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Vestmark Goes Live With Direct Indexing

Direct indexing is just one component of Vestmark's VAST, a kind of personalized unified managed account, which allows for tax optimization and transition services across the entire portfolio.

In January, portfolio management and trading platform Vestmark announced the launch of six index-based SMA strategies, a first step toward a fully personalizable direct indexing investment platform. The company launched that direct investment platform Tuesday, as just one component of its new outsourced portfolio management service, called VAST.

VAST is a kind of personalized unified managed account, which can include a direct indexing sleeve, separately managed accounts, mutual funds, ETFs and individual securities. Advisors and clients have the ability to curate their own lists of investment selections, and Vestmark has an active tax overlay to optimize it at the account level.

The service is plugged into Vestmark’s Manager Marketplace, which has about 200 managers and 1,000 strategies available.

VAST goes beyond the index-based SMAs that were launched earlier this year, said Robert Battista, senior vice president and managing director of Vestmark Advisory Solutions. That was more of a plain vanilla SMA that would go through normal ad hoc requests of tax loss harvesting. This offers daily optimization to maximize tax loss harvesting opportunities, as well as a tax transition proposal component.

“Every day our system is taking a look at each account to understand opportunities to harvest and get closer and closer to the client's target allocation if they're in transition or just generate losses to help reduce their overall tax bill on a daily basis,” Battista said.

The service also incorporates values-based restrictions, such as industry and sector filters and business involvement screening.

The minimums for the VAST platform start at around $250,000, and Battista said the pricing is at or below the industry’s existing direct indexing providers.  

VAST sits on VestmarkONE, the company’s core portfolio management engine. Within that, Vestmark has built a new advisor user interface, which allows the client to input all their preferences, upload existing holdings for tax purposes and collect their values-based restrictions.

While most of the technology is proprietary, Northfield is supporting the tax optimization engine. Vestmark announced in December 2021 it was expanding its partnership with Northfield to address advisor demand for tax optimization tools.

The daily tax optimization capability is one differentiator for VAST, Battista said.

Most players in the space are doing this monthly or even quarterly because it's a scale issue to do it every single day,” he said. “But we really scaled it to the point where we can do this daily and it maximizes the opportunity to find losses, because especially in this market, first week of the month, you could have the technology sector going sideways. Next week it could be a story around regional banks. So if you're only doing this once a month, you could miss swings in the market that are opportunities to find losses if you're not doing it daily.”

The VAST platform brings Vestmark further into the asset management space, but Battista said they don’t feel like they’re competing with asset managers and others in the space. In fact, he said Vestmark has seen a lot of interest from asset management companies in white labeling this, as much interest, in fact, as it has received from RIAs and broker/dealers.

“If I'm a large asset manager and I don't want to build this on my own or I don't want to go acquire somebody, they can basically rent the capabilities from us, but out front have it look like it's their own engine, their own solution, have us more in the background,” Battista said. “It's coming at it from a very different angle, and it allows us to mold the product to these different channels and turn up interest in a lot of different ways.”

Neil Bathon, founder and partner at FUSE Research, said the direct indexing space is very crowded; almost anyone can do the tax optimization part. But it still must honor the client’s portfolio allocation goals.

“The rest of the hard part is keeping it in sync with the strategy because you have to take things out and it’s not apples to apples. You have to kind of fix for whatever’s missing,” Bathon said.

Further, Bathon says most asset managers no longer think they need to have their own direct indexing tools, and the margins on that business have really come down.

“I think that’s faded already, where there was this wild rush two, two and a half years ago of, ‘how are we going to compete?’” he said. “I don’t know if I think there’s enough benefit for asset managers.”

TAGS: Equities
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