Direct-Indexing Platform Ethic Says Assets Could Double Again to $4 Billion This Year

The company is on track to pass more than $2 billion in assets under management in the coming weeks and says it could double that number by the end of this year.

Illustration by RIA Intel

Illustration by RIA Intel

In 2021, RIAs helped ESG-focused asset manager Ethic pass the meaningful milestone of $1 billion in assets under management. Now, Ethic expects to surpass the $2 billion mark in the coming weeks and says that number might double again before the end of the year.

The company told RIA Intel that it’s on track to have more than $3.5 billion before 2023, the result of a robust pipeline of incoming clients drawn to the technology platform that caters to the individual needs of RIAs and their clients.

Ethic, a separately managed account platform that was founded in 2015 and that wealth managers use to build bespoke stock portfolios for clients, now has more than $1.9 billion in managed assets on the platform from 90 wealth management firms, representing thousands of advisors, families, networks, and institutions. An additional 30 firms have signed agreements with Ethic, and these will be onboarded within the next six weeks, pushing the company well past $2 billion in assets under management. Since January of last year, the number of accounts on the platform has grown from 400 to more than 1,200, a 300 percent jump.

Ethic added 25 employees last year, and by the end of the first quarter this year, the company had grown to a total of 65 employees. Alex Laipple, the head of business development and relationship management at Ethic, told RIA Intel that the company plans to grow to 100 employees before 2023.

Just four years ago, Ethic managed about $20 million for a handful of firms and families, a far cry from the nearly $2 billion currently on the platform.

“The first 100 million was the most challenging because we weren’t in the arena yet. It’s not until you’re managing the money that you’re able to improve what you can deliver,” Laipple said.

Crossing the $1 billion mark in assets under management was another critical milestone for the company, one that boosted investor confidence in Ethic, Laipple said. He attributes the company’s accelerated growth over the past year to three factors.

First, due to industry consolidation and the acquisition of Ethic’s top four competitors — Aperio, which was acquired by Blackrock in November 2020; Parametric, which was acquired by Morgan Stanley in October 2020; Just Invest, which was acquired by Vanguard in October 2021; and OpenInvest, which was acquired by J.P. Morgan in June 2021 — Ethic is now one of the few majority employee-owned direct indexing providers in the industry.

“The ability to be an independent solution is really important when you’re working with independent advisors with their own brand,” Laipple said.

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Second, Ethic’s technology was developed in-house by Ethic engineers, and it was built specifically to help advisors connect with and retain clients by translating the client’s values into managed investment opportunities. It also quantifies the impact of each client’s portfolio. Laipple said that the growth and development of Ethic’s technology is a particular focus for the company, and for this reason, the majority of the hires over the last year have been product engineers and designers.

The last factor driving growth, Laipple said, is Ethic’s focus on innovation through partnerships. In December 2021, Ethic partnered with Morningstar to provide its advisors with access to eight Morningstar Indexes, and over the next few weeks, Laipple said that the company plans to announce expansions into new products, new clients, and new geographies.

Laipple believes that the company will add another $2 billion to the platform by the end of 2022. It is currently in the process of onboarding about 30 firms, and another 30 are currently going through the due diligence process. Most of these, Laipple said, will sign with the company this year.

“The best is yet to come [when it comes] to our growth,” Laipple said. “Our growth from zero to [$100 million came] from a handful of firms. Our growth from $100 [million] to a billion came from 20 or 30 firms, and now we’re in a position where we’re working with more than 120 firms. So, from a harvesting perspective, we’re just getting started with a large chunk of our clients.”

In the first quarter of 2022, Ethic had roughly $330 million in net flows, more than double the $150 million in net flows added in the first quarter of 2021. “[It’s] the strongest quarter of net flows we’ve ever had historically,” Laipple said.

Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.

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