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Tax-Aware, Personalized and Scalable: The New Model Portfolio · Views from 6,230

• 0:10
  Ryan Nauman Host Views from 6,230: Hey, everyone, I am Ryan Nauman, market strategist and your host.
• 0:16
  Ryan Nauman Host Views from 6,230: Over the past several years, model portfolios have become an increasingly important part of how financial advisors build and manage portfolios.
• 0:26
  Ryan Nauman Host Views from 6,230: But the industry is now moving beyond the traditional one-size-fits-all model towards something much more personalized: custom model investment solutions.
• 0:38
  Ryan Nauman Host Views from 6,230: So what's driving the evolution?
• 0:40
  Ryan Nauman Host Views from 6,230: What are some of the limitations of traditional models?
• 0:44
  Ryan Nauman Host Views from 6,230: And how are custom solutions helping advisors better align portfolios with their clients' unique needs?
• 0:52
  Ryan Nauman Host Views from 6,230: And perhaps, maybe most important, can advisors actually implement and manage custom models at scale without creating a massive operational burden?
• 1:05
  Ryan Nauman Host Views from 6,230: Well, I have on an industry expert to discuss all things model solutions and what it means for financial advisors.
• 1:13
  Ryan Nauman Host Views from 6,230: So all right, enough from me.
• 1:15
  Ryan Nauman Host Views from 6,230: I've already talked enough.
• 1:16
  Ryan Nauman Host Views from 6,230: Let's go ahead and move on to the star of the show.
• 1:20
  Ryan Nauman Host Views from 6,230: I'd like to give a very warm welcome to Rob Batista.
• 1:24
  Ryan Nauman Host Views from 6,230: Rob is the Executive Vice President of Advisory Solutions at Vestmark.
• 1:32
  Ryan Nauman Host Views from 6,230: Rob, thank you so much for coming on the show.
• 1:35
  Ryan Nauman Host Views from 6,230: It's an honor to have you.
• 1:36
  Ryan Nauman Host Views from 6,230: I'm really excited about this conversation.
• 1:38
  Ryan Nauman Host Views from 6,230: It's an important one, important topic, very popular topic.
• 1:42
  Ryan Nauman Host Views from 6,230: So can you please tell us a little bit more about yourself and Vestmark?
• 1:47
  Rob Battista EVP, Advisory Solutions Vestmark: Sure, Ryan.
• 1:47
  Rob Battista EVP, Advisory Solutions Vestmark: Thank you for having me on.
• 1:48
  Rob Battista EVP, Advisory Solutions Vestmark: Also excited about this topic.
• 1:50
  Rob Battista EVP, Advisory Solutions Vestmark: It's something we're very deep into right now.
• 1:51
  Rob Battista EVP, Advisory Solutions Vestmark: Just very quick background I am as you said the executive in charge of the investment advisory business at Vestmark.
• 1:58
  Rob Battista EVP, Advisory Solutions Vestmark: I've been here for about four years.
• 1:59
  Rob Battista EVP, Advisory Solutions Vestmark: But overall I've had, a, a plus career supporting the financial advisor in, in, in some capacity.
• 2:05
  Rob Battista EVP, Advisory Solutions Vestmark: Prior to Vestmark, I was actually a client of Vestmark's at a firm called Janney Montgomery Scott for several years managing their advisory platform.
• 2:13
  Rob Battista EVP, Advisory Solutions Vestmark: And prior to that I've had roles at, Lockwood Purdy serving the independent advisor, Citi Private Bank serving the more ultra-high net worth advisor, and I started my career as an advisor myself at Morgan Stanley.
• 2:23
  Rob Battista EVP, Advisory Solutions Vestmark: So a lot of time with and around advisors and building solutions for them.
• 2:27
  Rob Battista EVP, Advisory Solutions Vestmark: So you know but Vestmark as a whole has been around for 25 years.
• 2:32
  Rob Battista EVP, Advisory Solutions Vestmark: And, we're most known for being a software provider to some of the largest firms in the industry.
• 2:37
  Rob Battista EVP, Advisory Solutions Vestmark: Firms...
• 2:37
  Rob Battista EVP, Advisory Solutions Vestmark: Six of the top 10 managed account platforms use our technology in some capacity.
• 2:42
  Rob Battista EVP, Advisory Solutions Vestmark: But up until about, seven to 10 years ago, we were a one product company, our Vestmark One core trading software.
• 2:48
  Rob Battista EVP, Advisory Solutions Vestmark: And we've really evolved to offer more in terms of suites of services for back office outsourcing, investment advisory, as our client, profile has changed.
• 2:57
  Rob Battista EVP, Advisory Solutions Vestmark: These larger clients, like I've just described, have, a lot of that in-house, right?
• 3:01
  Rob Battista EVP, Advisory Solutions Vestmark: They don't need somebody to do their daily recon and do the trading for them.
• 3:05
  Rob Battista EVP, Advisory Solutions Vestmark: But as we move more into the RIA space, there's certainly a greater demand for these types of services, for sourcing model portfolios, for having us do the trading and most recently for us to do a, a more sophisticated,
• 3:17
  Rob Battista EVP, Advisory Solutions Vestmark: UMA tax overlay on the- on these types of solutions.
• 3:20
  Rob Battista EVP, Advisory Solutions Vestmark: So two trillion plus on the plat- platform today overall.
• 3:24
  Rob Battista EVP, Advisory Solutions Vestmark: And a lot of the growth has been in the in the RIA space in the last few years
• 3:28
  Ryan: Yeah, Rob, that's fantastic.
• 3:29
  Ryan: I love your background.
• 3:30
  Ryan: You've got the experience there, so you know the industry well.
• 3:34
  Ryan: You know what financial advisors, RI- RIAs and these firms need in solutions, so that's fantastic.
• 3:42
  Ryan: And I love the evolution of this.
• 3:45
  Ryan: You talked about, you know, when I started, Rob, I'm gonna age myself here again.
• 3:49
  Ryan: When I started over 20 years ago, it was stockbrokers, stock pickers, some might have used mutual funds.
• 3:59
  Ryan: ETFs really weren't a thing then.
• 4:01
  Ryan: Now all of a sudden, you know, then we have model portfolios and now we have more custom solution.
• 4:07
  Ryan: Can you talk a little bit about this evolution of models?
• 4:10
  Ryan: I think it's fascinating and just how quickly really it's evolved
• 4:15
  Rob Battista: Sure.
• 4:15
  Rob Battista: I can date myself as well, but you- you're absolutely right in terms of what the advisor looked like, 20 years ago.
• 4:20
  Rob Battista: And that was the very early days of separately managed accounts.
• 4:22
  Rob Battista: And for those that were around back then you'll remember that all separately managed accounts while growing in popularity were manager traded, right?
• 4:29
  Rob Battista: So the manager actually had to get their hands on the account and be the discretionary manager over that.
• 4:34
  Rob Battista: That prevented a lot of operational scalability or the ability to manage in a centralized, managed account framework, where you could have multiple models being provided into a single account.
• 4:45
  Rob Battista: And so over the years, that manager traded SMA evolved into models, where instead of trading, the manager could simply deliver a model.
• 4:52
  Rob Battista: And for them, that was a lot more operationally scalable.
• 4:55
  Rob Battista: So that really brought the cost down significantly.
• 4:57
  Rob Battista: Instead of charging maybe 50 basis points for actively managing a large cap equity strategy, we went down to 25 to 30 over the years, really lowering the barriers to entry.
• 5:07
  Rob Battista: And then, once you saw growth in adoption there, what we also saw was evolution in the model space.
• 5:13
  Rob Battista: So a lot of these asset managers weren't just, the my large cap value portfolio.
• 5:18
  Rob Battista: It became portfolios of ETFs and other vehicles that, in some cases, carried no fee because the underlying expense ratio is how these managers were compensated.
• 5:27
  Rob Battista: And so that, the adoption then exploded because one of the biggest barriers was the financial advisor may have been managing themself with no third-party manager fee.
• 5:37
  Rob Battista: If I introduce this third-party manager, all of a sudden I'm raising the fee on my client 30 basis points.
• 5:42
  Rob Battista: But now for these no-fee models I can keep the cost neutral to my client, and I can completely outsource this component of my practice.
• 5:48
  Rob Battista: And so we've seen the evolution of models really take off, the assets really take off.
• 5:54
  Rob Battista: And I think now what we're seeing is starting to challenge of the limitations of the model delivery framework, and which I think is a lot of what we're here to talk about today.
• 6:02
  Ryan: Yeah, that's fantastic.
• 6:04
  Ryan: And yeah, great way of setting up this conversation, Rob.
• 6:07
  Ryan: So let's just talk about the growth.
• 6:10
  Ryan: You, you know, it's really taken off.
• 6:12
  Ryan: You just talked about the enormous growth here in custom models.
• 6:16
  Ryan: You mentioned just fees, the fees coming down.
• 6:21
  Ryan: For years, separately managed accounts were earmarked for, you know, institutions, ultra-high net worth individuals.
• 6:30
  Ryan: Custom models brought that down.
• 6:32
  Ryan: Now technol- What do you think has been the primary driver of this growth that you've talked about?
• 6:38
  Rob Battista: Yeah, so it's those things you just mentioned, of course, cost being a major component.
• 6:41
  Rob Battista: But it's accessibility as well, right?
• 6:43
  Rob Battista: The ability to go grab these models, right?
• 6:46
  Rob Battista: If you were an advisor at a, a Merrill Lynch or a Morgan Stanley you had this great big platform and all these choices, open architecture available to you.
• 6:53
  Rob Battista: But now with the evolution of various model marketplaces, even in the independent channel, VetSmart, for example, has access to 300-plus managers, 2,000-plus models for anybody that's looking to plug into our ecosystem.
• 7:04
  Rob Battista: That's certainly been a big reason.
• 7:06
  Rob Battista: The open architecture nature, a lot of new players offering models.
• 7:11
  Rob Battista: And I'll also say the growth has been driven by the asset management community models, right?
• 7:17
  Rob Battista: They've evolved their sales teams from selling a fund, an ETF or a mutual fund or an SMA to selling a, a total portfolio solution, right?
• 7:25
  Rob Battista: And that's where they're coming in with a whole different value proposition to a financial advisor.
• 7:29
  Rob Battista: And, ultimately you can follow the buck by following what's out there being sold.
• 7:34
  Ryan: Yeah, yeah.
• 7:34
  Ryan: We see that a lot in this industry, Rob, is following the buck, especially on that asset management side and the, the new all the new innovation and, you know, exotic products.
• 7:46
  Ryan: Mostly in the ETF space, but it's, it's fascinating.
• 7:49
  Ryan: So do you think this growth is sustainable, or are we kinda...
• 7:53
  Ryan: Do you think we're gonna continue?
• 7:54
  Ryan: We- You know, one thing that's kinda part of this ecosystem or model, so your direct indexing, very popular.
• 8:02
  Ryan: Do you think we're gonna continue to see th- this growth?
• 8:06
  Rob Battista: I think we will.
• 8:06
  Rob Battista: I think, frankly, I think we're in the first inning of custom model solutions being that next wave.
• 8:11
  Rob Battista: Model growth continues to move along but there are limitations to traditional model delivery that I think left some assets off the table.
• 8:19
  Rob Battista: Most notably the inability to customize, right?
• 8:22
  Rob Battista: So yes, you could put some restrictions on and say, "I don't wanna own this," or, "I don't wanna own that," or, "Please don't sell this."
• 8:28
  Rob Battista: But that's not true customization, right?
• 8:30
  Rob Battista: From a tax perspective.
• 8:31
  Rob Battista: It's very easy to think of an example of a, an IRA where the client says, "Sure, put me in this model portfolio."
• 8:38
  Rob Battista: Day two, the advisor hits rebalance.
• 8:40
  Rob Battista: You're in the new model portfolio, no, no tax implications.
• 8:43
  Rob Battista: in a taxable account that's been invested with an advisor for years or more, just given where markets are go, there's sure to be a tax burden in that account.
• 8:51
  Rob Battista: And if we hit rebalance the model, that all that capital gains tax comes due.
• 8:55
  Rob Battista: so what we're seeing now is, that the availability of tax transition and ongoing tax overlay is really unlocking those assets that were held behind.
• 9:04
  Rob Battista: Tax transition was I think, even a couple years ago, like a nice-to-have feature, but it's quickly becoming, table stakes for model portfolio implementation
• 9:13
  Ryan: Yeah, that's one topic I hear a lot and we have a lot of conversations with whether they're asset managers or on the RI space or providers is tax alpha and how important tax alpha, and like you said, now
• 9:28
  Ryan: it's, you know, table stakes at this point.
• 9:31
  Ryan: So are those the primary issues with those original models that, you know, we've kinda grown past for the most part?
• 9:41
  Rob Battista Vestmark: I think so.
• 9:42
  Rob Battista Vestmark: I think, to be honest, clients and advisors are getting used to highly tailor-i- ta- tailored shopping experiences in all parts of their life, right?
• 9:51
  Rob Battista Vestmark: Whether you're buying clothes or buying a car.
• 9:53
  Rob Battista Vestmark: And so why should, my investment, process be any different?
• 9:57
  Rob Battista Vestmark: Both as an advisor building solutions for their clients and at the end client, potentially feeling like something you're giving me feels a little bit off the shelf, right?
• 10:03
  Rob Battista Vestmark: Is we have this great elaborate financial plan that talks about my cash flows and all these years and all my different goals, and then it just feels like you're plugging me into a solution that is the same that
• 10:13
  Rob Battista Vestmark: everybody gets, right?
• 10:14
  Rob Battista Vestmark: So how do you make it feel more tailored to them?
• 10:17
  Rob Battista Vestmark: And you can connect a lot of those components of, "Let's talk about your tax situation," and we'll make sure that's, those implications are understood and those preferences are understood within your portfolio.
• 10:26
  Rob Battista: And also that we can report it back to them that way, at the end for the ongoing evaluation of how we're doing.
• 10:31
  Rob Battista: So think the evolution of custom is just what we're seeing in many industries, and it's creeping its way into this space, and you see a lot of asset managers really grafting onto that as an opportunity to grab more
• 10:43
  Rob Battista: market share by working with advisors in a different way.
• 10:47
  Rob Battista: And advisors love the concept, most notably because in a lot of scenarios, there's no additional fee for these services.
• 10:53
  Rob Battista: The, the asset manager is saying why don't we work with you to build custom models for your practice?
• 10:58
  Rob Battista: What preferences do you have?
• 10:59
  Rob Battista: Do you prefer mutual funds over ETFs?
• 11:02
  Rob Battista: Do you have any biases in your asset allocation you want us to incorporate?"
• 11:05
  Rob Battista: And what we're seeing is that asset managers are very willing to do this.
• 11:09
  Rob Battista: more they're willing to partner with implementation partners like InvestMark to get these custom solutions built for that practice implemented at no cost because the asset manager is actually willing to subsidize our fee.
• 11:21
  Rob Battista: And we have 13 such partnerships like that and growing.
• 11:24
  Rob Battista: So certainly the appetite is there for this sort of relationship.
• 11:34
  Ryan: Yeah.
• 11:34
  Ryan: I'm glad you brought up that, y- y- how important we've ta- you know, we've taken that transparency, that personalization from Main Street into Wall Street.
• 11:42
  Ryan: You're exactly right.
• 11:43
  Ryan: Your shopping experiences, your online experience, it's all personalized to you and your, you know, unique demands, and now we're starting to see that finally in- taking place in, in Wall Street, and this is a perfect example of, of
• 12:00
  Ryan: how it's happening.
• 12:01
  Ryan: So it's fascinating to watch, and like you said, it's probably well overdue, right?
• 12:06
  Ryan: 'Cause our investors are gonna be demanding it, so
• 12:10
  Rob Battista: Financial services is always a little bit late to react to some of these things, whether it's trends in AI or c- or personalization.
• 12:16
  Rob Battista: But we're coming around and I know it's certainly getting to feel more like a tailored experience for these clients than it has in the past
• 12:23
  Ryan: Yeah, exactly.
• 12:24
  Ryan: You mentioned it briefly, but how do custom solutions address those issues that, you know, the one-size-fits-all old school model portfolios that, you know, kind of started years ago?
• 12:37
  Ryan: How do the custom solutions address those issues?
• 12:41
  Rob Battista: Yeah, so I think part of it is, again, back to the rigid nature of a off-the-shelf model is it's the same for everybody.
• 12:47
  Rob Battista: And in all likelihood, an advisor they own the relationship with the client.
• 12:51
  Rob Battista: And in most cases, they've probably communicated preferences over the years for how they like to manage portfolios.
• 12:57
  Rob Battista: And so if they were to move to a model portfolio and all of a sudden contradict everything they've said to that client over the years, or, "This doesn't look like what you've given to me in the past," "why
• 13:05
  Rob Battista: the change?"
• 13:06
  Rob Battista: And so the ability for the advisor to partner with the asset manager and go through that exercise of building a solution that feels like my solution, allowing them to co-brand it and really put their thumbprint on the offering
• 13:18
  Rob Battista: can feel like that's something exclusive to that advisor.
• 13:22
  Rob Battista: And then it's the advisor's role to use illustrations, the shopping experience, the overall, "Here's what I like to do, but here's how I'm gonna craft that for you individually."
• 13:33
  Rob Battista: And, it can be things like, you know, social screening and things like that, but it can also be, of course, these, these tax preferences that we're talking about, and showing how it ultimately leads them to, keep more of
• 13:43
  Rob Battista: what they earn.
• 13:44
  Rob Battista: Understanding what state they live in, their income, these types of things, they feel a lot like the planning process and less like the traditional grab-a-model-off-the-shelf.
• 13:55
  Ryan: Yeah, Rob, that's fantastic.
• 13:56
  Ryan: And those day and age, just grabbing a product off the shelf, not gonna work, I mean, with the evolving demands of investors and how they want transparency and customization, personalized experience.
• 14:10
  Ryan: What do you think?
• 14:11
  Ryan: You've talked a lot about this growth.
• 14:12
  Ryan: What do you think has been the most interesting aspect of the growth in custom model solutions so far?
• 14:18
  Ryan: Is there a piece of this that's like, wow, that's fascinating?
• 14:22
  Ryan: Like I mentioned, direct indexing or just maybe more of your separately managed accounts.
• 14:27
  Ryan: Is there something that really jumps out at you?
• 14:30
  Rob Battista: Yeah, I guess there's a few things.
• 14:31
  Rob Battista: I think there's definitely still some education in the marketplace for advisors to understand this type of solution is available.
• 14:38
  Rob Battista: Completely outsource OCIO services, at no additional cost to my practice.
• 14:42
  Rob Battista: And what we see is that the adoption becomes very rapid once an advisor learns the efficiencies of a fully outsourced model that still feels tailored and custom that I don't have to add incremental cost to my clients or
• 14:53
  Rob Battista: my practice.
• 14:55
  Rob Battista: It adds scale, it accelerates growth for them and it improves the valuation of their firm, right?
• 15:00
  Rob Battista: From any potential buyer down the road.
• 15:02
  Rob Battista: And so that's really driving.
• 15:03
  Rob Battista: Once an advisor gets a taste of it, it accelerates, I think, more, more quickly, the repeat customer, if you will.
• 15:09
  Rob Battista: They might start with "I'm a billion-dollar RIA.
• 15:11
  Rob Battista: Sure, I'll put 200 million in your custom models."
• 15:13
  Rob Battista: But we quickly see additional uptake after that f- for sure.
• 15:18
  Rob Battista: I think one interesting thing that we're seeing that's driving growth as well is that and back to the it doesn't feel off the shelf, is that we're seeing asset managers willing to collaborate with each other.
• 15:29
  Rob Battista: Even though they're competing for the same dollar, we are often seeing that I may be asset manager A, and the advisor's saying, "Listen I don't want 100% of my portfolio to have your funds in it.
• 15:38
  Rob Battista: I really like this fund company's fund," or, "Do you work with any other providers in this particular asset class?"
• 15:44
  Rob Battista: And we're definitely seeing a willingness for these managers to incorporate other third-party solutions into their recommended models.
• 15:51
  Rob Battista: And so it does look and feel more open architecture.
• 15:55
  Rob Battista: It's got the advisor's thumbprint on it.
• 15:56
  Rob Battista: It's multi-manager.
• 15:57
  Rob Battista: And the adv- the asset manager is still very much in favor because they're still likely getting an outsized share of the overall allocation.
• 16:04
  Rob Battista: Maybe it's not 100%, but, when you get two or three of them working together, they're all getting a fair share, so they're getting sticky business that is a larger percentage than normal.
• 16:12
  Rob Battista: The advisor's getting a fully outsourced solution.
• 16:15
  Rob Battista: And firms like us are able to do what we do well and come in and scale the and scale the stick, the tricky part.
• 16:21
  Ryan: Yeah.
• 16:21
  Ryan: Rob, I'm really glad you brought that up because when I think of these custom solutions, I think of an open architecture.
• 16:28
  Ryan: But if you're going to, let's say, a big asset management firm, I'm not gonna name names, and all they do within this model portfolio is offer their own products, is that really a personalized, customized investment product if you're
• 16:44
  Ryan: just getting all their in-house made solutions?
• 16:47
  Ryan: So glad you brought that up
• 16:49
  Rob Battista: and some of the customization is just what vehicle type do you like?
• 16:52
  Rob Battista: You mentioned direct indexing, the ability to incorporate all the different vehicle types in a single custodial account.
• 16:58
  Rob Battista: BestMark's UMA tech is industry-leading, and we can put direct indexing, equity SMAs, fixed income, ETFs, mutual funds, all in that single custodial account, in addition to alternatives through interval funds and other vehicles.
• 17:11
  Rob Battista: And so part of it is, even if it is only one fund company, which, which vehicle types do you like?
• 17:16
  Rob Battista: Do you wanna see the individual securities in your US equities?
• 17:19
  Rob Battista: Do you wanna see the individual bonds, right?
• 17:21
  Rob Battista: How high of a minimum?
• 17:22
  Rob Battista: What does your practice look like in terms of your average account size?
• 17:25
  Rob Battista: How high of a minimum can you have?
• 17:27
  Rob Battista: And so we see some that'll incorporate these more sophisticated portfolios for their higher net worth, but then maybe have a, an ETF mutual fund model for a much smaller minimum.
• 17:37
  Rob Battista: And so it's that level of customization, but then it's also can we incorporate other third parties in here?
• 17:43
  Rob Battista: And that really makes it, unlock that custom feel
• 17:47
  Ryan: I'm really glad you brought that up because that's another point of just the evolution here as a UMA.
• 17:51
  Ryan: In separately managed accounts, you're getting all these different statements from all these different firms.
• 17:57
  Ryan: UMAs, it's all wrapped up into one.
• 17:59
  Ryan: Like you said, you can have alternatives.
• 18:02
  Ryan: Very hot topic right now, and that's a whole nother conversation, Rob.
• 18:06
  Ryan: A whole nother con-
• 18:07
  Rob Battista: Yeah.
• 18:08
  Ryan: Exactly.
• 18:09
  Ryan: Exactly.
• 18:10
  Ryan: So you mentioned that...
• 18:12
  Ryan: Let's talk about what's in it for financial advisors to offer these custom solutions in their businesses and to their clients.
• 18:21
  Ryan: You mentioned lower fees, you know, scalability, maybe outsourcing, remove that, you know, regulatory burden, and just the burden that comes to investment management.
• 18:34
  Ryan: W- Are there other benefits to financial advisors for adopting and incorporating custom solutions?
• 18:41
  Rob Battista: Yeah, first and foremost, like we said before, I think it unlocks assets that maybe you weren't able to get into a, a fee-based advisory solution.
• 18:49
  Rob Battista: That's number one, right?
• 18:50
  Rob Battista: Getting a more of a share if not all of my book of business into a recurring revenue model targeting that advisory fee.
• 18:56
  Rob Battista: So that's first and foremost.
• 18:57
  Rob Battista: But, what I would also say is, and I mentioned it briefly, but introducing scale to, through, through the outsourced approach.
• 19:04
  Rob Battista: You can match your client's preferences and, but have it all be turnkey and managed on your behalf at, at, at no additional cost, right?
• 19:10
  Rob Battista: So not only working with the asset manager to help for- formulate and update the asset allocation ongoing, paying attention to markets, but downstream, client needs a $50,000 withdrawal.
• 19:21
  Rob Battista: Where am I taking the funds from?
• 19:23
  Rob Battista: Having a firm like Vestmark step in as an implementation partner enables us to manage to those targets within the preferences of the client, and the advisor can be completely hands-free.
• 19:33
  Rob Battista: And so that's where the, the growth element is because their number one value is their time.
• 19:37
  Rob Battista: We all know that.
• 19:38
  Rob Battista: that time away from operational admin aspects and applying it towards financial planning, prospecting, and spending more time in front of your clients.
• 19:47
  Rob Battista: And so where you're seeing the real, I think, boost for the advisors
• 19:52
  Ryan: And some may argue this, but that's the most valuable time spent for a financial advisor is the relationship management, you know, financial planning, because now with the fee pressures on investment management, you're adding more value.
• 20:08
  Ryan: You're gonna get more value out of meeting those clients and building relationships than you are just picking mutual funds.
• 20:16
  Ryan: So what-- So we talked about the benefits to financial advisors.
• 20:21
  Ryan: There's a lot of them.
• 20:22
  Ryan: You've done a great job there laying them out.
• 20:25
  Ryan: But what are some benefits to the asset managers who offer these solutions?
• 20:31
  Rob Battista: Yeah.
• 20:31
  Rob Battista: So we did touch on this briefly, but just to reiterate, I think for one, they view it as much stickier business, right?
• 20:37
  Rob Battista: Instead of having a, a distribution professional de- developing a relationship with an advisor to get them to use a product like an ETF or a fund, talking about a total portfolio solution.
• 20:49
  Rob Battista: And so one, it's more stickier because it's a holistic solution and much harder to replace than this mid-cap ETF that I no longer that's an easier flip.
• 20:58
  Rob Battista: to turn upside down my whole suite of portfolios I'm using across my practice, that's very difficult.
• 21:04
  Rob Battista: So if you get entrenched, makes it a lot stickier for the asset manager.
• 21:09
  Rob Battista: And also I think it's getting a larger share, wallet share, larger share of total portfolio because maybe it's not 100%, but if they can get 30% or 40% of the allocation, that's a big part of the overall allocation.
• 21:19
  Rob Battista: And so I think asset managers have seen some success with a couple of the leaders in this space and frankly, there are a lot chasing that model because it seems to be working
• 21:29
  Ryan: Yeah.
• 21:29
  Ryan: And, you know, if you-- these financial buy- if they just offer an ETF or these asset managers offering a basic ETF, that sleeve might just be 5 or 10%, so, of the wallet share
• 21:43
  Rob Battista: And it's, trying to win three or four sleeves is three or four separate conversations, right?
• 21:48
  Rob Battista: This is one holistic conversation that might take a little bit longer, but once you get it, it's a much more valuable piece of business
• 21:56
  Ryan: Exactly.
• 21:57
  Ryan: During a lot of my conversations with financial advisors, whether it's on the podcast or just at conferences, one thing I hear a lot about, whether it's separately managed accounts or just these more custom solutions, is the operational side
• 22:15
  Ryan: of implementing these solutions, and that's one challenge they keep coming up with is operational side.
• 22:22
  Ryan: How does it work?
• 22:23
  Ryan: Are these warranted, these issues or challenges, or is it just misconceptions?
• 22:30
  Rob Battista: I think they absolutely are warranted if the advisors are trying to manage this themselves.
• 22:35
  Rob Battista: Even with the technology that's out there it's a heavy lift to manage custom.
• 22:38
  Rob Battista: We know it firsthand, and what we're hearing from, our asset manager partnerships is that 40% of their custom model partners on average are self-implemented, meaning they're getting they're getting these models delivered in a PDF of some kind or
• 22:51
  Rob Battista: an Excel sheet, and then they're going...
• 22:53
  Rob Battista: having to go and implement themselves.
• 22:55
  Rob Battista: So they're not only burden- burdened with, the account assignments and keeping them traded within, target bands, but managing to the capital gains budget, ongoing tax loss harvesting throughout the years it's just...
• 23:06
  Rob Battista: it's a heavy lift, right?
• 23:08
  Rob Battista: And so what I would say is that this can become a lot easier working with an implementation partner like InvestMark which is increasingly being done at no cost.
• 23:17
  Rob Battista: And so we're seeing that the majority of our 13 partners we have in this space that are doing custom, they're willing to cover our fee.
• 23:25
  Rob Battista: that, that is just a heavy lift.
• 23:27
  Rob Battista: In the past, it was not necessarily the case.
• 23:29
  Rob Battista: You would have an advisor have to make that decision on or cost, and now those are one and the same
• 23:37
  Ryan: Real quickly, Rob, fantastic conversation.
• 23:41
  Ryan: Finish it up here.
• 23:42
  Ryan: You just mentioned at scale.
• 23:44
  Ryan: We've talked a lot about it during this conversation.
• 23:48
  Ryan: It's arguably the most important part.
• 23:50
  Ryan: Like you said, financial advisors, they're pulled in many different ways.
• 23:54
  Ryan: Their most valuable asset really is time, and they're limited in the time and all the different things that they have to do to build a successful business.
• 24:03
  Ryan: So how can advisors implement custom solutions at scale?
• 24:07
  Ryan: Can you give an example or, or how you guys play in that role?
• 24:12
  Rob Battista: Sure.
• 24:12
  Rob Battista: Yeah, we've seen a lot of success from advisors and some that struggle as well.
• 24:16
  Rob Battista: I can say is that don't look at the whole project as one very large problem.
• 24:23
  Rob Battista: You can break it into smaller bite-sized pieces in terms of how do I get started, and then how do I...
• 24:27
  Rob Battista: you shouldn't expect that they're gonna flip a switch and your whole book is outsourced that then cover...
• 24:31
  Rob Battista: and the costs are covered, right?
• 24:32
  Rob Battista: For one it's find that partner, find that asset manager that you really and that you think does a great job from an asset allocation standpoint that has best in breed product.
• 24:41
  Rob Battista: Find multiple asset managers that may be willing to work together.
• 24:45
  Rob Battista: We even have the ability to offer multiple flavors on one platform.
• 24:48
  Rob Battista: You can have open architecture, you can have BlackRock, you can have Vanguard side by side, right?
• 24:53
  Rob Battista: And let your advisors choose what they'd like to have.
• 24:55
  Rob Battista: And so build out the platform first and find who that implementation partner is so that you know that once you get the adoption and the uptake, that you're not gonna own the operational burdens of that.
• 25:06
  Rob Battista: then also think logically about, the right way to cut up your book of business and see who's ripe, to start here.
• 25:12
  Rob Battista: Should it be I do my retirement assets first 'cause I can just flip those and I don't have to worry about the tax preferences?
• 25:17
  Rob Battista: I think through the different advisors in my practice and have them think about how they wanna cut up their book?
• 25:23
  Rob Battista: And yes, we can do bulk conversions.
• 25:25
  Rob Battista: That, that works well.
• 25:27
  Rob Battista: There's a lot of legwork there.
• 25:29
  Rob Battista: But also think about just introducing this in the scope of your normal check-in conversations with your clients.
• 25:34
  Rob Battista: It does not have to be a frantic quarter where you speak to every client about this.
• 25:38
  Rob Battista: It can be when's my next check-in with, the Batista household?
• 25:42
  Rob Battista: Let's, let me bring up this idea of a new custom solution and incorporating a greater degree of tax overlay and explain the benefits to them, and that frankly it won't come at any additional cost.
• 25:52
  Rob Battista: And so we've seen a lot of success thinking through the steps and just going through a process as opposed to trying to bite off the whole thing in one big shot
• 26:02
  Ryan: That's great, great tip, great insight there, Rob.
• 26:07
  Ryan: Like a lot of things in investing, you don't need to jump in both feet head first in.
• 26:12
  Ryan: It, it's kind of like dollar cost averaging into investments where, you know, a little bit at a time works really well, e- especially in this case.
• 26:21
  Ryan: So fantastic insight, Rob.
• 26:24
  Ryan: Thank you so much.
• 26:25
  Ryan: Really great conversation.
• 26:27
  Ryan: I enjoyed it, and very important topic, one that is gaining a lot of steam and traction right now.
• 26:33
  Ryan: So fantastic.
• 26:35
  Ryan: Thank you so much for coming on.
• 26:36
  Ryan: Where can our audience get more information about Vestment?
• 26:41
  Rob Battista: Well, certainly there's a lot publicly out there, so feel free to ask your favorite AI chat engine.
• 26:45
  Rob Battista: I'm sure you'll find a lot.
• 26:47
  Rob Battista: But secondarily, you can simply go to vestmark.com.
• 26:50
  Rob Battista: We have a resource center at the top of the page, and you can just search for custom models
• 26:54
  Ryan: Yeah, it's fantastic.
• 26:56
  Ryan: Awesome, Rob.
• 26:57
  Ryan: Thank you so much, and thank you everyone for listening to this episode.
• 27:01
  Ryan: You can watch all of our other episodes on YouTube and all of the other platforms you listen and watch your favorite podcasts.
• 27:08
  Ryan: Please be sure to like and subscribe to those channels and give us a follow on LinkedIn.
• 27:12
  Ryan: Thank you very much and have a great rest of your week