Growing investor demand for portfolio customization

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Mike Blundin is the CEO of Vestmark, a technology and services company dedicated to helping wealth managers deliver personalized, institutional-grade investment products to retail investors. Blundin, who has worked at Vestmark for 18 years and was recently named CEO, shares his perspective on how investors from all walks of life are increasingly demanding more unique and distinctive portfolios.


russian prince: Tell me about Vestmark and the company’s mission to bring personalized, institutional-grade investment solutions to retail investors, beyond the HNW market.

Mike Blundin: Vestmark is on a mission to democratize investing, enabling wealth managers to offer clients more sophisticated, personalized and tax-managed investment solutions. We’ve built an incredible collaborative team and partnership-focused culture to push the boundaries of what a retail investment platform can do. For more than a decade, we have had an internal slogan “institutional capacity at retail scale”, where retail scale is defined as one million accounts. This not only means raw power, but also highly efficient user workflows. Vestmark’s technology helps deliver all of this efficiently and scalably.

Our wealth management clients tell us that investors increasingly want access to institutional-grade strategies. Investors, especially the younger generation, are looking beyond expensive and rigid mutual funds to more transparent strategies where they can understand what they are investing in, better manage tax consequences, put their money in companies they believe in. and, ultimately, play a greater role in their own financial future. At the same time, investors of all ages show a preference for passive investing.

SMA and UMA frameworks have traditionally provided all of this, plus better tax management, but were limited to larger accounts. Technology has enabled more creative, sophisticated and personalized solutions, enabling improved solutions for smaller accounts, including access to passive index strategies that can be personalized at lower cost. Implementing these advanced strategies is core to Vestmark’s mission.


Prince: How is Vestmark’s technology enabling more advisors to use direct indexing strategies?

Blundin: Direct indexing, which involves replicating the behavior of an index through direct ownership of a subset of its individual stocks, is a way for more investors to benefit from the flexibility of SMA-style customization /UMA, low cost passive style investment and tax optimization. It is a highly customizable alternative to ETFs, mutual funds and SMAs.

Direct indexing is uniquely positioned to respond to changing demographics and changing investor tastes. For investors with specific ESG objectives, holding individual stocks in a direct index is a more efficient and flexible way to express their preferences than investing in ESG-sensitive funds or ETFs. For example, an investor can select or exclude stocks from their direct index with the help of their advisor, who can help them balance these preferences with their long-term investment goals. Other customizations may involve achieving dividend income or excluding a security to minimize concentration due to a company stock plan.

When you consider wealth management firms with hundreds or thousands of clients interested in direct indexing, each involving individual stock ownership, you begin to understand the need for technology to make it scalable. Part of this is rebalancing thousands of portfolios with unique tax treatment and custom investment settings, using automated exception-based processing.

Vestmark’s technology has been built on innovative building blocks such as true pocket and tax batch level accounting, which drive automated rules-based workflows and streamlined exception-based processing. The fundamentals we’ve built over the past 20 years have enabled us to deliver sophisticated portfolio solutions to increasingly smaller accounts. By the end of 2022, we expect significant progress in custodians’ ability to manage fractional shares, which is a key piece of the puzzle to broadening access to more retail investors.

Beyond equities, we also find that direct indexing has a huge impact on fixed income investing.


Prince: How do you see portfolios evolving in the future?

Blundin: Finance professionals have long talked about the next “biggest generational wealth transfer in history” and what it will mean for the industry. I see the biggest change is in two things: investors aligning their money with companies and products that align with their values ​​and a growing desire among younger investors to invest in alternative and cutting-edge products.

Sustainability and ESG have become more mainstream. This shift will continue to accelerate as young investors who have grown up around social movements related to the environment, gun control and other issues come to their senses and expect their portfolios not only avoid investments that conflict with their values, but also invest in companies. that contribute to creating a better, cleaner and more prosperous world.

Second, young investors want to diversify beyond stocks and bonds to invest their money in cutting-edge asset classes, whether it’s cryptocurrency, NFTs, DAOs, or alternative investments. traditional. To serve this new generation, advisors will need scalable tools, resources, and efficient access to more asset classes to deliver a different kind of client engagement.


Prince: How can companies ensure their advisors have the tools to adapt?

Blundin: Ultimately, we see our job as providing the tools that enable finance professionals to innovate their offerings. Clients want multiple asset classes and access to sophisticated managers. So it’s important to equip advisors with a platform that provides a bird’s-eye view of their clients’ complete portfolios, including the status of every cash position, tax batch, and transaction.

Wealth managers need a platform that can expand and evolve with market changes, and solutions that bring together all functionality including portfolio construction, accounting, management, trading , reconciliation and reporting, in a transparent system, eliminating silos. Accounting should not be a separate system from commerce; reports should incorporate goals and preferences in addition to activity.

Over the past 20 years, the wealth management and asset management technology space has evolved rapidly from SMAs, UMAs, households and robots to direct indexing. It’s important to have a platform that not only meets current asset class and client needs, but also adapts to whatever comes next.


Russ Alan Prince is the Executive Director of Private heritage magazine and one of the leading authorities on the private wealth management industry. He consults family offices, quick-and-rich entrepreneurs and selected professionals. Connect with him on LinkedIn.com.

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