst

Mark Jackson, CFA®

VP, Senior Wealth Management Advisor

Fixed Income Committee

Nicholas Juhle, CFA®


Ali Fahs*, CFA®

VP, Senior Equity Portfolio Manager

David Mange, CFA®

VP, Senior Equity Analyst

Equity Committee



Michael Storms, CFA®

Senior Equity Analyst

Lucas Mansberger*, CFA®, CAIA®

VP, Investment StrategistSenior Manager Selection Analyst

Jacob BarkerManager Selection Analyst

Manager Selection Committee



Performance & Risk Reporting

Tyler HookResearch Associate

Trading

Samuel RiethmanTrader

Mollie FeltTrading Specialist

7

INVESTMENT ORGANIZATION

* Committee Chair


SVP, Director of Research• Chair of Investment Committee• BBA, University of Michigan, Ross

School of Business • Former Senior Research Associate at

Robert W. Baird & Company

Chris Burns, CFA®, CPA®, CFP®

VP, Investment StrategistSenior Fixed Income Analyst• Chair of Fixed Income Committee• Macc, Ross School of Business,

University of Michigan• Instructor, Student Investment Fund,

Haworth College of Business• Former Advisor at Bessemer Trust

Lucas Mansberger, CFA®, CAIA®

VP, Investment StrategistSenior Manager Selection Analyst• Chair of Manager Selection Committee• MBA, University of Chicago Booth

School of Business• Former Investment Consultant with

Pavilion Advisory Group

Ali Fahs, CFA®

VP, Senior Equity Portfolio Manager• Chair of Equity Committee• MBA, Babson College, F.W. Olin School of

Business• BA with Distinction, University of

Michigan – Dearborn• Former SVP, Portfolio Manager PREMIS

Capital Partners and VP of Research at Hansberger Global Investors

8

INVESTMENT TEAM LEADERSHIP

Investment Philosophy

Portfolios should maximize after-tax, after-fee returns for a given level of risk.

Independence and open architecture allow for unbiased investment decision-making.

Investment decisions should be based on accepted principles and empirical data.

Asset allocation is the primary driver of long-term investment performance.

A long-term perspective and disciplined approach lead to improved outcomes over time.

9

GREENLEAF INVESTMENT PHILOSOPHY

10

W HICH W OULD YOU PREFER?

Value Fund A 1-Year 3-Year 5-Year 10-Year

Total Return % 1.48 6.21 9.54 10.28

Percentile Rank 59 43 47 40

Value Fund B 1-Year 3-Year 5-Year 10-Year

Total Return % 4.57 6.73 11.63 12.59


11


Value Fund A 1-Year 3-Year 5-Year 10-Year

Total Return % 1.48 6.21 9.54 10.28


Tax Adj. Returns % 0.45 5.38 8.79 9.59

Percentile Rank (tax) 54 31 30 19

Tax Cost Ratio 1.01 0.79 0.69 0.63

Value Fund B 1-Year 3-Year 5-Year 10-Year

Total Return % 4.57 6.73 11.63 12.59


Tax Adj. Returns % 1.14 2.98 8.64 8.68


Tax Cost Ratio 3.28 3.52 2.68 3.47

12


iShares Russell Top 200

Value ETF 1-Year 3-Year 5-Year 10-Year

Total Return % 1.48 6.21 9.54 10.28


Tax Adj. Returns % 0.45 5.38 8.79 9.59


Tax Cost Ratio 1.01 0.79 0.69 0.63

PIMCO RAE Plus Instl 1-Year 3-Year 5-Year 10-Year

Total Return % 4.57 6.73 11.63 12.59


Tax Adj. Returns % 1.14 2.98 8.64 8.68


Tax Cost Ratio 3.28 3.52 2.68 3.47

13

2021 FEDERAL INCOME TAX RATES AND BRACKETS

14

2021 CAPITAL GAINS TAX RATES (LONG-TERM) AND BRACKETS

15

FUND TAX DRAG DRIVERS

Less Tax Efficient

More Tax Efficient

Funds Invested In:High-Yield Bonds

Taxable BondsTIPS

REITsBalanced Funds

Small Cap (Active)International Stocks (Active)

Large Cap (Active)Stock Index (Passive)

Tax-Exempt Muni Bonds

Tax Category Tax Impact Primary Impact Variables General Guidance?

Income High Level of interest income Higher = Bad

Tax characterization Nonqualified = Bad

Capital Gains - Short-Term High Asset volatility Higher = Bad

Portfolio turnover Higher = Bad

Capital Gains - Long-Term Moderate Asset volatility Higher = Bad

Portfolio turnover Higher = Bad

16

FUND TAX DRAG BY CATEGORY

10-Year Trailing Returns (Annualized)

Morningstar Category Average Pre-Tax Tax-Adjusted Difference

Large Blend 12.27% 10.68% -1.59%

Large Growth 15.14% 13.30% -1.84%

Large Value 9.74% 8.07% -1.67%

Mid-Cap Blend 10.30% 8.71% -1.59%

Mid-Cap Growth 13.86% 11.89% -1.97%

Mid-Cap Value 9.18% 7.56% -1.62%

Small Blend 9.81% 8.09% -1.72%

Small Growth 13.69% 11.59% -2.10%

Small Value 7.77% 6.22% -1.55%

17

PASSIVE ETF TAX DRAG

SPDR S&P 500 ETF (SPY) 1-Year 3-Year 5-Year 10-Year

Total Return % 18.40 14.10 15.11 13.77


Tax Adj. Returns % 17.49 13.35 14.25 12.93


Tax Cost Ratio 0.76 0.66 0.74 0.74

iShares S&P 500 ETF (IVV) 1-Year 3-Year 5-Year 10-Year

Total Return % 18.37 14.14 15.18 13.83


Tax Adj. Returns % 17.45 13.46 14.54 13.26


Tax Cost Ratio 0.78 0.60 0.55 0.50

Vanguard S&P 500 ETF (VOO) 1-Year 3-Year 5-Year 10-Year

Total Return % (NAV) 18.35 14.14 15.18 13.85


Tax Adj. Returns % 17.84 13.62 14.65 13.28


Tax Cost Ratio 0.43 0.45 0.46 0.50

18

W HAT IS DIRECT INDEXING?

Direct indexing: holding all or a subset of the securities in an index via a separately managed account in an attempt to track the returns of the index

Index-Based ETF Direct Index SMA

Receive index returns (pre-tax) Yes Yes

Opportunities for tax loss generation Limited Many

Customization Not available Yes

Expense ratio/Fees 3-50 bps 20-35 bps

Estimated tax alpha vs. ETF (after fees) 0.9 to 1.2%

19

VALUE OF TAX LOSS HARVESTING

1st Trade Between Trades 2nd Trade

A hypothetical investor: Assume: The investor then:

Buys $5M of Stock A Stock A goes up $1MSells Stock B for $4M,

then buys $4M of Stock C

Buys $5M of Stock B Stock B goes down $1MRealizes a loss of $1M

for a tax benefit of $408K

Value of Stock A 5,000,000 6,000,000 6,000,000

Value of Stock B 5,000,000 4,000,000

Value of Stock C 4,000,000

Total Portfolio Value 10,000,000 10,000,000 10,000,000

Cost Basis 10,000,000 10,000,000 9,000,000

Losses Harvested 1,000,000

Tax Benefit* 408,000

Tax Benefit as a % of Value 4.08%

*Tax benefit assumes 2018 federal short-term tax rate of 40.8%. Tax benefit would be greater in states with state taxes.

20

HARVESTING OPPORTUNITIES

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

S&P 500 Index from 1996 to 2020

Every Year Has Stocks with Negative Returns

Stocks in S&P 500 with Positive Returns Stocks in S&P 500 with Negative Returns S&P 500 Returns

21

TRADING W HILE TRACKING INDEX

Creates realized tax loss to offset gains

IBMWalmartPepsiCitigroup…

IBMWalmartCoca-ColaCitigroup…

OPTIMIZATION

Sell Pepsi

Buy Coca-Cola

Starting Portfolio Rebalanced Portfolio

Portfolio Summary vs. BenchmarkDirect Index

Portfolio

S&P 1500

Index

Market Value $1,324,633 NA

Cost Basis $797,833 NA

Number of Securities 363 1,506

Dividend Yield 1.41% 1.49%

Beta vs. Benchmark 1.00 1.00

Standard Deviation 22.14% 22.08%

Market Capitalization (Wtd. Avg., Bil.) $447.2 $422.9

Estimated Tracking Error (Pre-Tax) 0.89% 0.00%

22

LIVE PORTFOLIO EXAMPLE

Market Sector Weightings (%)Direct Index

Portfolio

S&P 1500

Index

Communication Services 9.6 10.0

Consumer Discretionary 11.8 12.9

Consumer Staples 7.1 6.3

Energy 2.0 2.2

Financials 12.4 10.9

Health Care 12.4 13.3

Industrials 9.2 9.2

Information Technology 27.0 26.7

Materials 3.2 2.9

Real Estate 2.6 3.0

Utilities 2.7 2.8

Summary Tax Information ($)

Net Realized Gains/Losses Short Term Long Term

3 Months -1,097 -112

Year to Date -178,324 -652

Inception -235,356 -652

Unrealized Gains/Losses Short Term Long Term

Unrealized Gains 302,295 224,640

Unrealized Losses 47 87

Portfolio Performance (%)

1 Month 3 Months Year to Date

Inception

Cumulative

Inception

Annualized

Pre-Tax Returns

Portfolio 3.71 12.63 17.42 31.84 18.20

S&P Composite 1500 4.11 13.24 17.92 33.21 18.94

After-Tax Returns

Portfolio 3.63 12.55 28.74 47.69 26.59

S&P Composite 1500 4.06 13.11 17.31 32.07 18.32

23

LIVE PORTFOLIO EXAMPLE

24




25

CONCENTRATED ACTIVE STRATEGY

26

BLENDING ACTIVE AND PASSIVE

Characteristics

Intrinsic

Value

Portfolio

Direct Index

Portfolio

Blended

(25% Active /

75% Index) S&P 1500

Position # 29 407 436 1505

Top 10 Holdings 53% 26% 34% 26%

Top 20 Holdings 82% 34% 42% 35%

Dividend Yield 0.8% 1.5% 1.4% 1.6%

Beta 0.86 1.00 0.98 1.00

27




28

ASSET M ANAG EM ENT VS W EALT H M ANAG EM ENT

29

HOLISTIC W EALTH MANAGEMENT

Our holistic approach to wealth management always starts with thoughtful preparation of a

completely customized wealth management plan

o Client objectives, unique circumstances, risk tolerance, time horizon, tax considerations, etc.

o Consideration of current holdings and tax implications

o Recommended asset allocation parameters and investment policy statement

o Wealth management strategies, estate flow chart and numerous “what-if ” scenarios

o Asset Sustainability or Probability Analysis used to predict probability of success - Monte Carlo analysis

30

Can you lower my taxes?

Will you improve my returns?

How can we give more?

FREQUENTLY ASKED QUESTIONS

31

Concern: A client who planned to sell their business in the near future was due to pay substantial capital gains tax from the approaching sale

Expected Capital Gains: $5,000,000

Starting Portfolio: $4,000,000

Solution: Create a tax-efficient portfolio today via direct indexing and aggressively harvest losses to prepare for the future sale

CAN YOU LOW ER MY TAXES?

32

Outcome:

Captured market returns

Generated $761,199 in realized losses

Saved $319,008 in taxes

Tax Alpha = 3.6%

51% cumulative after-tax returns

CAN YOU LOW ER MY TAXES?

5/2018 - 12/2020

Cumulative

5/2018 - 12/2020

Annualized

Investment Returns

S&P 1500 Index 39.85% 13.58%

Portfolio (Pre-Tax) 38.65% 13.21%

Portfolio (After-Tax) 50.61% 16.82%

Tax Alpha 12.0% 3.6%

33

Concern: A client had a concentrated position that made up 13% of their entire portfolio

Expected Capital Gains: $55,000

Starting Portfolio: $767,000

Solution: Construct a customized portfolio built around the concentration in order to efficiently reduce position, achieve market returns, and lower stock-specific risk.

W ILL YOU IMPROVE MY RETURNS?

34

Outcome:


Concentration reduced to <2% of total portfolio while generating $9,605 in NETrealized losses

Tax Alpha = 0.31%; Investment Outperformance vs. Original Portfolio = 8.5%

53% cumulative after-tax returns

W ILL YOU IMPROVE MY RETURNS?

12/2018 - 12/2020

Cumulative

12/2018 - 12/2020

Annualized

Investment Returns

S&P 1500 Index 49.38% 21.74%



Tax Alpha 0.80% 0.31%

35

Concern: A client had a $467,000 position in their company stock accumulated over many years with ultra-low cost basis.

Expected Capital Gains: $355,123

Starting Portfolio: $1,000,000 + $467,000 CRUT

Solution: Construct a customized portfolio to aggressively harvest tax losses and contribute employer stock to a Charitable Remainder Trust to fulfill giving desires.

HOW CAN W E GIVE MORE?

36

Outcome:


Generated $196,613 in realized losses

Avoided tax on $355,123 of capital gains

Tax Alpha = 2.3%

61% Cumulative After-tax Return

HOW CAN W E GIVE MORE?

11/2017 - 12/2020

Cumulative

11/2017 - 12/2020

Annualized

Investment Returns

S&P 1500 Index 49.90% 13.81%



Tax Alpha 9.7% 2.3%

WEALTH MANAGEMENT PLAN - ROADMAP

37

38

SOURCES

Slides 10-12: Morningstar. Data as of December 31, 2020.

Slide 15: Chart adapted from MyMoneyBlog.com, “Tax Efficient Mutual Fund Placement For Maximum Return”, February 15, 2017.

Slides 16: Morningstar, Russell Investments Tax Impact Comparison Tool. Data as of December 31, 2020.

Slide 17: Morningstar. Data as of December 31, 2020.

Slide 18: Estimated tax alpha vs. ETF from Parametric, “Tax-Managed SMAs: Better Than ETFs?”, October 23, 2020.

Slide 19: Aperio Group.

Slide 21: Adapted from Aperio Group.

Slides 22-23: Aperio Group, Greenleaf Trust. Data as of December 31, 2020.

This document is provided for informational purposes only and does not constitute an offer or solicitationto purchase or sell any security or commodity. The information herein is being provided to you on aconfidential basis and is intended only for the anticipated recipient or their authorized agents. Anyopinions expressed herein are subject to change at any time without notice. Information has beenobtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed. Itshould not be construed as legal or tax advice and is not intended to replace the advice of a qualifiedattorney or tax advisor. Past performance is not a guarantee of future results. Any decisions based on thisinformation are made at your own risk.

lucas w. mansberger, cfa®, caia®

Documents