Displaying items by tag: fees

A new generation of technology is at our fingertips, and whether that's Netflix or Amazon people want the technology to service them now more than ever. Index tracking funds are really the cable box in the modern world and investors want a more tailored experience that only custom indexing can offer. Partners at Fidelity are saying that a hyper-customized multi asset portfolio is really the future, and given how popular trends like ESG are becoming, advisors are really needing better tools to attract and maintain clientele. Custom indexing can hit a multitude of demands investors want and also drive home a better fee for their workload as compared to traditional ETFs.

FINSUM: The world of a custom index, where stocks can be added and dropped for any reason is here, and it's probably on a mobile platform soon.

ETFs have been a fee destroyer since their inception, and advisors/companies have been forced to either play along or bleed AUM. However, direct/custom is putting the power back in in the hands of the advisors. BlackRock, Vanguard, and Morgan Stanley are all buying their way into the direct indexing craze. Direct Indexing is giving investors and advisors the best of both active and passive investing worlds. While stock picking might not have the best record, starting from a base index and then stripping or adding based on preference could give investors. Custom Indexing can be for a preference for/or against a stock but more importantly it gives investors the reins when it comes to their tax burdens.

FINSUM: Direct Indexing is the goldilocks solution to the low fee/advisor specialty conundrum, and will be the dominant trend in investing over the next decade.

Financial giants are snatching up direct indexing clients as fast as they possibly can, but they need to do more work to solidify their position with investors. Cerulli Associates is predicting direct/custom indexing will grow at a shocking 12% growth in the next five years which will outpace both mutual funds and ETFs for example. Part of what is responsible for that growth is lower exchange costs which make it possible to hold the underlying asset in an index that was previously untenable for anyone outside the ultra-wealthy. In order to fully realize the benefits of a direct indexing fund, directors will have to be like goldilocks of customization but not straying too far from the fundamental index. However, direct indexing is giving managers their best opportunity in years to take back the reins for clients and outperform ETFs and index platforms. Without a doubt tax loss harvesting is the best edge a director will have in customizing a direct index for their clients and it's the necessary part of how to stand out in the crowded space of custom indexing.

FINSUM: Investors should be in an open dialogue as to their clients preferences in diverging from the underlying index when customizing. The ship can steer quickly in the wrong direction.

Morgan Stanley acquired custom indexing provider Parametric Portfolio associates in March and are benefiting greatly from the acquisition. Parametric has developed their existing client base by allowing them to pitch a new set of custom-built portfolios and increased AUM by 50% year over year. These custom indexing tools allow investors at Morgan Stanley to build tailored portfolios to meet ESG or tax objectives. On top of this, it furthers client relationships by allowing a more connected investment strategy and personal experience. Parametric is leading the industry in direct indexing by asset size.

FINSUM: Direct indexing will be an incredibly important tool in order to mitigate all of the tax changes in the new administration.

Envestnet’s CEO told investors that it oversees $49 billion in direct investing assets and that they see this number going higher in the future. Direct investing is a part of a growth area for the company along with other personalized portfolios, tax overlays, and ESG and impact investing. Direct indexing allows investors to hold the underlying assets and then add or drop stocks for offsetting tax purposes or to hit other financial objectives. Other giants in the financial industry such as Vanguard and Franklin Templeton have acquired direct indexing portfolios and many firms are ramping up competition in this space.

FINSUM: Direct investing makes a lot of sense over traditional hard indexing because of the customization and tailoring to your financial needs, but it does usually come at the cost of higher fees.