Tax Alpha Is the New Alpha: Brent Sullivan on Direct Indexing, Long/Short Strategies, and Unlocking Frozen Portfolios
By Mike Casciano | 3 Good Questions Interview Series
Tax efficiency isn’t a back-office function anymore—it’s a competitive edge. In our latest 3 Good Questions conversation, I sat down with Brent Sullivan, founder of Tax Alpha Insider, to explore how advisors can deliver greater after-tax value through smarter portfolio construction and implementation. If you're still talking tax-loss harvesting as an annual “cleanup,” you’re behind.
Brent brings a unique background—PIMCO, Parametric, startups, and now consulting with ETF sponsors, sub-advisors, and hedge funds. But what sets him apart is his ability to make complex tax strategies visual, approachable, and actionable for advisors. Here are the key takeaways from our conversation.
1. Direct Indexing Is Just the Start
Brent breaks down the basics: direct indexing is the construction of a portfolio with individual securities to track a passive index—offering granularity that enables tax-loss harvesting, customized exclusions, and even gifting strategies. But where it really gets powerful is in how it evolves.
Custom indexing takes this a step further by dialing in factor exposure, optimizing across benchmarks, and controlling for individual client preferences. While direct indexing was once seen as a tax-only strategy, Brent makes clear: risk customization and portfolio personalization are equally important drivers of value.
2. Long/Short for Tax Alpha in Any Market
One of the most powerful (and least understood) ideas Brent brings to light is tax-aware long/short implementation. For clients with highly appreciated positions, tax-loss harvesting opportunities dry up. Enter margin and shorting.
By injecting short exposure into an equity portfolio, advisors can generate harvestable losses in both rising and falling markets. These losses offset gains elsewhere, creating more trading flexibility and extending the lifespan of tax alpha—even in portfolios that would otherwise be frozen by embedded gains.
As Brent puts it: “You’re managing risk and generating tax assets on the household balance sheet. That flexibility is invaluable.”
3. From Sleeves to Householding: Cross-Account Awareness is Essential
Another crucial insight: tax management can’t be siloed. Brent emphasizes the growing need for cross-account optimization—managing IRAs, taxable accounts, trusts, and donor-advised funds together in a coordinated strategy.
Tools and vendors may help, but it’s on the advisor to know, for example, that selling Google in a long/short sleeve and buying it in a spouse’s IRA creates a permanently disallowed wash sale. Visibility and planning across the entire household balance sheet is no longer a “nice to have”—it’s a requirement for real tax alpha.
4. The 351 Exchange: Unlocking Frozen Portfolios
Many advisors are managing legacy portfolios with massive embedded gains—what Brent calls “frozen capital.” His answer? The Section 351 exchange, where appreciated securities are contributed in-kind to a new ETF.
This IRS code provision enables re-diversification without triggering gains, offering a game-changing way to transition concentrated or direct-indexed portfolios into more tax-efficient ETF wrappers. Brent even wrote a short, illustrated book on the subject to make the concept accessible—and funny.
5. Why This Matters: Advisors Need to Lead on Taxes
Too many clients don’t realize how much tax drag is eroding their long-term performance. Brent challenges advisors to bring these conversations forward and arm themselves with the tools and strategies to do it confidently.
“In a world where alpha is scarce, tax alpha is abundant—and it’s one of the key areas where advisors can make a real, measurable impact.”
🎥 Watch the full conversation with Brent Sullivan
Get smarter on direct indexing, tax-aware long/short strategies, and how to deliver more value to high-net-worth clients with taxable accounts.
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