The Fabric Decision Tree when Editing Proposals

Information on the internal Fabric decision tree that is used when buying and selling while editing proposals at the account level, editing proposals at the portfolio, and cash deposits and withdrawals. 

Editing Proposals at the Account Level

• The advisor has complete control over which accounts trades are placed in
• The advisor is provided a warning if any trading restrictions are violated, but can still perform the trade
• As the advisor proposes trades in each account, the account cash balance is automatically adjusted by the amount of the trade
  • The largest existing cash holding is prioritized
  • If there are no cash assets, a default “Cash (USD)” asset is added to the account.
  • The advisor can move money between cash assets just as they would with any other asset (e.g., enter a positive value for a money market fund and cash will be taken from the Cash (USD) position). 
• If there is not enough cash in the accounts, the proposal cannot be saved until the advisor generates enough cash.
  • If there is enough cash, but in the wrong account, the proposal will show a negative cash balance in one account and a positive cash balance in the other, which reflects the transfer that would be needed between accounts.
  • This would occur if the advisor sold an asset in Account A, and bought an asset in Account B, with no cash in either account.
  • The automated trade assignment will never assign trades to accounts that do not have sufficient cash; it is only possible manually.

Editing Proposals at the Portfolio Level (no accounts)

• The system will make trade trade assignments to specific accounts as the advisor proposes trades. These represent a “best guess” of the account the advisor would like to perform the trade-in.
• Sell trades are allocated to minimize tax impact, based on the average cost basis (not lot level). “Tax impact” is defined as the realized gain * the tax rate. As a result, a small short-term gain will be prioritized over a large long-term one. 
• The actual lot-level allocation is performed when the trades are uploaded into the advisor’s trading platform based on the settings of that system.
• Buy trades are only allocated to accounts with cash available; the system will never generate an inter-account transfer.
• In general, there is an attempt to place new positions in accounts with similar positions given the cash available.

Cash Deposits/Withdrawals

• Buy and Sell trades with cash deposits/withdrawals follow the same logic as other trade assignments
• In the case of deposits, the cash is seen as available to increase positions in any account.
• As Fabric is not aware of the source or destination of the cash, it is up to the advisor to make sure that they are assigning trades consistent with any tax-deferred restrictions

Logic For Selecting Accounts for Buys and Sells

1. Sell
   1. Prioritize Tax Impact (default)
      1. Losses (ST rate * ST Loss + LT rate * LT Loss); short-term rate = 35%, long-term rate = 20%. (As a result, a large long-term loss will be sold before a small short-term loss). 
      2. No Losses (Including Tax Advantaged accounts)
         1. Prioritize sell from an account that can sell all of the trade
         2. If can’t sell all of the trade, sell proportionally across accounts holding the position 
      3. Gains (ST rate * ST Gain + LT rate * LT Gain). As with losses, a small short-term gain is prioritized over a large long-term gain.
      4. No Tax information 
         1. Prioritize sell from an account that can sell all of the trade
         2. If can’t sell all of the trade, sell proportionally across accounts holding the position
2. Buy
   1. Start with the Smallest Transaction and move to increasing size
   2. Note: this way any transactions that have to be split up based on available cash are few and easy for the advisor to change
   3. Assets with restrictions on them are completed before assets without restrictions
   4. If already in an account, add to existing position
   5. If multiple accounts spread proportionally across accounts
   6. If not in account, add to account with enough cash for full purchase
      1. If multiple accounts with enough cash for a full purchase, prioritize the largest % match at the Fabric Asset Class.
   7. If not enough cash in one account buy-in accounts that contain the same attribute
      1. prioritize largest % match at the Fabric Asset Class
      2. For, Use all cash in the account with the greatest % Fabric Asset Class Match, then move to second greatest, etc.
3. Account Level Restrictions
   1. Take priority over all other decisions
   2. If it is not possible to complete the trade otherwise, account-level restrictions can be broken with a notification to the user