Displaying items by tag: personalization

Jonathan Foster, president, and CEO of Angeles Wealth Management, recently penned an article on MarketWatch where he listed the benefits of direct indexing for retail investors. Foster noted that while direct indexing is primarily used by high-net-worth investors that are seeking to optimize their after-tax returns, the widespread elimination of brokerage trading fees and the growing availability of fractional share trading have led to greater adoption of direct indexing. According to Foster, the advantages that direct indexing can bring to a portfolio include ‘dirty money,’ outmoded mutual funds, and personalization. Foster says that ‘dirty money’ refers to investors expressing concern about how the companies they invest in make money. For instance, direct indexing offers advisors the ability to craft portfolios that exclude what their clients believe to be “dirty money.” Foster uses tobacco as an example. In this instance, direct indexing can help an investor craft a tobacco-free portfolio. Outmoded mutual funds refer to investors using mutual funds in taxable accounts and not having the benefit of starting with their own individualized cost basis, which can lead to distributable annual taxable gains. With direct indexing, investors can take advantage of tax-loss harvesting. Direct indexing can also offer investors an opportunity to customize portfolios with strategies such as ESG.

Finsum:A wealth management executive recently wrote an article on MarketWatch advocating for direct indexing due to benefits such as excluding certain securities, employing tax-loss harvesting, and customizing a portfolio for certain strategies.

Financial technology platform 55ip reached new records for platform adoption, custom models, tax savings, and company growth last year. The 2022 tax savings benefit for model portfolios of ETF and Mutual Funds was a record 2.70% (2.66% when annualized since 2020). In addition, market-driven demand helped increase the number of advisory firms on the 55ip platform by more than 50%, to 234 firms, which represents $234 billion in discretionary assets under management for 2022. Individual advisors that partnered with 55ip grew by 122%, while the growth of custom models on the platform increased by 134% from 2022. They now comprise 45% of all assets on the 55ip platform. The demand for personalization among advisors also increased, which led the firm to significantly increase the output of custom models. Paul Gamble, Chief Executive Officer of 55ip, stated “We’re incredibly proud of the increased value we provided last year to our clients. The growth we experienced demonstrates that our value goes well beyond tax savings benefit to investors, which reached an all-time high last year. We doubled our trade volume last year as well, completing more than 1.8 million trade orders on behalf of our advisors. That translates to more than 500 hours in time saved for each firm using our platform – a benefit that is invaluable to advisors.”

Finsum:The demand for personalization among advisors increased last year, which led 55ip to significantly increase the output of custom models while driving new records for platform adoption, custom models, tax savings, and company growth.

While direct indexing is expected to see wider engagement this year, it isn’t ready to take over the wealth management industry quite yet. That is according to Anton Honikman, CEO of MyVest, who stated “I’m not necessarily of the view that 2023 will be the year that direct indexing becomes broadly democratized. There’s a different discussion about bringing direct indexing to a broader market. What’s hindering that is the need for more of an experience with direct indexing.” Honikman says the necessary building blocks for direct indexing are in place such as access to fractional shares, commission-free trading, and portfolio management technology capable of handling the nuances of direct indexing. However, the technology to unlock its full potential is not in place, according to Honikman. That technology would enable the “true personalization” of financial plans and portfolios at scale. For now, Honikman believes that it makes more economic sense for firms to serve down-market clients with the next best alternative: low-cost, tax-efficient, ETF-based portfolios. Honikman says 2023 will be a year that technologists and wealth management firms continue to invest in personalization by focusing on building the onboarding experience and the data collection, management, and reporting capabilities that will eventually enable direct indexing.

Finsum:Anton Honikman, CEO of wealthtech firm MyVest, believes that direct indexing isn’t ready to take over the wealth management industry until technology such as data collection and reporting that would enable the “true personalization” of portfolios is put in place.

Veriti Management LLC recently announced it is rebranding as First Trust Direct Indexing. The provider of tax-advantaged, direct indexing solutions also announced the appointment of Robert Hughes as Chief Executive Officer, taking the reins from Veriti Co-Founder and Managing Partner James Dilworth. Hughes will focus on integrating Veriti’s direct indexing capabilities and technology with the extensive resources and distribution network provided by its new affiliate, First Trust Portfolios L.P. Veriti was acquired by First Trust Portfolios last July. The deal lets First Trust bring direct indexing to its advisor clients, while potentially exposing Veriti to a larger market. The affiliation between the two companies comes at a time when there is strong demand for more tax-efficient, personalized investment solutions. First Trust Direct Indexing seeks to turn volatility into an asset through tax loss harvesting strategies, which have the potential to increase an investor’s after-tax returns. Hughes had this to say about the rebranding and his appointment, “First Trust Direct Indexing is well positioned to help advisors solve the dual demands of individualized account customization and a smart approach to seeking tax alpha that can tilt client portfolios to their satisfaction. I’m excited to be joining at a pivotal time for our business and the industry.”

Finsum:Following the acquisition of Veriti by First Trust Portfolios last July, the firm is rebranding as First Trust Direct Indexing and appointing Robert Hughes as CEO.

Portfolio management and trading platform Vestmark recently announced that it has launched six separately managed account investment strategies, the firm’s first asset management offering. The strategies, called "Focused Index Portfolios,” follow S&P Dow Jones Indices, but in an SMA wrapper to allow for some customization and tax-loss harvesting. Robert Battista, senior vice president, and managing director of Vestmark Advisory Solutions said that the firm sees the launch as a first step toward a fully personalized direct indexing investment platform which Vestmark expects to roll out later in the year. The portfolios have minimums as low as $100,000, with fees comparable to an ETF. Three of the Index Portfolios are based on custom indices Vestmark built with S&P Dow Jones, including the S&P 500 Focused 100 VAST Portfolio, the S&P 500 Focused 50 VAST Portfolio, and the S&P 500 Catholic Values Focused 100 VAST Portfolio. The other three strategies are based on existing indices such as the Dow Jones U.S. Dividend 100 VAST Portfolio, the S&P 500 ESG Elite VAST Portfolio, and the S&P Developed Markets 100 ADR xUS VAST Portfolio. For now, the new strategies are available in the Vestmark Manager Marketplace, but Vestmark plans to distribute them to broker/dealers, independent advisors, and RIAs via a new sales team dedicated to the company's direct indexing services.

Finsum:Trading platform Vestmark launched six index portfolios as the firm's first step towards a fully personalized direct indexing investment platform which is expected later in the year.