Many articles have been published about direct indexing over the past year, including by RIA Intel. Assets flowing to direct indexing in retail separately managed accounts is predicted to outpace mutual funds and ETFs in the coming years.
But don’t count out the funds — or the companies helping wealth managers use them to invest on behalf of their clients.
55ip, a JPMorgan Chase & Co. subsidiary that helps financial advisors build and manage model portfolios, is attracting larger wealth management firms and has doubled the number it works with over the past year to nearly 200 firms. During the same period, the number of client accounts managed on 55ip grew 225 percent and assets managed through the platform rose to more than $4 billion.
Most of the wealth managers are independent RIAs managing about $300 million in assets or less. However, wealth managers small and large are continuously looking for ways to make investment management more efficient for clients and themselves, and 55ip’s customers are increasingly barbell-ed, Paul Gamble, CEO of 55ip, told RIA Intel. A growing number of them are managing $1 billion or much more. In April, 55ip partnered with Janney Montgomery Scott, a broker-dealer with more than 2,000 employees and $124 billion under advisement. 55ip expects to announce a partnership with another “major” broker-dealer in the coming months.
“Part of that just is the evolution of the business, where you've got early adopters and then you work your way through the due diligence, and you build your brand, and you do those things and you get access to the larger firms,” Gamble said. “I think it's natural, and part of it is that, as we've established ourselves and shown a track record of success, larger firms have really looked to come to 55ip.”
[Like this article? Subscribe to RIA Intel’s' thrice-weekly newsletter.]
Many portfolio management software companies exist. Gamble says 55ip’s helps advisors build customized index strategies using ETFs across their business, then automatically helps maintain the portfolios in a tax efficient way. In 2020, taxable accounts with 55ip delivered 2.58 percent in average tax savings, “a significant outcome in a low-return environment,” according to the company.
To use the platform, 55ip charges a basis-points subadvisor fee.
“All the innovations, mutual funds, ETFs, SMAs, direct indexes — [with] all of those things that are happening, there are barriers that get in the way of moving the money to get people into those better solutions,” Gamble said. “And there are many barriers, but to a large extent, the largest barrier for clients is this tax problem, right? How do you move a portfolio that's been sitting in a market that's gone generally up for the last 10, 15 years and move it into a portfolio that's better for them?”
55ip has also improved its functionality and invested in the product. Its Net Promoter Score — the research metric often derived from a single survey question asking respondents to rate the likelihood that they would recommend a company, product, or a service — has also risen to +78, putting 55ip in the top decile for their industry. “I'd say this is the thing that I'm most proud of, is our NPS score of +78,” Gamble said.
Thousands of advisors have access to 55ip through integrations with other investment platforms, too. In May, Fidelity Institutional launched its core model portfolio lineup with 55ip’s tax management technology.
Other asset managers also provide model portfolios through 55ip, including JPMorgan, WisdomTree, and Riverfront. BlackRock was the first to partner with the company in 2019. Advisors can use 55ip to customize all the models at the client-level.
The company might work with more asset managers in the future, but Gamble said 55ip will be judicious about choosing partners.
“The way I sort of view the world, is that in the model portfolios space, there's going to be a small number of asset managers that have the breadth of products and resources to bring proprietary models and will dominate most of the assets that go into third party model portfolios,” Gamble said. “Our goal is not to be a model marketplace that works with every asset manager but is to work with those asset managers that are really focused on this model space and are innovating and are working to help advisors.”
About 70 people work at 55ip and Gamble said the company should have about 100 employees before the end of the year.
Michael Thrasher (@Mike_Thrasher) is the editor at RIA Intel and based in New York City.