[Among the fastest-growing product vehicles in the industry, separately managed accounts, per the FUSE Research Network, are projected to top $5.1 trillion in assets in 2026, reflecting a 15.4% CAGR over 2025 and 2026. With the ten largest SMA managers by assets representing 65% of the market, innovation will come from smaller, nimbler SMA players, that can lead with technology enhancements that help advisors address SMA investment challenges.

Financial advisors, to satisfy client demand, competitively differentiate themselves, and capture a growing share of this investment market, must now focus on building portfolios featuring unique investment opportunities and strategies that aim to enhance portfolio returns while managing the risk of tax expenses. Core to this effort is addressing the traditional challenges facing active equity strategies: high fees, tax erosion, single-manager risk, over-diversified portfolios, and delivering differentiated portfolio returns. Providing clear value through unique strategies and after-tax alpha has become critical to justify costs and competitively position for growth.

To explore innovative solutions to these challenges, we reached out to Co-Founders Paul Ahern and Jeff Seiple, along with Stephen Beinhacker, Chief Investment Officer of NextFolio - an asset management firm pioneering the application of Ensemble Methods to active portfolio management. Ensemble Methods are a branch of machine learning used to improve forecasting accuracy in complex challenges, like hurricane tracking, where multiple expert models (think of those spaghetti lines you see from the meteorologists) are combined to deliver a single, more accurate landfall forecast.

As applied to investment management, NextFolio uses Ensemble Methods and unique machine learning technology to identify the real-time high-conviction ideas from multiple top institutional managers and blends them into a single portfolio. This creates a smarter, data-driven foundation for portfolio construction by eliminating “diversification ballast” and targeting high active share.

NextFolio has also recently expanded their investment offerings from a series of turnkey SMA strategies across all nine domestic equity and thematic/factor style boxes to add the option of tax-managed portfolios across their strategies through a partnership with Quorus – an asset management tech platform focused on delivering customizable, tax-efficient investment solutions.

Their entry into the Schwab Managed Account Marketplace and Fidelity Separate Account Network enhances advisor-friendly access to their high-conviction portfolios, scalability, and tax efficiency for today’s competitive marketplace.]

 

Can you explain how Ensemble Methods have been used successfully in other industries and complex challenges, and how you are applying it to investment management?

This technology has had a revolutionary impact on many industries with over 250,000 uses today, including facial recognition, self-driving cars, MRI tumor detection, and hurricane tracking.

As applied to investment management by NextFolio, the key innovations of Ensemble Active™ portfolios are the ability to apply machine learning replication technology to estimate and access real-time daily fund holdings, identify high-conviction investment ideas across 10-15 carefully chosen top fund managers, and combine these insights in a way that enhances the predictive accuracy over any individual manager’s stock selection “forecast”.  

This “ensemble modeling” approach focuses on tackling the key challenges of traditional active management - its inconsistent performance, high fees, the performance drag of lower-conviction benchmark “ballast” bets, and especially, its dependence on a single manager's insights.

Being such a novel investment option, how do you apply or layer NextFolio SMAs into a broader asset allocation strategy?

NextFolio’s Ensemble Active™ platform provides a whole-of-market solution set that allows for more effective and transparent asset allocation and portfolio construction. Using the Morningstar 9-box grid for reference, each NextFolio strategy is pure to its objective, investing only in stocks included in the associated benchmark. This means no foreign securities, no style or capitalization drift.

This purity allows for effective focus on stock selection alpha relative to a common benchmark and to provide asset allocators with higher confidence that what they allocate to is what they will actually get.

How have you addressed investors' growing desire for tax-managed SMA portfolios?

Through our new partnership with Quorus – a tech-driven asset management platform focused on delivering personalized, tax-efficient portfolios at scale - financial advisors can now offer NextFolio strategies in a tax-smart format customized to each client’s tax profile. Their tax-efficient overlay process provides lot-level optimization, tax-loss harvesting, capital gain deferral, and aligns turnover with tax-sensitive clients. This customization provides enhanced after-tax return benefits for taxable investors.

Tax management capabilities in SMAs are essential due to the evolving regulatory environment, growing investor demands for personalized solutions, and HNW investor expectations. Offering tax-managed SMAs across client portfolios provides scalability for advisors that can deepen client relationships, differentiate services, and effectively engage high-net-worth investors.

Can you provide a case study to illustrate the benefits of a tax-managed SMA vs traditional SMA portfolio?

For taxable clients, there are two sets of returns - pre-tax returns and post-tax returns. Pre-tax returns are returns generated before short or long-term capital gains are applied. Post-tax returns are what taxable investors “get to keep” after these are accounted for and are the basis for compounding any wealth generated from investment portfolios.

We recently completed a hypothetical evaluation of a taxable client that wants a tax-managed high-conviction U.S. large-cap SMA portfolio. In conjunction with our partner, Quorus, we conducted a simulation that took real-time holdings from a representative large cap core SMA portfolio (which we have been running since Q4 2019), rebalanced those monthly, and applied a set of tax-optimization heuristics to maximize post-tax returns. In the simulation, pre-tax, pre-optimization returns for the strategy were 15.85% over the period 1/1/20 – 12/31/24. After applying the impact of short- and long-term capital gains, the strategy’s return dropped from 15.85% to 12.79% over the 1/1/20–12/31/24 period - highlighting how meaningful the tax drag can be when portfolios are not explicitly designed for tax efficiency.

However, once we applied our tax-management algorithms to the same simulated portfolio, the picture improved considerably. The post-tax, post-optimization return rose to 15.13% - nearly restoring the strategy’s original pre-tax profile. By intelligently adjusting turnover, sequencing gains and losses, and optimizing the timing of trades, the tax-management process was able to retain 95% of the original pre-tax return on an after-tax basis.

What are the Implementation Considerations and Purchase Process of NextFolio SMAs for Financial Advisors?

As to the onboarding process, we provide advisors with a structured due-diligence checklist covering holdings transparency, tax-overlay capabilities, custodian connections, reporting standards, and operational workflows to ensure seamless adoption.

On client suitability, we help the advisor identify clients who benefit most from NextFolio’s tax-managed SMAs - typically those with taxable accounts, portfolios with higher turnover, long-term wealth plans requiring customization, or clients seeking more efficient after-tax outcomes.

Through our partnership with Quorus - fully integrated at Schwab and Fidelity - advisors gain a streamlined, end-to-end implementation experience. Account setup, ongoing execution, and automated tax-aware rebalancing are built directly into the platform. This makes it easy to deliver NextFolio’s high-conviction, style-consistent Ensemble Active™ portfolios with a sophisticated tax-management overlay, all within existing advisor workflows and at scale.

Any other thoughts you would like to share with financial advisors?

NextFolio is offering something rare in today's market - an asset management firm in a position to redefine all active equity investing. Our proprietary Ensemble Active™ approach combines data science, machine learning, and the real-time stock selection insights of leading institutional managers to build high-conviction, style-consistent equity portfolios.

Our value proposition lies in addressing the shortcomings of traditional active management - such as over-diversification, single-manager dependency, and high fees – through delivering scalable, transparent, and cost-efficient SMA solutions that help investors navigate today's dynamic markets with greater confidence.

From a tax efficiency standpoint, advisors can now also pair that edge with Quorus' embedded tax-efficient SMA capabilities for maximum client impact. In today’s market environment - where elevated capital gains taxes and concentrated stock positions can quietly erode long-term wealth - the pursuit of alpha must go beyond pre-tax performance. Advisors are increasingly focused on delivering after-tax alpha - the truest measure of client success that helps them keep more of what they earn.

We invite financial professionals to learn more and have a discussion with us about the advantages of our Ensemble Active™ approach for your clients and your business and an opportunity to Meet with NextFolio.

 

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We operate as a business innovation platform and educational resource with FinTech and Financial Services firm members to openly share their unique perspectives and activities. This interview is for informational purposes. The goal is to build awareness and stimulate open thought leadership discussions on new or evolving industry approaches and thinking to facilitate next-generation growth, differentiation, and unique client/community engagement strategies. The Institute was launched with the support and foresight of our founding sponsors — Ultimus Fund Solutions, FLX Networks, TIFIN, Advisorpedia, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).

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