Displaying items by tag: direct indexing

Orion Advisor Solutions recently unveiled significant enhancements to its technology during the opening session of the firm’s flagship Ascent conference. Founder and CEO Eric Clarke addressed an audience of 1,600 advisors and revealed the firm’s new Story Paths advisor-facing technology for its Orion Custom Indexing solution. The new technology will allow advisors to easily select from one of several user paths which allows the advisor to customize portfolios or tax transition legacy assets within a handful of steps and minutes. The announcement comes as consumer demand for more personalized services has increased with assets in direct indexed SMAs ballooning to $362 billion. Orion’s Custom Indexing solution, which was launched in 2018, allows registered investment advisors to differentiate their offering with personalized, professionally managed, low-cost portfolios. Clarke stated, “While other direct indexing solutions cater almost exclusively to wirehouse advisors, we set out to build a solution with a heavy emphasis on customization that meets the needs of the independent advisor.” The new Story Paths workflow enables advisors to create truly custom portfolios at scale, whether they’re aiming to track a traditional index, replicate a factor-tilted exposure, or overlay to an existing internal or third-party separately managed account. In addition, the new technology will streamline the portfolio customization and tax transition process to a matter of minutes compared to the industry normal of multiple days.

Finsum:Orion recently unveiled new enhancements to its direct indexing technology that will allow independent advisors to create truly custom portfolios at scale within minutes.

Natixis Investment Management Solutions and German index provider Solactive announced that they have partnered to offer direct indexing separately managed accounts (SMAs). The partnership will see Natixis offer its managed account clients exposure to 31 Solactive indices, including 11 of its global benchmark and 16 of its factor series. Solactive’s global benchmark suite covers 24 developed and 24 emerging markets, while its factor range covers value, quality, momentum, low volatility, growth, and small caps. Natixis’s direct indexing business has grown from $4 million in assets under management in 2002 to $8 billion today. The firm attributes this success to evolutions in the business such as falling trading fees and fractionalization that have increased retail investors’ ability to benefit from customized asset allocation. Timo Pfeiffer, chief markets officer at Solactive, had this to say about the collaboration, “Direct indexing has been progressively gaining popularity to a larger group of investors, particularly in the U.S. With this tool, investors can allocate their assets to a tailored portfolio with a Solactive benchmark as a starting point, applying numerous kinds of filters according to their needs and world views.” Curt Overway, co-head of Natixis Investment Management, added, “We are excited to begin working with Solactive and their comprehensive suite of indices, which will allow us to extend the range of capabilities and strategies we offer as part of our Active Index Advisors (AIA) offering.”

Finsum:Natixis Investment Management Solutions is extending its range of capabilities and strategies by partnering with German index provider Solactive to offer directing indexing SMAs.

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.

For decades, the wealthy have been able to see huge tax savings. Over one hundred years ago, investors could take tax deductions on wash sales, which involved selling a security at a loss and then buying back the same security. While Congress outlawed that technique in 1921, investment firms have continued to help billionaires save on taxes through other techniques such as tax-loss harvesting, which allows an investor to sell an investment for a loss and replace it with a reasonably similar investment. Direct indexing, which continues to gain steam among advisors, provides the perfect strategy to employ tax-loss harvesting. In a recent article, ProPublica authors Paul Kiel and Jeff Ernsthausen reported on the tax savings techniques of billionaires. The authors were able to reconstruct the tax-loss strategies of some of the nation’s wealthiest people using IRS data. For instance, they estimated that from 2014 through 2018, Goldman Sachs was able to generate tax savings of $138 million for Steve Ballmer, former CEO of Microsoft and current owner of the Los Angeles Clippers, without changing his investment portfolio in any meaningful way. In the year 2017, Ballmer’s direct indexing accounts posted over $100 million in tax losses through 15 loss-harvesting transactions, while the performance of the indexes it tracked, was way up. Tax records also show that Goldman Sachs routinely made trades for direct-indexing clients like Ballmer.

Finsum:Based on recent reporting by ProPublica, billionaires such as Steve Ballmer have been able to save billions through tax-loss harvesting in direct indexing accounts.

Vanguard, which is the second-largest ETF issuer, is planning to go all in on direct indexing. That is according to Tim Buckley, Vanguard CEO, as he was being interviewed on stage at the recent Exchange ETF conference. Buckley said that Vanguard looked at direct indexing years ago and started thinking about it. He stated, "What's a way that you could disrupt the ETF or the mutual fund? You always should be looking if there is a better way to do it." While direct indexing has existed for some time, it is typically only reserved for the "ultra, ultra, high-net-worth," according to Buckley. The CEO added "And we can see that … there's huge tax benefits for a lot of investors in using direct indexing." He said that the idea of creating portfolios that don't undermine people's retirement but let them invest in line with their values was something the fund firm found interesting. Instead of hoping that direct indexing would go way, Buckley said Vanguard decided to embrace it and "see if it is a better way to do something." He added, "And we'll find out over time. But we'll be investing heavily." The fund giant, which manages $2 trillion in assets across 81 US-listed ETFs, started its move into direct indexing in October of 2021, with its purchase of Just Invest and its direct investing platform, Kaleidoscope.

Finsum:According to Vanguard’s CEO Tim Buckley, the fund firm plans to go all in on direct indexing as there are huge tax benefits for a lot of investors.