Mike Blundin is the CEO of Vestmark, a technology and services company dedicated to helping wealth managers deliver institutional-class, personalized investment products to retail investors. Blundin, who has been with Vestmark for 18 years and was recently named CEO, shares his views on how investors across the spectrum are increasingly demanding more unique, distinctive portfolios.
Russ Prince: Tell me about Vestmark, and the firm’s mission to bring personalized, institutional-class investment solutions to retail investors, beyond the HNW market.
Mike Blundin: Vestmark has been on a mission to democratize investing, making it simple for wealth managers to offer clients more sophisticated, personalized and tax-managed investment solutions. We’ve built an incredible collaborative team and partnership-oriented culture to push the boundaries of what a retail investment platform can do. For more than a decade, we’ve had an internal tagline “institutional capability at retail scale,” where retail scale is defined as one million accounts. That not only means raw horsepower but also highly effective user workflows. Vestmark’s technology enables the delivery of all this in an efficient and scalable way.
Our wealth management clients are telling us that investors increasingly want access to institutional-caliber strategies. Investors, particularly the younger generation, are looking beyond costly, rigid mutual funds to more transparent strategies where they can understand what they’re investing in, better manage tax consequences, put their money behind businesses they believe in, and, ultimately, play a greater role in their own financial futures. At the same time, investors of all ages are showing a preference toward passive investing.
SMA and UMA frameworks have traditionally delivered all this, plus better tax management but were limited to larger account sizes. Technology has enabled more creative, sophisticated and personalized solutions, enabling enhanced solutions for smaller account sizes, including access to passive index strategies that can be customized at lower costs. Delivering these evolved 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 an index’s behavior via direct ownership of a subset of its individual stocks—is a way for more investors to benefit from the flexibility of SMA/UMA-type personalization, lower-cost passive-style investing and tax optimization. It’s a highly customizable alternative to ETFs, mutual funds and SMAs.
Direct indexing is uniquely poised to address demographic changes and evolving investor tastes. For investors with ESG-specific goals, owning individual securities in a direct index is a better and more flexible way to express their preferences than investing in ESG-sensitive funds or ETFs. For instance, an investor can select or exclude stocks for her direct index with assistance from her advisor, who can help balance those preferences with her long-term investment objectives. Other customizations may involve achieving dividend income or excluding a security to minimize concentration due to a company stock ownership plan.
When you consider wealth management firms with hundreds or thousands of clients interested in direct indexing—each of which involves individual stock ownership—you begin to appreciate the need for technology to make it scalable. Part of that is rebalancing thousands of portfolios with unique tax treatment and customized investment settings, utilizing automated exception-based processing.
Vestmark’s technology was built on innovative building blocks such as true sleeve and tax-lot level accounting, which drive automated rules-based workflows and streamlined exception-based processing. The fundamentals we’ve built over the past 20 years have allowed us to make sophisticated portfolio solutions feasible for smaller and smaller accounts. By the end of 2022, we expect significant progress with custodians’ ability to handle fractional shares, which is a key piece of the puzzle to expand access to more retail investors.
Beyond equities, we also see direct indexing having a huge impact on fixed-income investing.
Prince: How do you see portfolios evolving in the future?
Blundin: Financial professionals have long talked about the forthcoming “largest transfer of generational wealth in history” and what that will mean for the industry. I see the biggest shift being around two things: investors aligning their money with companies and products that fit with their values and a growing desire among younger investors to invest in alternatives and cutting-edge products.
Sustainability and ESG have become more mainstream. This shift will continue to accelerate as younger investors who grew up around social movements related to the environment, gun control and other issues come into their own and expect their portfolios to not only avoid investments that conflict with their values, but also to invest in businesses that contribute to creating a better, cleaner and more prosperous world.
Secondly, younger investors want to diversify beyond stocks and bonds to put their money into cutting-edge asset classes, whether it’s cryptocurrency, NFTs, DAOs or traditional alternative investments. To serve this new generation, advisors will need scalable tools, resources and efficient access to more asset classes to provide a different kind of client engagement.
Prince: How can firms make sure their advisors have the tools needed to adapt?
Blundin: Ultimately, we see our job as providing the tools that allow financial professionals to innovate their offerings. Clients want multiple asset classes and access to sophisticated managers, so it’s important to empower advisors with a platform that provides a bird’s-eye view of their clients’ full portfolios, including the status of every cash position, tax lot and trade.
Wealth managers need a platform that can expand and evolve with the evolving marketplace, and solutions that bring all functionalities—including portfolio construction, accounting, management, trading, reconciliation and reporting—into one seamless system, eliminating silos. Accounting shouldn’t be a separate system from trading; reporting 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, householding and robos to direct indexing. It’s important to have a platform that not only serves current asset classes and client needs but also adapts to whatever comes next.
Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals. Connect with him on LinkedIn.com.