Alphaworks investing for retirement

The upshot is that affluent investors in the highest tax brackets with short-term gains taxed at ordinary rates have the biggest opportunity to reap tax savings. The problem with the mainstreaming of direct indexing is that "it's rarely the case" that ordinary investors are in that situation, said Luke Smith, a co-founder, partner and chartered financial analyst at AlphaWorks.

More middling investors would profit less, it cautioned, adding that for investors with a "tax alpha" of less than 1. Fees for Schwab Personalized Indexing accounts start at 0. That's 10 times the amount of the 0. Direct indexing locks an investor in. Pexels The technique is an all-in bet. Mukherjee called direct indexing a "Hotel California" strategy that locks in investors, and the fees they pay for it, for life.

Dumping the strategy means that "when it comes to tax time, you have all of the hundreds, if not thousands, of trades" that you have to pay an accountant to process for your federal and state returns. In a blog titled "The Mirage of Direct Indexing" and posted on the CFA Institute's website, Nicholas Rabener, the managing director of Factor Research, an analytics firms in London, wrote that direct indexing is just another term for higher-cost active portfolio management — only instead of a skilled investment manager picking the stocks, you, the investor, are.

No matter how loudly a CEO proclaims the need to embed innovation and creativity in the corporate culture, the fact is that such initiatives are cut when times get tough or priorities change. The ODD team received generous funding and considerable management support. Lab directors, and even the CEO himself, repeatedly encouraged managers and employees to collaborate with the group. Nevertheless, the team lost momentum. By , the ODD had ceased operations.

They last, on average, about three or four years. In most cases, that is not enough time to discover strong new business ideas and refine, test, launch, and nurture them to success. A study of innovation at Xerox that Chesbrough did showed that over a year period its most successful spin-offs took an average of 7. However, the innovation programs that generated those spin-offs survived an average of only four years before they were shut down and replaced by new ones.

Often, those initiatives were terminated even though the spin-offs they had generated had notched up substantial financial returns. No company is smart enough to know what to do with every new opportunity it finds, and no company has enough resources to pursue all the opportunities it might execute. Internal initiatives routinely leave a trail of orphans— promising ideas that have no natural home within the company.

Spinning out orphans as separate entities is possible but, despite the hype surrounding spin-offs, it rarely happens. Few companies have the patience or skills to do them well and, in any case, companies routinely kill spin-off proposals because they fear losing the intellectual property to outsiders.

In the past, some orphans escaped corporate labs, falling into the hands of others both eager and able to capitalize on them. In the information technology business, for example, breakthrough technologies like Ethernet, the mouse, and the graphical user interface were commercialized by companies that did not develop them.

But with aggressive patenting practices, that will happen much less frequently in the future. Innovation as Commerce No company is, of course, hermetically sealed. Outside perspectives and competencies flow into and out of organizations through many routes: partnerships with universities, alliances and acquisitions, external venture investments, recruiting and hiring, customers and suppliers, and the relationships and curiosity of individual employees. These sources of external influence are valuable and important.

It could be argued, in fact, that they have played pivotal roles in all instances of corporate innovation. Their informality, haphazardness, and unpredictability make them unreliable foundations for sustained innovation. New hires, for instance, may come into a company with brilliant, radical ideas, but they usually find it difficult if not impossible to promote those ideas in an alien, and often resistant, culture.

Academic cooperation usually centers on basic science—one might argue that looking for new business ideas in academia is like fishing for marlin in a trout stream. Moreover, the search for outside partners often happens late in the innovation process, when the business opportunity is well defined, so they have little or no influence over the development and refinement of the idea.

Successful innovation depends on involving partners early in the exploration of opportunities. What we need to do is make innovation a natural element of the commerce that takes place among businesses. Finding ways for two or more companies to actively share ideas, technologies, and other capabilities early and often is the best way to protect projects from the swings in interest and funding that inevitably occur in individual organizations.

If we could find a way to do this without risking the unauthorized appropriation of intellectual property, businesses would be able to more quickly spot and exploit new growth opportunities. If company C lacks two particular capabilities needed to bring a technology to market, it can form a partnership with companies D and E to gain the required resources. If companies F, G, and H share a common interest in a certain business opportunity but lack the cash or strategic focus to pursue it independently, they can pool their investments.

As an experiment, the division created a public Web site called alphaWorks on which it posted the programs, hoping that outside companies and developers would contribute valuable ideas about bringing them to market. Anyone could download the programs with a day evaluation license from the company. As word spread that IBM was allowing first-cut versions of its research technology to be used for free, hundreds of thousands of early adopters, innovators, and entrepreneurs came to the site to download the software.

Many of these users were technically savvy developers and businesspeople who had the skills to see the opportunities in that raw code. One IBM researcher, who had been trying for years to find a compelling use for his program, received ideas from a developer at another company through alphaWorks. That helped him take his research in a new direction, eventually leading to the development of a critical component for the multibillion-dollar business integration-systems market.

When thousands of people began to download that program, an IBM product group quickly decided to develop and release a full-fledged version. Within eight weeks, the once-ignored program had become a key IBM product. Unlike other innovative programs that die after the original champion leaves, the group has survived several management changes and divisional reorganizations.

Indeed, it would be hard to kill alphaWorks because so many people in IBM rely on it to do their jobs, and nobody would want to sever connections to this large, influential, and involved community. For one thing, patents and licenses are easy to enforce. Putting the ideas on a popular Web site often with significant press coverage means that everyone knows where they came from. Thanks to download logs and registration, anyone foolish enough to download a technology and then try to bring something similar to market would be caught red-handed in violation of the license and the patent.

Not every business innovation benefits from public exposure as much as software development does. But they clearly show how a successful innovation marketplace that crosses the border of the firm perpetuates itself, gaining increasing attention and support as it delivers real economic benefits to many different participants inside and outside the company. The broader question is: How do you break down the barriers to sharing information across companies so you can create more generalized sustainable innovation markets without giving your competitors an advantage?

A New Kind of Go-Between The answer, I believe, lies in a practice that has long been a central element in commerce: the use of independent intermediaries to facilitate the exchange of sensitive information among companies. Today, businesses continue to use intermediaries for many kinds of transactions. Executive search firms, for instance, play a crucial role in recruiting top managers.

They allow job seekers to remain anonymous during the early stages of a search, and they protect businesses from disclosing their hiring plans to rivals. In a similar way, intermediaries could facilitate the exchange of innovation information while protecting companies from divulging their interests and plans to competitors. They could become, in effect, innovation headhunters. A company might, to take a simple example, entrust an intermediary with the details of a particular technology it has developed as well as its need for outside capabilities to commercialize it.

The intermediary would then share the information with other intermediaries in the hope of finding appropriate partners. At no point—until a formal disclosure agreement is forged—would any of the information be shared with the companies the intermediaries represent. The intermediaries could be trusted to maintain confidentiality because it is simply in their business interest: If they ever violate the terms of an arrangement, no company would hire them again.

Using intermediaries for innovation is not without precedent in U. Wilhelm, Jr. Downing describe how intermediaries spurred innovation in financial services in the early part of the twentieth century. The intermediaries, including bankers such as J. Morgan, assisted in creating markets for financial information. They used personal relationships to gather and share information discreetly with people in their network who could help exploit a new opportunity or a new way of handling financial transactions.

This protection encouraged financial innovation by more nearly ensuring a fair return on investment in intellectual property. Ideo, the design firm, often creates new products by mixing together the ideas and technologies of different clients. As a business development consultancy, ISIS International has for more than 20 years acted as an intermediary to cross-fertilize business opportunities for its clients.

ISIS, for example, recently helped the chemical division of a major U. They hired ISIS to search outside the company for possibilities. ISIS convened a brainstorming summit with 12 of its contacts in industries ranging from waste treatment and building materials to cosmetics and household-cleaning products.

One of the companies represented on the panel went on to pursue a joint project with the oil company and introduced a new consumer product based on the molecule. Without the catalytic role ISIS played, the project may have been killed before it had the chance to be successful. Unfortunately, most consulting firms consider sharing perspectives and competencies among clients to be taboo.

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