Bob Dylan once said, “the times they are a-changin’.” This is especially true for wealth management.
Infrastructure improvements, specifically zero-commission equity trades and fractional share recordkeeping, have unlocked new ways to build investment portfolios with individual stocks and bonds. Like mutual funds and ETFs, these next-generation personalized investing vehicles (such as Quorus) are low-cost, diversified, and professionally managed. However, in addition to the general benefits of mutual funds and ETFs, personalized investing vehicles also provide unparalleled personalization and allow advisors to tailor any strategy to fit a client’s unique tax situation and values.
These investment products go by many names: direct indexing, personalized investing, custom indexing, personalized indexing, separately managed accounts, model portfolios, and more. For the sake of simplicity, let’s refer to them as personalized investing products. While the names are different, the fundamental premise is the same. Instead of buying shares of an investment product like a mutual fund or ETF that owns stocks, the investor or their advisor uses software to purchase stocks directly in their account.
ETFs and Mutual Funds vs. Personalized Investing
These products can act as a robust tax management tool for investor portfolios. Studies by several firms demonstrate personalized investing products’ ability to boost after-tax returns. A recent paper from Vanguard estimates that tax loss harvesting an individual security portfolio can increase after-tax returns by up to 3.10% annually for certain investors. That equals significant, measurable funds flowing back into investors’ portfolios each year.
In addition to adding value through tax efficiencies, personalized investing products such as Quorus also provide an easy way to tailor investment strategies to an investor’s values for a highly personalized customer experience. Instead of using generic values-based mutual funds or ETFs that may not perfectly align with an investor’s specific requirements, personalized investing products make it easy to fit any strategy to the investor’s particular needs. For asset managers, this provides new opportunities to engage clients and demonstrate value.
The shift to these personalized investment products has already started. A recent study by Cerulli projects that these products will be the fastest-growing category of investment vehicle over the next five years. Change in the asset and wealth management market creates opportunities. Vanguard and Blackrock capitalized on the rise of passive investing to become industry leaders. Independent, fee-based advisors are winning the next generation of wealth management.
Projected Growth of Investment Vehicles, 2021-2026E ($ billions)
For personalized investing, this moment of change creates a window of opportunity for early adopters to differentiate, and to be ahead of the curve. Quorus is ready to help firms that are prepared to lean into the shift. However, this moment won’t last forever.
To those who want to unlock a new way of investing: we’re ready when you are. To those who tend to wait and see: don’t wait too long. Because the times, they are a-changin’.
Disclosures
Investing in securities involves risks, including the risk of loss, including principal. Quorus Inc., is an RIA registered in the States of Connecticut and Pennsylvania. Neither regulator has approved this message.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Quorus has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, as it was prepared without regard to any specific objectives, or financial circumstances, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not intended as a recommendation to purchase or sell any security and performance of certain hypothetical scenarios described herein is not necessarily indicative of actual results. Any investments referred to, or described are not representative of all investments in strategies managed by Quorus, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
