Throw your cowboy hats in the air.

With the Texas Stock Exchange opening for business last week, years of hype give way to the real test: Can it become a genuine competitor to the New York Stock Exchange and Nasdaq, which together dominate US listings and have already established their own Texas operations? “The Texas Stock Exchange is not even the first mover in its own backyard,” said Clayton Allison, a portfolio manager at Prime Capital Financial.

For TXSE to carve out a meaningful niche, it will need to win exclusive listings rather than simply host securities already trading elsewhere. “The question is what companies will they be able to attract?” Allison told Advisor Upside. “Will it be small caps that find the environment more friendly? Because there’s almost no chance they’ll convince the mega-caps to switch their primary listings.” It’s important to note that hundreds of billions of shares are traded on the NYSE and Nasdaq each year, so TXSE has some pretty big cowboy boots to fill.

The Lone Star State

TXSE isn’t starting from scratch. The exchange is backed by major financial firms including BlackRock, Citadel, Charles Schwab and JPMorgan. It’s also hoping to capitalize on Texas’ growing appeal as a corporate hub, with companies such as Chevron, Hewlett Packard Enterprise and Elon Musk’s Tesla and SpaceX all expanding or relocating operations to the state.

The exchange is marketing itself as a lower-cost, less burdensome alternative to the NYSE and Nasdaq, promising potentially cheaper listing fees and a more issuer-friendly philosophy. For example, companies listing on the exchange don’t have to meet board diversity requirements. But Allison questioned whether those advantages are enough. “Listing costs are already so compressed, I don’t know if that’s going to be a driving factor,” he said. Instead, he suggested, listing on TXSE could become more of a branding decision for companies and fund issuers that want to align themselves with the exchange’s governance philosophy and Texas’ pro-business reputation.

Cowboys’ Playbook. One way in which TXSE could differentiate itself is by becoming a home for more niche investment products. James Seyffart, senior ETF analyst at Bloomberg Intelligence, said the exchange may attract funds that struggle to gain approval on larger exchanges, pointing to products like the Tuttle Capital Government Grift ETF (GRFT), which invests in companies with perceived ties to political insiders.

“Cboe got its start by currying favor with ETF issuers, so I can see Texas following a similar playbook,” Seyffart told Advisor Upside. “It takes a long time for exchanges to build up liquidity. I don’t expect us to have an answer on how successful TXSE is anytime soon.”

Envestnet and Vanguard are expanding their partnership to tackle one of the biggest obstacles to broader adoption of model portfolios: the tax bills that can come with moving longtime clients into them.

While model portfolios have become a staple of modern wealth management, allowing advisors to outsource investment management and spend more time on financial planning, many are reluctant to trigger capital gains levies by leveraging them, especially for clients with highly appreciated, legacy portfolios.

To bring more expertise to bear on the challenge, Envestnet announced last week that Vanguard will join its Fund Strategist Tax Management (FSTM) Advantage program, which helps advisors make such transitions in a tax-sensitive manner. The Vanguard Advisor’s Alpha service model is also now available through Envestnet’s platform. “We are long in the tooth on a bull market that makes the provision of tax services all the more important,” Dana D’Auria, Envestnet co-CIO, said in an emailed statement. “Advisors cannot control market returns, but they can control an important factor in after-tax return realization by managing tax consequences.”

Can’t Someone Else Do It?

Model portfolios, which seek to provide diversification while taking risk profiles and financial goals into account, have surged in popularity as advisors look to scale their practices:

• More than 80% of fee-based advisors use model portfolios to some degree.
• Third-party model portfolios, those designed and managed by firms like BlackRock, Vanguard and Morningstar, hold almost $1 trillion in assets.
• Across all model portfolio segments, Broadridge Financial expects assets under management to reach $18.6 trillion by 2030.

I Got a Little Tax Problem. Taxes remain a major hurdle, particularly for older clients with concentrated positions or decades of embedded gains. Jeff Judge, a CFP with Chesapeake Financial Planners, recently worked with a client who held $2.8 million of a single stock purchased for just a few dollars a share in 1997. “The model made perfect sense from a diversification standpoint, but the tax bill didn’t,” he told Advisor Upside. “The easy move is to reset and take the tax hit all at once, but that’s rarely the right answer.” Instead, transitioning legacy clients often requires a multiyear migration strategy, gradually unwinding concentrated positions while running parallel bucket strategies, which Judge acknowledged creates significant amounts of administrative work for advisors.

Pink Floyd may not need no education, but most of the rest of us probably do.

Now, changes to student loan regulations are forcing potential students and their parents to deal with lower loan limits and fewer repayment options, offering advisors a fresh way to add value by helping clients navigate the altered landscape.

“In some ways, it’s simplified things,” said Travis Poodiack, an advisor and cofounder of Birch Financial Group. But especially for those considering education beyond a four-year degree, limited federal funding means future doctors, lawyers and dentists will need to look elsewhere to pay for school. “They have to make up that gap one way or another, so whether that’s savings, 529s, gifts from parents, investments, retirement accounts, or they’re having to go look at private student loans.”

Rethinking the Math

Advisors suggest a few shifts in strategy. First, parents should frontload 529 contributions so the money has more time to grow, as well as allocate more savings toward graduate school since higher education degrees generally cost more and come with fewer scholarships. Another avenue would be to ask grandparents to put planned inheritances toward education costs now, rather than waiting until they pass away.

Under the changes, which went into effect on July 1:

• Borrowers in professional programs will only be able to borrow $50,000 per year, or $200,000 total for their program. Borrowers for other types of graduate school will only be allowed to take out $20,500 a year, or $100,000 total. All borrowers have a lifetime limit of $257,500 (excluding those taking parent PLUS loans).
• Parents are only allowed to borrow $20,000 per student per year, with a $65,000 lifetime limit per child.
• New borrowers only have access to two repayment plans, one that is income-driven and one that offers fixed payments over 10 to 25 years based on loan balance.

Time for the Talk. Cindy Wilson, an advisor at HB Wealth, has begun encouraging clients with kids in high school to start conversations about college expenses sooner rather than later. Maybe this means that parents will only pay for in-state schools, or encourage their children to do the first few years of school at community college. “In the past, the advice had been: ‘You can borrow money for college, you can’t borrow money for retirement,’” she said. “You still borrow money for college, it’s just less.”