America's Best Direct Indexing Buyers Guide 2024 - 19

2024 DIRECT INDEXING BUYERS GUIDE
What should an advisor do in this
situation? Next, we review four
common strategies that balance
serving client interests while meeting
their expectations.
Strategy 1: Sleeve-based as an
exception
The first approach is to make holistic
portfolio management your default
and only use sleeve-level reporting in
exceptional cases. Since most clients
don't request sleeve-level reports,
there's often no need to address the
issue. If a client does ask, begin by
explaining the potential drawbacks.
If they still insist on sleeve-level
reporting, you can set up " true
sleeves " - entirely separate accounts
with distinct account numbers for
each sleeve. This option is more costly
and is typically reserved for large
institutional accounts.
Strategy 2: Alternate reporting
The second approach is to offer
clients more meaningful and costeffective
alternatives to sleeve-level
reports. Instead of focusing on
sleeve-level performance, share
detailed reports on your firm's due
diligence and the selection process
for choosing or removing model
vendors. This might include factors
like the model vendor's composite
returns (the performance of portfolios
they directly manage), consistency in
investment style, and management
background. Some firms go further
by creating specific funded reference
accounts for each model, managing
these without constraints to show
their true performance in the context
of the overlay manager's trading
environment.
Strategy 3: Eliminating " product "
performance
The third option is to eliminate security
or sleeve-level performance reporting
altogether and shift the focus to
portfolio-level returns. This aligns with
DIRECT INDEXING ECOSYSTEM (ILLUSTRATIVE)
Direct Indexing Ecosystem (Illustrative)
Asset Managers
* BlackRock -> Aperio and Spider
Rock Asset Management
* Columbia Threadneedle
* Natixis
* O'Shaughnessy Asset
Management (Canvas)
* SSgA -> Charles River
Tech Vendors - Portfolio Engines
* MSCI
* Northfield
* Rowboat
* Qontigo (Axioma)
Wealth Managers
* BNY Mellon Pershing -> Optimal Asset
Management
* Franklin Templeton -> O'Shaughnessy Asset
Management and Canvas
* Goldman -> Folio
* J.P. Morgan -> OpenInvest
* Morgan Stanley -> Parametric
* Vanguard -> JustInvest
FinTechs
* 55ip (J.P. Morgan)
* Ethic
* Motif (Charles Schwab)
* Open Invest (J.P. Morgan)
* YieldX (FNZ)
Online Brokerage and Robo Advisors
* Betterment
* Charles Schwab -> Motif
* Fidelity Investments
* Robinhood
* Wealthfront
© CELENTCourtesy of Celent, 2024
TAMPs
* Envestnet
* Orion -> Astro
* SEI
a broader goals-based framework
where the emphasis is not on
comparing returns to benchmarks but
on whether the client is progressing
toward their financial goals.
Strategy 4: Holistic management
with sleeve-level reports
The fourth approach is to manage
assets holistically without sleeves
but still provide sleeve-level reports.
Although these reports don't
accurately reflect the contributions of
each model vendor, overlay manager,
and other factors in a holistically
managed account, some advisors
offer them simply because clients
request them. As discussed earlier,
these reports may not be very useful
but can still meet client expectations.
These strategies are not mutually
exclusive, and most advisors use a
combination of them to address client
needs while maintaining operational
efficiency.
Source: Direct Indexing: The SMA Reboot: The Convergence of Wealth and Asset Managers to Deliver Customized Portfolios to the Mass Affluent | Celent
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America's Best Direct Indexing Buyers Guide 2024

Table of Contents for the Digital Edition of America's Best Direct Indexing Buyers Guide 2024