### WordPress - Web publishing software
Copyright 2011-2019 by the contributors
This program is free software; you can redistribute it and/or modify
it under the terms of the GNU General Public License as published by
the Free Software Foundation; either version 2 of the License, or
(at your option) any later version.
This program is distributed in the hope that it will be useful,
but WITHOUT ANY WARRANTY; without even the implied warranty of
MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the
GNU General Public License for more details.
You should have received a copy of the GNU General Public License
along with this program; if not, write to the Free Software
Foundation, Inc., 51 Franklin St, Fifth Floor, Boston, MA 02110-1301 USA
This program incorporates work covered by the following copyright and
permission notices:
b2 is (c) 2001, 2002 Michel Valdrighi - m@tidakada.com -
http://tidakada.com
Wherever third party code has been used, credit has been given in the code's
comments.
b2 is released under the GPL
and
WordPress - Web publishing software
Copyright 2003-2010 by the contributors
WordPress is released under the GPL
---
### GNU GENERAL PUBLIC LICENSE
Version 2, June 1991
Copyright (C) 1989, 1991 Free Software Foundation, Inc.
51 Franklin Street, Fifth Floor, Boston, MA 02110-1301, USA
Everyone is permitted to copy and distribute verbatim copies
of this license document, but changing it is not allowed.
### Preamble
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### TERMS AND CONDITIONS FOR COPYING, DISTRIBUTION AND MODIFICATION
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### END OF TERMS AND CONDITIONS
### How to Apply These Terms to Your New Programs
If you develop a new program, and you want it to be of the greatest
possible use to the public, the best way to achieve this is to make it
free software which everyone can redistribute and change under these
terms.
To do so, attach the following notices to the program. It is safest to
attach them to the start of each source file to most effectively
convey the exclusion of warranty; and each file should have at least
the "copyright" line and a pointer to where the full notice is found.
one line to give the program's name and an idea of what it does.
Copyright (C) yyyy name of author
This program is free software; you can redistribute it and/or
modify it under the terms of the GNU General Public License
as published by the Free Software Foundation; either version 2
of the License, or (at your option) any later version.
This program is distributed in the hope that it will be useful,
but WITHOUT ANY WARRANTY; without even the implied warranty of
MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the
GNU General Public License for more details.
You should have received a copy of the GNU General Public License
along with this program; if not, write to the Free Software
Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA 02110-1301, USA.
Also add information on how to contact you by electronic and paper
mail.
If the program is interactive, make it output a short notice like this
when it starts in an interactive mode:
Gnomovision version 69, Copyright (C) year name of author
Gnomovision comes with ABSOLUTELY NO WARRANTY; for details
type `show w'. This is free software, and you are welcome
to redistribute it under certain conditions; type `show c'
for details.
The hypothetical commands \`show w' and \`show c' should show the
appropriate parts of the General Public License. Of course, the
commands you use may be called something other than \`show w' and
\`show c'; they could even be mouse-clicks or menu items--whatever
suits your program.
You should also get your employer (if you work as a programmer) or
your school, if any, to sign a "copyright disclaimer" for the program,
if necessary. Here is a sample; alter the names:
Yoyodyne, Inc., hereby disclaims all copyright
interest in the program `Gnomovision'
(which makes passes at compilers) written
by James Hacker.
signature of Ty Coon, 1 April 1989
Ty Coon, President of Vice
This General Public License does not permit incorporating your program
into proprietary programs. If your program is a subroutine library,
you may consider it more useful to permit linking proprietary
applications with the library. If this is what you want to do, use the
[GNU Lesser General Public
License](http://www.gnu.org/licenses/lgpl.html) instead of this
License.
Financial advisors can ignore these 2 things when choosing a direct indexing provider - sinth.info
By now, you have probably heard all about direct indexing. You have read how technology has brought a strategy that was once out of reach for all but the wealthiest investors and institutions to the masses. You have read about the arms race among the largest investment managers vying to compete in the space.
Andy Kunzweiler, direct indexing portfolio manager at Morningstar Wealth
Matthew Gilson
And now you would like to offer direct indexing to your clients. You see the value of aligning your clients’ portfolios with their unique investment, tax and risk objectives. But without the resources of a big firm, you need a provider.
There are a lot of direct indexing services out there that will tell you what to look for when seeking out their services. As a practitioner who has managed direct indexing portfolios for the last decade myself, here are two things that I believe don’t matter.
Tax alpha math Tax alpha is the main draw of direct indexing. (Personalization is important and I’ll touch on it next, but while not everyone is interested in personalizing their investments, everyone is interested in paying less in taxes.)
Over the years, I’ve become familiar with what the academic literature presents as tax alpha, and while I am not here to say that you should not consider tax alpha in your evaluation of a direct indexing provider, some of the numbers out there are shockingly high. Tax alpha of 3% to 4% per year? Sign me up!
Here are three reasons you should look at any tax alpha claim with a healthy dose of skepticism.
First, cherry-picking can, and sometimes does, occur. Time periods with declining markets or heightened volatility can lead to increased tax alpha, and so researchers may choose a backtest horizon that takes advantage of these periods. In the same vein, if you are examining tax alpha in a provider’s composite report, know that there is a lot of leeway in determining which portfolios get included in a composite. Some providers only include portfolios funded with cash in their composites, for example, which may serve to boost tax alpha.
Second, there are many ways to calculate tax alpha, and you really have to be familiar with after-tax performance calculation methodology to put them all on equal footing. For example, one provider may show what’s known as a pre-liquidation figure, whereas another presents results post-liquidation. Providers may assume different tax rates in their calculations or strip out dividends, whereas others may make different assumptions. Other providers may present proprietary metrics that you’ve never heard of, leaving you to scour the footnotes to see how it was derived.
Finally, tax alpha is a very client- and portfolio-specific figure. It is the outcome of the direct indexing manager implementing a client’s unique tax objectives. For example, some clients prefer realized losses, some may value a tax-neutral approach; for others, the managed realization of gains is critical. In each case the direct indexing manager is providing tax alpha, but it manifests itself differently depending on the client and their unique circumstances.
Too much choice? The second widely touted benefit of direct indexing is personalization. The idea here is that a direct indexing approach allows investors to tailor their portfolio to their values. If you don’t like stocks from a certain sector, for example, they can build a portfolio of individual stocks that excludes that sector. The alternative would be to find an ETF or mutual fund alternative that may or may not exist.
What I see happening with various direct indexing providers today is personalization being confused with overabundance of choice. The prevailing view of advisors and other practitioners I speak with is that the more “checkboxes” you can offer clients, the better. But who is to say that a provider offering an extensive list of possible customizations and exclusions is better than one offering a more limited list? I would argue that when evaluating a direct indexing provider based on allowable customizations, it is better to focus on how information is conveyed with an eye toward how it supports the decision-making process rather than the sheer number of options offered.
For example, offering the ability to exclude the technology sector from a growth index is not all that helpful without seeing the resulting tracking error of the client’s portfolio. Similarly, allowing the ability to screen out numerous sectors, industries, ESG themes or others, is well and good until it reduces the investable universe to two stocks, which obviously isn’t great when trying to build a diversified portfolio. In either case, what needs to be associated with a list of customizations is information regarding the impact they may have on the risk of a portfolio. Only then can an advisor and client make an informed decision with regards to implementing any customizations.
So what does matter? When I think of the most important aspect a direct indexing provider can provide, the word that comes to mind is partnership.
For example, how easy does a particular provider make it for you to do your job? What tools have they developed that fit into your workflows and how seamless are they? How can they help you come up with a plan that suits your clients’ unique and frequently changeable circumstances? How easy are they to work with, and how responsive are their representatives? How do they help you communicate your value-add?
Perhaps most importantly, how committed are they to helping your client achieve their goals?
The answers to these questions should give you an indication as to the kind of partner a prospective direct indexing provider will make. It is my belief that the best outcomes occur when all parties put the client first.