You already know these clients. The founder who never sold. The executive with two decades of vested grants. The household with a direct-indexing account that harvested beautifully for five years and now produces nothing. New research from ExchangiFi puts numbers on how common they are. An estimated $5.0 trillion in taxable equity assets fit the profile for a Section 351 tax-deferred ETF conversion.
Two client types dominate the opportunity.
The concentrated position. This is the largest pool, an estimated $2.9 trillion. Founders, C-suite executives, and early employees holding low-basis stock they cannot sell without a realization event north of 35% in high-tax states. They know the position is too risky. They also know the exit toll. A 351 conversion gives them diversification now, keeps the gain deferred, and carries the old basis into the ETF. The conversation changes from “we should trim, here is the tax bill” to “we can solve the risk without the bill.”
The seasoned SMA. Two flavors here, totaling an estimated $2.1 trillion. Aged tax-aware and direct-indexing accounts have hit the loss-harvesting plateau. Cost bases ratcheted up, losses dried up, and the client is left holding hundreds of small low-basis lots. Active taxable SMAs have the opposite problem. The manager’s turnover throws off gains every year, costing an estimated 100 to 200 basis points of after-tax return. Both convert cleanly into a single ETF position through Section 351.
This is a practice-management opportunity as much as a tax one. Advisors who can take in a concentrated position without setting off its tax have a genuine acquisition edge. Firms such as Polen Capital, Cambria, and Alpha Architect moved early and are educating the advisor channel now. The capability is becoming part of the client conversation, not a back-office task.
The execution is where most firms stall. Baskets must clear the 25% single-issuer cap, the 50% concentration limit, and the 80% control test, with documentation to match. ExchangiFi’s marketplace handles the compliance testing, contributor coordination, and transaction mechanics so you can bring the strategy to clients without building the infrastructure yourself.
Explore the 351 marketplace for your HNW clients.