Advisors dish on how they’re using direct indexing
Vanguard Perspective
|July 7, 2023
Advisors dish on how they’re using direct indexing
Wondering whether adding Vanguard Personalized Indexing to your offerings could help you build your business? Listen in to hear how longtime direct indexing users Matt Shibata, managing partner of Morling Financial Advisors, and Dave Murdock, managing partner of Bordeaux Wealth Advisors, have been using the strategy to help improve outcomes for their clients.
On attracting and retaining clients
In this 45-second video, Dave describes how Vanguard Personalized Indexing can help focus client conversations on the value you’re adding.
Dave Murdock is an advisory client of Vanguard.
Frankly, the use of this product and others, in my opinion, really helps to reframe the discussion. If you’re used to talking about performance and quantitative numbers—you know we all know the stat, “you live and die by performance”—get that out of your lexicon. Because what you can talk about here are the benefits to investing. You get to talk about tax savings, you get to talk about ways you can customize a portfolio, you get to talk about the things that they care about, which is what they keep at the end of the day. And so, it brings in this qualitative discussion that we really like.
On improving client outcomes
In this 1½-minute video, Matt explains how his firm marries Vanguard Personalized Indexing with other private investments to create better outcomes for clients.
Matt Shibata is an advisory client of Vanguard.
Something we did a lot in 2020 and 2021, when the IPO market was going and a lot of people had some pretty large exits from real estate and other types of private assets, is we could roll those gains into an opportunity zone. And then you can take the basis and you could roll that into direct indexing. So, you’re able to manage the portfolio, you defer that capital gain through the opportunity zone for many years into the future—at that point, it was about five or six years, now it’s a little bit shorter. We could harvest losses in the meantime, through the personalized indexing strategy, to offset current gains or to carry those gains forward to when that tax liability would be due in 2026, 2027. So, there’s a lot of great benefits of personalized indexing by itself, but really marrying it with other alternative investments and other tools that you have, we’re able to create even better outcomes.*
*This is an opinion, and your results may vary
On the value of customization
In this 1½-minute video, Dave describes how he tailored a portfolio to fit a client’s unique situation.
Dave Murdock is an advisory client of Vanguard.
They have an online portal that advisors have access to, and it’s very, very good. And whenever we meet with a new client to use this product, we’ll do a webinar with them and show this tool right on the screen. We’ll have their portfolio size loaded right into it, and we’ll walk through every one of the customization opportunities, from screens, tilts, factors—I mean, Jonathan and Sherwood have built a lot of things that you can factor in to building this portfolio, and we’ll go through that. We had a client as we were going through and he stopped me and said, “Listen, we’re morally conscious.” So, I went to the screens around religious areas and other items, and he said, “That’s exactly what I want.” And so, we were able to factor in a few things for him here and there. He works for a very large publicly traded biotech firm here in town. We were able to exclude that stock from his portfolio. And so, we customized, if you will, this index for him, putting him in control, which is always important for type A clients, and giving him something that was unique to his situation.
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Notes
- Vanguard Personalized Indexing Management, LLC (“Vanguard Personalized Indexing Management”), formerly Just Invest, LLC, an SEC-registered investment advisor, is an independently operated wholly-owned subsidiary of The Vanguard Group, Inc. (“Vanguard”). Vanguard Personalized Indexing is an asset management technology that has been developed and is offered solely by Vanguard Personalized Indexing Management.
- For more information on Vanguard Personalized Indexing Management and Vanguard Personalized Indexing, and to access Vanguard Personalized Indexing Management’s Form CRS and Form ADV Part 2A disclosure brochure, please visit the Vanguard Personalized Indexing topic page.
- All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
- Vanguard Personalized Indexing Management cannot guarantee a profit or protect against a loss.
- Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. Prospective investors should consult with their tax or legal advisor prior to engaging in any tax-loss harvesting strategy. Neither Vanguard Personalized Indexing Management nor Vanguard provide tax or legal advice.
- The information contained herein does not constitute tax advice and cannot be used by any person to avoid tax penalties that may be imposed under the Internal Revenue Code. Each person should consult an independent tax advisor about their individual situation before investing in any security.
- Factor investing is subject to investment style risk, which is the chance that returns from the types of stocks selected will trail returns from U.S. stock markets. Factor investing is subject to the risk that poor security selection will cause underperformance relative to benchmarks or funds with a similar investment objective.
- ESG portfolios are subject to ESG investment risk, which is the chance that the stocks or bonds screened by the data provider for ESG criteria generally will underperform the market as a whole or, in the aggregate, will trail returns of other portfolios screened for ESG criteria. The data provider’s assessment of a company, based on the company’s level of involvement in a particular industry or the data provider’s own ESG criteria, may differ from that of other portfolios or of the advisor’s or an investor’s assessment of such company. As a result, the companies deemed eligible by the data provider may not reflect the beliefs and values of any particular investor and certain screens may not exhibit positive or favorable ESG characteristics. The evaluation of companies for ESG screening or integration is dependent on the timely and accurate reporting of ESG data by the companies. Successful application of the customized investment strategy will depend on the data provider’s proper identification and analysis of ESG data.
- Private investments involve a high degree of risk and, therefore, should be undertaken only by prospective investors capable of evaluating and bearing the risks such an investment represents. Investors in private equity generally must meet certain minimum financial qualifications that may make it unsuitable for specific market participants.
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