In its first ever corporate acquisition, Vanguard announced plans this week to acquire Just Invest, a wealth management technology company with a direct indexing offering.
"Technology-driven solutions such as direct indexing continue to reshape our industry, driving better investment outcomes and lowering costs for clients," said Tim Buckley, Vanguard chairman and CEO, in a statement. "Wise investments in technology are an important equalizer, enabling us to democratize valuable investment capabilities and products."
Just Invest was founded in 2016 and now has over $1 billion in assets under management. The acquisition will help Vanguard build out its direct indexing offering; the firm has already been running a pilot program to its RIA clients over the past year and half, powered by Just Invest. It will add to the firm’s $3 trillion financial intermediary business, serving RIAs and bank and broker/dealer advisors.
"Investing is inherently personal, and advisors are looking to better serve their clients through more customizable and tech-driven solutions. The success of our pilot program validated both the need in the marketplace and the compelling offer developed by Just Invest," said Tom Rampulla, managing director of Vanguard Financial Advisor Services, in a statement.
The fund giant’s move follows a tidal wave of deals in the direct indexing space, in which some of the biggest players in asset management and financial services made broad inroads—essentially betting that the technology to create customizable portfolios for individual clients without, theoretically, abandoning the rules-based characteristics or risk profile of an index is an option that will resonate with investors.
In June 2020, Charles Schwab completed its acquisition of Motif Investing’s technology and development staff, a move that accelerates the development of thematic and direct indexing technology at Schwab. And while not an acquisition, Fidelity put its stake in the ground in September 2019, forming a partnership with Ethic to bring direct indexing to its registered investment advisor clients. Last September, Goldman Sachs closed on its acquisition of Folio Financial’s clearing and custody platform, which has a direct indexing offering and fractional share capabilities, one of the technologies needed to bring customized SMAs to the masses.
In early October 2020, just days after completing its purchase of E-Trade Financial, Morgan Stanley announced it would acquire Eaton Vance for $7 billion, which includes its Parametric business, a leader in offering low-cost, highly customizable, separately managed account products—in other words, direct indexing. And in November, the world’s largest asset manager, BlackRock, announced it would acquire Aperio, which provides customized index equity SMAs, for $1 billion in cash.
And most recently JPMorgan Chase & Co. agreed to buy OpenInvest, a financial-technology firm that offers a custom indexing solution.
“There’s a notion out there that the big distributors will be able to do the basic level of personalization on their own, but there’s also a notion that pretty quickly it gets to a level of sophistication that they probably can’t, won’t or don’t want to deliver and that they would want an outside partner to do that, like a Vanguard or whoever,” said Neil Bathon, founder and partner at FUSE Research.
“If this doesn’t shake people up, I don’t know what will on the asset management side of things,” he said. “If you can’t deliver this to your distribution partners, then you’re going to be closed out.”