1 00:00:05,880 --> 00:00:07,840 Speaker 1: We'll gan to trillions. I'm Joel Webber and I'm Americ 2 00:00:07,840 --> 00:00:13,400 Speaker 1: Bell tunis Eric. Today we're gonna talk about something called 3 00:00:13,480 --> 00:00:17,560 Speaker 1: direct indexing. What is that? Direct indexing is sort of 4 00:00:17,600 --> 00:00:20,680 Speaker 1: a it's a newer, fresher name for what was previously 5 00:00:20,680 --> 00:00:24,200 Speaker 1: called a separately managed account, and institutions use this a 6 00:00:24,200 --> 00:00:26,520 Speaker 1: lot where and when I wrote my book on the 7 00:00:26,560 --> 00:00:29,240 Speaker 1: e t F world and how institutions use them, shameless plug, 8 00:00:29,440 --> 00:00:33,159 Speaker 1: shameless plug, it's called The Institutional EF. It is available 9 00:00:33,159 --> 00:00:35,920 Speaker 1: on Amazon. But let's move on. UM, I was like, 10 00:00:35,960 --> 00:00:39,040 Speaker 1: why don't big pensions just by the e t F. Well, 11 00:00:39,159 --> 00:00:41,960 Speaker 1: they can go and get the SMP done for even 12 00:00:42,040 --> 00:00:44,479 Speaker 1: cheaper than the e t F. So separately managed to 13 00:00:44,440 --> 00:00:46,680 Speaker 1: accounts come up in my research just terms you just 14 00:00:46,720 --> 00:00:49,400 Speaker 1: buy all the stocks directly and you let a black 15 00:00:49,479 --> 00:00:51,879 Speaker 1: rock just do it. They it's it's almost like your 16 00:00:51,920 --> 00:00:54,120 Speaker 1: own private e t F and you don't have to 17 00:00:54,120 --> 00:00:56,160 Speaker 1: go to the public pool down the street, and institutions 18 00:00:56,200 --> 00:00:59,320 Speaker 1: like that. It's cheaper, and ultimately the problem with that 19 00:00:59,400 --> 00:01:01,560 Speaker 1: is in order to get at that pricing, you would 20 00:01:01,640 --> 00:01:04,640 Speaker 1: need a hundred million dollars, So it was really an 21 00:01:04,640 --> 00:01:06,880 Speaker 1: institutional thing. The more money you have, the lower you 22 00:01:06,920 --> 00:01:10,280 Speaker 1: get charged. That's just generally how investing works. And direct 23 00:01:10,360 --> 00:01:12,959 Speaker 1: indexing has now come along with technology and sort of 24 00:01:12,959 --> 00:01:15,559 Speaker 1: said hey, let's democratize this and bring it to advisors. 25 00:01:16,040 --> 00:01:18,520 Speaker 1: And there's a couple advantages they think are going to 26 00:01:18,600 --> 00:01:23,440 Speaker 1: appeal to advisors. There's some competition with mutual funds and ets, 27 00:01:23,520 --> 00:01:25,720 Speaker 1: which I think, with a heart of our discussion, some 28 00:01:25,760 --> 00:01:28,200 Speaker 1: have I actually have heard the term E t F 29 00:01:28,280 --> 00:01:30,920 Speaker 1: killer for direct indexing because obviously if you use this, 30 00:01:30,920 --> 00:01:32,320 Speaker 1: you wouldn't use an E t F or you might 31 00:01:32,400 --> 00:01:34,600 Speaker 1: use them together. Um, so I thought, you know, we 32 00:01:34,640 --> 00:01:37,280 Speaker 1: should explore this. We recently wrote a note about it 33 00:01:37,520 --> 00:01:39,760 Speaker 1: where he went through some of the advantages like a 34 00:01:39,840 --> 00:01:41,960 Speaker 1: tail the tape between E t F and direct indexing. 35 00:01:42,040 --> 00:01:44,360 Speaker 1: But E t F s aren't all who this competes with. 36 00:01:44,440 --> 00:01:47,680 Speaker 1: But there's tax benefits and customization benefits which will go over. 37 00:01:48,000 --> 00:01:51,720 Speaker 1: But direct indexing is kind of if E t F 38 00:01:51,800 --> 00:01:53,000 Speaker 1: are the new kid on the block, this is sort 39 00:01:53,040 --> 00:01:54,720 Speaker 1: of the new new kid on the block in terms 40 00:01:54,720 --> 00:01:57,320 Speaker 1: of investment products. So to help us understand them, we're 41 00:01:57,360 --> 00:02:00,800 Speaker 1: joined by Morgan Barna of Bloomberg Intelligence and also Brian 42 00:02:00,920 --> 00:02:05,760 Speaker 1: Langstrat who's the CEO of Parametric? What's Parametric the largest 43 00:02:05,800 --> 00:02:10,520 Speaker 1: direct indexing platform company at three billion dollars. So if 44 00:02:10,560 --> 00:02:12,639 Speaker 1: Parametric or an et F, fish or I think you'd 45 00:02:12,720 --> 00:02:15,400 Speaker 1: rank fourth just to sort of say this is how 46 00:02:15,400 --> 00:02:18,959 Speaker 1: big this is getting. So three billion is a ton 47 00:02:19,000 --> 00:02:22,560 Speaker 1: of money. Um. That that said, I think, A that's 48 00:02:22,560 --> 00:02:26,320 Speaker 1: way bigger than most others. And B direct indexing and 49 00:02:26,400 --> 00:02:30,239 Speaker 1: SMAs are obviously very linked and like s m as 50 00:02:30,280 --> 00:02:32,480 Speaker 1: are big, like black Rock has over a trillion in 51 00:02:32,720 --> 00:02:35,400 Speaker 1: s m as. So it's a it's a it's kind 52 00:02:35,440 --> 00:02:38,160 Speaker 1: of a gray area on where direct indexing begins and 53 00:02:38,320 --> 00:02:40,720 Speaker 1: s m A ends. But let's just say that Parametric 54 00:02:40,800 --> 00:02:45,200 Speaker 1: is the biggest of this new wave this time on 55 00:02:45,320 --> 00:02:52,320 Speaker 1: trillions exploring direct indexing. Brian Morgan welcoming trillions. Thanks joining So, Brian, 56 00:02:52,360 --> 00:02:55,000 Speaker 1: I want to start with you. Where did this space 57 00:02:55,080 --> 00:03:00,840 Speaker 1: come from? Yeah, So, Parametric started what is called erect indexing, 58 00:03:00,919 --> 00:03:03,120 Speaker 1: or building a separately managed to count to target an 59 00:03:03,120 --> 00:03:06,800 Speaker 1: index and then customize it. So it's been around for 60 00:03:06,919 --> 00:03:09,040 Speaker 1: our shop for twenty seven years. We think we were 61 00:03:09,040 --> 00:03:12,079 Speaker 1: one of the first, if not the first, But when 62 00:03:12,120 --> 00:03:14,320 Speaker 1: we started it, there wasn't a lot of conversation about 63 00:03:14,360 --> 00:03:18,000 Speaker 1: it and how did it come to be. Yeah, Um, 64 00:03:18,040 --> 00:03:21,880 Speaker 1: we had a family office client who had struggled with 65 00:03:21,960 --> 00:03:24,680 Speaker 1: that kind of age old dilemma of hiring and firing 66 00:03:24,720 --> 00:03:28,680 Speaker 1: active managers, comparing them to a passive universe, one growth, 67 00:03:28,680 --> 00:03:32,399 Speaker 1: one value, and together with their consultant, came with the idea, 68 00:03:32,400 --> 00:03:35,240 Speaker 1: instead of hiring and firing and evaluating these active managers 69 00:03:35,280 --> 00:03:38,640 Speaker 1: equity managers, let's buy the universe we compare themselves to. 70 00:03:39,120 --> 00:03:42,320 Speaker 1: And the really innovation they had gonna have some money 71 00:03:42,320 --> 00:03:44,840 Speaker 1: to be able to say I'm not buy the universe. Yeah, well, 72 00:03:44,880 --> 00:03:48,160 Speaker 1: I think you can build and manage a separately managed 73 00:03:48,160 --> 00:03:51,280 Speaker 1: to count the tracks and index for I mean, it's 74 00:03:51,320 --> 00:03:54,240 Speaker 1: not a mass affluent product. It's not a product for 75 00:03:54,280 --> 00:03:57,440 Speaker 1: the masses. But you know, with a with a portfolio 76 00:03:57,480 --> 00:03:58,920 Speaker 1: size of a quarter of a million dollars, half a 77 00:03:58,920 --> 00:04:02,400 Speaker 1: million dollars, a million dollars with really consistent tracking here, 78 00:04:02,440 --> 00:04:05,040 Speaker 1: so you have the same pre tax experiences that universe 79 00:04:05,280 --> 00:04:09,640 Speaker 1: and index a custom index, the SMP five, the Rustle three. Um. 80 00:04:09,920 --> 00:04:12,120 Speaker 1: The idea that they had was instead of just tracking 81 00:04:12,120 --> 00:04:15,640 Speaker 1: the universe, and it was their idea, not ours. Uh, 82 00:04:15,800 --> 00:04:18,520 Speaker 1: let's do it. But Let's be cognizant of the tax impact. 83 00:04:18,920 --> 00:04:22,640 Speaker 1: Let's not just rebalance. Let's not trade the securities when 84 00:04:22,920 --> 00:04:24,359 Speaker 1: if it comes out of the index er and it 85 00:04:24,440 --> 00:04:26,920 Speaker 1: let's not Let's think about where the gains are, where 86 00:04:26,920 --> 00:04:29,680 Speaker 1: the losses are in the portfolio. That kind of customization 87 00:04:29,720 --> 00:04:31,799 Speaker 1: requires you to do it on a separate account basis, 88 00:04:31,960 --> 00:04:36,200 Speaker 1: portfolio by portfolio. Let's um and then let's let's let's 89 00:04:36,200 --> 00:04:40,159 Speaker 1: have two objectives, track that universe and really minimize the 90 00:04:40,200 --> 00:04:43,040 Speaker 1: tax impact of the portfolio. They brought the idea to us. 91 00:04:43,040 --> 00:04:44,800 Speaker 1: We said that was interesting. We were a small firm, 92 00:04:44,839 --> 00:04:48,920 Speaker 1: didn't have a lot to do UM and we soon 93 00:04:48,960 --> 00:04:50,640 Speaker 1: found that a lot of the people were interested in 94 00:04:50,680 --> 00:04:54,600 Speaker 1: the idea. Could you capture the benefit of indexing, the 95 00:04:54,680 --> 00:05:00,160 Speaker 1: broad diversification, the consistent performance, the low costs, but you 96 00:05:00,200 --> 00:05:03,440 Speaker 1: add additional value through customization. And there really are three 97 00:05:03,520 --> 00:05:06,160 Speaker 1: types of customization that drive this. Now. Tax is still 98 00:05:06,200 --> 00:05:09,640 Speaker 1: the biggest E. S G and R I, re sponsible investing, 99 00:05:10,240 --> 00:05:13,280 Speaker 1: and then creating your own bespoke exposure, something that's not 100 00:05:13,360 --> 00:05:18,320 Speaker 1: available in a typical pooled, commingled vehicle. And you know, 101 00:05:18,520 --> 00:05:20,560 Speaker 1: for the last twenty seven years, it's a little bit 102 00:05:20,600 --> 00:05:22,280 Speaker 1: amusing to me to think about this as the new 103 00:05:22,320 --> 00:05:24,080 Speaker 1: kid on the block. I was, I was the portfolio 104 00:05:24,080 --> 00:05:26,960 Speaker 1: manager twenty seven years ago on the account. Uh. And 105 00:05:27,080 --> 00:05:30,520 Speaker 1: hundreds of billions of dollars later. Uh. It's become quite 106 00:05:30,760 --> 00:05:34,120 Speaker 1: an interesting alternative for some. I wouldn't call an E 107 00:05:34,200 --> 00:05:36,720 Speaker 1: t F killer for some versus E t F and 108 00:05:36,760 --> 00:05:40,320 Speaker 1: index mutual funds. It's interesting though. Labeling matters, Like I 109 00:05:40,600 --> 00:05:43,279 Speaker 1: compared direct indexing is to E t F some mutual 110 00:05:43,279 --> 00:05:47,160 Speaker 1: funds as smart beta is too quantitative. Quantitative has been 111 00:05:47,160 --> 00:05:50,359 Speaker 1: around for a long time, right, you know, decades, but 112 00:05:50,400 --> 00:05:52,479 Speaker 1: they that smart beta label made it seem new and 113 00:05:52,480 --> 00:05:55,200 Speaker 1: fresh and democratized. This so I think that is why 114 00:05:55,279 --> 00:05:57,360 Speaker 1: it tends to be looked at as the new thing. Yeah, 115 00:05:57,600 --> 00:06:00,160 Speaker 1: and tax regimes come and go, you know, to act 116 00:06:00,240 --> 00:06:04,520 Speaker 1: rates increase, they decrease people's sensitivity to taxes. Technology has 117 00:06:04,520 --> 00:06:10,120 Speaker 1: made it more more easily done, more easily understandable. But 118 00:06:10,160 --> 00:06:12,680 Speaker 1: we've been hammering away at this for for for two 119 00:06:12,680 --> 00:06:15,400 Speaker 1: and a half decades. What's changed in that time in 120 00:06:15,480 --> 00:06:18,680 Speaker 1: terms of what what the vehicle actually looks like? Yeah, 121 00:06:18,720 --> 00:06:21,160 Speaker 1: not a lot um. It's really like to say, a 122 00:06:21,200 --> 00:06:23,800 Speaker 1: parametric we only have one or two or three good 123 00:06:23,839 --> 00:06:27,760 Speaker 1: ideas in thirty years, and this idea is pretty good. Yeah. Well, 124 00:06:28,040 --> 00:06:30,200 Speaker 1: there's people I think that they have good ideas every 125 00:06:30,279 --> 00:06:33,520 Speaker 1: day about what to invest, and we don't um the idea. 126 00:06:33,600 --> 00:06:36,280 Speaker 1: It's a very very simple idea, and that is capture 127 00:06:36,680 --> 00:06:39,120 Speaker 1: what we all know inherently to be the value and 128 00:06:39,200 --> 00:06:42,359 Speaker 1: power and the compelling logic of index based investing. But 129 00:06:42,440 --> 00:06:44,320 Speaker 1: do it in a separate account. And once you cross 130 00:06:44,400 --> 00:06:47,200 Speaker 1: that line from commingled to separate account, the world opens 131 00:06:47,279 --> 00:06:50,279 Speaker 1: up to you in terms of customization. You can fund 132 00:06:50,320 --> 00:06:52,240 Speaker 1: with the pre existing securities. You don't have to fund 133 00:06:52,240 --> 00:06:54,119 Speaker 1: with cash, so you don't have to realize the gains 134 00:06:54,160 --> 00:06:56,359 Speaker 1: on the way in if they're there. That's huge for 135 00:06:56,440 --> 00:06:59,600 Speaker 1: many people. You can do loss harvesting. Loss harvesting is 136 00:06:59,600 --> 00:07:03,839 Speaker 1: probably the most commonly mentioned benefit, but it's it is 137 00:07:03,839 --> 00:07:05,680 Speaker 1: not the end all. It is a lot other You 138 00:07:05,680 --> 00:07:07,719 Speaker 1: can do a lot of other tax management, gifting of 139 00:07:07,800 --> 00:07:12,200 Speaker 1: securities up and then you can build the exposure that 140 00:07:12,280 --> 00:07:14,360 Speaker 1: might be a little bit different than the index. You 141 00:07:14,360 --> 00:07:16,800 Speaker 1: can put a responsible screen on it. You can you 142 00:07:16,840 --> 00:07:19,240 Speaker 1: can say I like to tilt toward value. So the 143 00:07:19,280 --> 00:07:22,360 Speaker 1: technology to build and understand how you manage those exposures. 144 00:07:22,480 --> 00:07:25,840 Speaker 1: Continues to evolve. Uh, we continue to innovate around the 145 00:07:25,920 --> 00:07:28,200 Speaker 1: edges about that central core ideas the same as it 146 00:07:28,280 --> 00:07:31,640 Speaker 1: was in two You just had a strategic kind of 147 00:07:31,680 --> 00:07:34,360 Speaker 1: alignment with Eden Vans. What does this do for the 148 00:07:34,360 --> 00:07:36,320 Speaker 1: parametric I mean you've you've been part of Eating Vans 149 00:07:36,320 --> 00:07:38,679 Speaker 1: for a long time now, but um, this new alignment 150 00:07:38,680 --> 00:07:41,600 Speaker 1: with the fixed income business and the technology, what what 151 00:07:41,640 --> 00:07:44,080 Speaker 1: are you looking forward to? Yeah? And and that just 152 00:07:44,120 --> 00:07:46,880 Speaker 1: I want to piggyback off that, which is that this 153 00:07:46,960 --> 00:07:49,640 Speaker 1: is I've always heard direct indexing is an equity thing, 154 00:07:49,760 --> 00:07:51,760 Speaker 1: right is it mostly for the equities? But can you 155 00:07:51,760 --> 00:07:53,600 Speaker 1: do fixed income also? I guess can you talk about 156 00:07:53,640 --> 00:07:57,440 Speaker 1: what part of your portfolio can you direct indexing? Right now? Yeah? 157 00:07:57,480 --> 00:08:01,280 Speaker 1: So if we think about direct indexing buying and holding 158 00:08:01,280 --> 00:08:05,880 Speaker 1: a broadly diversified exposure, a fixed income exposure and equity exposure, 159 00:08:05,920 --> 00:08:09,600 Speaker 1: or maybe both in the same account. Uh, they're the 160 00:08:09,640 --> 00:08:14,320 Speaker 1: most popular fixed income type solution in that vein or 161 00:08:14,400 --> 00:08:18,800 Speaker 1: laddered portfolios, ladder municipal bond portfolios, ladder corporate bond portfolios. 162 00:08:18,800 --> 00:08:20,880 Speaker 1: It's a business that has been built up within Eating 163 00:08:20,960 --> 00:08:23,120 Speaker 1: Vance since two thousand and eight I think may have 164 00:08:23,160 --> 00:08:28,040 Speaker 1: started a few years later, but recently we combined those 165 00:08:28,240 --> 00:08:31,280 Speaker 1: products and that investment technique and those investment skills in 166 00:08:31,320 --> 00:08:34,240 Speaker 1: the technology with Parametry who kind of redrew the boundaries 167 00:08:34,320 --> 00:08:36,560 Speaker 1: within Eating Vance. And now we're coming to market with 168 00:08:36,640 --> 00:08:38,760 Speaker 1: both and we always did before, but we're doing in 169 00:08:38,760 --> 00:08:42,359 Speaker 1: a coordinated way. We're investing in the systems in the technology, 170 00:08:42,960 --> 00:08:45,640 Speaker 1: we're investing in the digital tools around it, we're investing 171 00:08:45,679 --> 00:08:48,439 Speaker 1: in the performance reporting. And that's really what it means 172 00:08:48,480 --> 00:08:51,520 Speaker 1: to us to kind of reshape the eaton Vance business 173 00:08:51,520 --> 00:08:54,400 Speaker 1: aiming at this very exciting growth market. There's not a 174 00:08:54,440 --> 00:08:57,000 Speaker 1: lot of growth opportunities in the investment management business. As 175 00:08:57,040 --> 00:09:00,240 Speaker 1: you guys know, Uh, the investment management businesses shift thing 176 00:09:00,360 --> 00:09:05,520 Speaker 1: toward rules based, systematic, low cost, clear value added products, 177 00:09:05,559 --> 00:09:09,679 Speaker 1: away from the traditional value proposition of alpha or active management. 178 00:09:09,720 --> 00:09:12,560 Speaker 1: And we've got a great franchise across that. So let's 179 00:09:12,600 --> 00:09:14,600 Speaker 1: bring this up. Let's what we'll tackle this in a 180 00:09:14,640 --> 00:09:17,400 Speaker 1: couple of blocks. Firsts, customization. That's a big benefit here, 181 00:09:18,120 --> 00:09:22,560 Speaker 1: it's the only benefit. Well, the tax thing that's customization. Okay, well, okay, 182 00:09:22,600 --> 00:09:26,240 Speaker 1: Well we'll break customization into two parts. Picking the stocks 183 00:09:26,280 --> 00:09:30,160 Speaker 1: and the tax. When I hear this proposed, it sounds 184 00:09:30,160 --> 00:09:32,920 Speaker 1: so good. Hey, you don't like this company? Does this? 185 00:09:33,040 --> 00:09:34,560 Speaker 1: Pull it out? It's like an E s G kind 186 00:09:34,559 --> 00:09:37,320 Speaker 1: of customization. Or if you work at Apple and you 187 00:09:37,440 --> 00:09:39,320 Speaker 1: have a lot of their stock, you can pluck that out. 188 00:09:39,880 --> 00:09:42,480 Speaker 1: Here's the thing, though, we all know that that makes 189 00:09:42,520 --> 00:09:47,079 Speaker 1: the client the active manager. Now and we all know, 190 00:09:47,160 --> 00:09:50,040 Speaker 1: like you take the I Shares Social Index, it's underperforming 191 00:09:50,040 --> 00:09:54,880 Speaker 1: the SMP by over ten years. Are people gonna be 192 00:09:54,920 --> 00:09:58,480 Speaker 1: able to stomach that if they don't uh, completely tie 193 00:09:58,640 --> 00:10:01,800 Speaker 1: or beat the SMP, because that is a for whatever reason, 194 00:10:01,800 --> 00:10:03,480 Speaker 1: the SNP is like God or you know, in the 195 00:10:03,600 --> 00:10:06,559 Speaker 1: in this in portfolios, and if you customize, your odds 196 00:10:06,600 --> 00:10:09,480 Speaker 1: of beating it are pretty low. You become an active manager. 197 00:10:09,520 --> 00:10:11,920 Speaker 1: And we know it's hard. So how how does that work? Yeah, 198 00:10:11,920 --> 00:10:15,719 Speaker 1: so you've you've hit the central trade off of direct indexing, 199 00:10:15,840 --> 00:10:18,840 Speaker 1: and that is you accept a certain amount of deviation 200 00:10:18,960 --> 00:10:22,160 Speaker 1: what we call a quant manager tracking air versus the index, 201 00:10:22,320 --> 00:10:24,920 Speaker 1: in order to avail yourself of the customization. You do 202 00:10:24,960 --> 00:10:26,920 Speaker 1: it every time you harvest a loss. You do it 203 00:10:26,960 --> 00:10:28,400 Speaker 1: every time you put it in in the s G and 204 00:10:28,520 --> 00:10:32,040 Speaker 1: r I. Every time you tilt, and so the investor 205 00:10:32,080 --> 00:10:34,640 Speaker 1: has to believe we can show that over time those 206 00:10:34,679 --> 00:10:38,559 Speaker 1: small differences from those customization decisions, those variances versus a 207 00:10:38,640 --> 00:10:42,120 Speaker 1: pure tracking index are worth it to them. They average 208 00:10:42,160 --> 00:10:44,600 Speaker 1: out to be very low on a pretax basis, and 209 00:10:44,640 --> 00:10:46,800 Speaker 1: the after tax or the E S g R I 210 00:10:46,840 --> 00:10:49,520 Speaker 1: benefit comes through very dramatically, and we can show that 211 00:10:49,600 --> 00:10:52,240 Speaker 1: now over twenty five years. So when you deviate from 212 00:10:52,280 --> 00:10:55,400 Speaker 1: an index, there's a lot of different ways to do it. 213 00:10:55,400 --> 00:10:59,200 Speaker 1: If I'm tilting toward a factor or a sector or 214 00:10:59,280 --> 00:11:02,120 Speaker 1: an industry read well, then I'm probably going to see 215 00:11:02,120 --> 00:11:05,800 Speaker 1: myself with long periods of outperformance or under performance. But 216 00:11:05,840 --> 00:11:09,720 Speaker 1: if my entire deviation from the index can be understood 217 00:11:09,760 --> 00:11:12,800 Speaker 1: as very small mis waitings on an individual stock based 218 00:11:12,840 --> 00:11:16,079 Speaker 1: what a risk model would call idiosyncratic risk, they average 219 00:11:16,120 --> 00:11:17,920 Speaker 1: out over time to look like the index. So if 220 00:11:17,920 --> 00:11:20,440 Speaker 1: you look at a Parametric composite over twenty years, the 221 00:11:20,440 --> 00:11:24,640 Speaker 1: pre tax performance almost indistinguishable from the pre tax performance 222 00:11:24,679 --> 00:11:27,640 Speaker 1: of the index. It's the after tax, but we're trading. 223 00:11:27,679 --> 00:11:32,080 Speaker 1: That's our currency tracking error or mistracking versus customization benefit, 224 00:11:32,360 --> 00:11:35,800 Speaker 1: and our engineers at Parametric are working on that from 225 00:11:35,800 --> 00:11:38,080 Speaker 1: a thousand different angles. But you're right, you have to 226 00:11:38,120 --> 00:11:41,200 Speaker 1: be willing to accept a difference in order to avail 227 00:11:41,240 --> 00:11:44,640 Speaker 1: yourself of the customization. Now, obviously, with with an e 228 00:11:44,679 --> 00:11:46,800 Speaker 1: t F, let's just say the sp F und you 229 00:11:46,840 --> 00:11:49,959 Speaker 1: can now get that for four three basis points, probably 230 00:11:50,000 --> 00:11:51,720 Speaker 1: two and one in the next couple of years. If 231 00:11:51,760 --> 00:11:53,640 Speaker 1: I can get a whole portfolio for under ten bits 232 00:11:53,679 --> 00:11:56,640 Speaker 1: at this point ten basis points. Um, how much does 233 00:11:56,720 --> 00:12:00,240 Speaker 1: this cost? And how hard is it to dislodge such 234 00:12:00,280 --> 00:12:03,440 Speaker 1: a compelling value proposition, which is this sort of like 235 00:12:03,760 --> 00:12:07,240 Speaker 1: et F portfolio, especially from the advisor's mindset, because um, 236 00:12:07,280 --> 00:12:09,880 Speaker 1: that's good for them, lower their fund fees more their 237 00:12:09,880 --> 00:12:12,880 Speaker 1: fees is intact. Yeah, no, we love to think about 238 00:12:13,480 --> 00:12:16,320 Speaker 1: the trade off there. So let's just make it a 239 00:12:16,520 --> 00:12:18,520 Speaker 1: Let's say it cost you thirty basis points for a 240 00:12:18,559 --> 00:12:21,000 Speaker 1: direct index portfolio and you can get the e t 241 00:12:21,120 --> 00:12:22,959 Speaker 1: F for free. All right, let's just start with it. 242 00:12:23,040 --> 00:12:25,120 Speaker 1: Thirty basis points is are bogey. We gotta add thirty 243 00:12:25,120 --> 00:12:27,760 Speaker 1: basis points and value over time, otherwise you need to 244 00:12:27,800 --> 00:12:29,679 Speaker 1: go do something else. And the majority of the d 245 00:12:29,760 --> 00:12:32,480 Speaker 1: F investors should stick with ETFs. But if you find 246 00:12:32,520 --> 00:12:35,120 Speaker 1: yourself in a position where you have pay high taxes, 247 00:12:35,280 --> 00:12:37,480 Speaker 1: you're fund with pre existing securities, you've got a long 248 00:12:37,520 --> 00:12:41,120 Speaker 1: time horizon, you're terriably inclined. We can add a hundred 249 00:12:41,120 --> 00:12:44,040 Speaker 1: and fifty two hundred basis points a year and after 250 00:12:44,120 --> 00:12:47,480 Speaker 1: tax performance value above the return of an index. Uh 251 00:12:47,520 --> 00:12:49,439 Speaker 1: So that's that's in my mind, one of the best 252 00:12:49,440 --> 00:12:52,440 Speaker 1: tradeoffs and money management. How you take fifty basis points 253 00:12:52,440 --> 00:12:54,600 Speaker 1: of tracking, are you get a hundred fifty basis points 254 00:12:54,640 --> 00:12:57,800 Speaker 1: of excess return? You pay thirty basis points for it. 255 00:12:58,040 --> 00:13:01,160 Speaker 1: Any quantitative manager out there, we think that puts us 256 00:13:01,160 --> 00:13:04,200 Speaker 1: in the top courttile top death style. That's the trade off. 257 00:13:04,360 --> 00:13:07,840 Speaker 1: But it but it isn't just the after tax performance business. 258 00:13:08,000 --> 00:13:10,440 Speaker 1: If we've been able to build a round a pre 259 00:13:10,440 --> 00:13:14,360 Speaker 1: existing holding or a series of holdings and defer the 260 00:13:14,440 --> 00:13:16,840 Speaker 1: gain and not for a long term. If they have 261 00:13:16,960 --> 00:13:19,000 Speaker 1: charitably inclined, so every year they want to give five 262 00:13:19,000 --> 00:13:21,440 Speaker 1: percent of that portfolio two percent to charity, and we 263 00:13:21,480 --> 00:13:24,040 Speaker 1: can go into the separate account and we can select 264 00:13:24,120 --> 00:13:27,120 Speaker 1: the most advantageous tax lots, the tax lots that have 265 00:13:27,200 --> 00:13:30,880 Speaker 1: the largest embedded unrealized gain and give those. Then the 266 00:13:30,960 --> 00:13:34,320 Speaker 1: value starts to add up. So the trade off of 267 00:13:34,360 --> 00:13:36,520 Speaker 1: our fees and the fees inherent in the portfolio, and 268 00:13:36,559 --> 00:13:39,400 Speaker 1: the cost versus the benefit, we think is very compelling, 269 00:13:39,600 --> 00:13:45,199 Speaker 1: not to everyone investors of size investors, uh you know, uh, 270 00:13:45,200 --> 00:13:49,559 Speaker 1: with tax sensitive investors who have long time horizons, on 271 00:13:49,600 --> 00:13:51,800 Speaker 1: and on and on. I think the majority of the 272 00:13:51,880 --> 00:13:55,240 Speaker 1: money in ETFs gually the taxable money should be in 273 00:13:55,240 --> 00:13:57,640 Speaker 1: a direct ecnticcy, but maybe not. The majority of the 274 00:13:57,679 --> 00:14:00,559 Speaker 1: investors in ETF should be in direct indexing. So when 275 00:14:00,600 --> 00:14:03,880 Speaker 1: when clients and investors come to you, how much of 276 00:14:03,920 --> 00:14:06,760 Speaker 1: what you're offering is literally out of the box solution 277 00:14:06,880 --> 00:14:10,440 Speaker 1: off the shelf solution versus something that's totally customized for them, 278 00:14:10,880 --> 00:14:12,960 Speaker 1: And like are you looking at like, hey, I've got 279 00:14:12,960 --> 00:14:15,280 Speaker 1: some mutual funds that have just been kicking around forever. 280 00:14:15,320 --> 00:14:17,600 Speaker 1: Can you absorb those and do something with them? Yeah? 281 00:14:17,640 --> 00:14:20,520 Speaker 1: So there, there, you've just hit on the difficulty in 282 00:14:20,600 --> 00:14:24,520 Speaker 1: running the business. So commingled vehicles ETF. Some mutual funds 283 00:14:24,560 --> 00:14:27,600 Speaker 1: are great for money managers that you can just the 284 00:14:27,680 --> 00:14:31,760 Speaker 1: leverage the economies of scale, the marginal costs wonderful custom 285 00:14:31,880 --> 00:14:34,760 Speaker 1: Separate accounts are a lot of work. We have to 286 00:14:34,800 --> 00:14:37,320 Speaker 1: customize on the way in. We have to customize during 287 00:14:37,320 --> 00:14:40,000 Speaker 1: the management. Then we have to defend that customization and 288 00:14:40,040 --> 00:14:44,640 Speaker 1: client service and performance reporting. So uh it is we 289 00:14:44,680 --> 00:14:47,160 Speaker 1: do all of the things you talked about. The simplest 290 00:14:47,160 --> 00:14:49,680 Speaker 1: example is you come to me with cash and you 291 00:14:49,760 --> 00:14:52,400 Speaker 1: want to plain vanilla index or a standard index like 292 00:14:52,440 --> 00:14:56,560 Speaker 1: the Rustle one, and you want simple loss harvesting. That's 293 00:14:56,560 --> 00:14:59,200 Speaker 1: a pretty plain vanilla portfolio. We probably don't have to 294 00:14:59,240 --> 00:15:01,200 Speaker 1: work hard to set that up. And if you understand 295 00:15:01,280 --> 00:15:03,600 Speaker 1: how much cash am I bringing, you know we are 296 00:15:03,600 --> 00:15:07,040 Speaker 1: Our minimums are two fifty dollars and many UH programs 297 00:15:07,040 --> 00:15:10,400 Speaker 1: and platforms, so uh you know, we run about forty 298 00:15:10,520 --> 00:15:14,040 Speaker 1: thousand individually separately managed accounts. They range from a billion 299 00:15:14,040 --> 00:15:15,840 Speaker 1: dollar account for some of the wealthiest investors in the 300 00:15:15,880 --> 00:15:18,720 Speaker 1: country down to to to UH portfolio that would be 301 00:15:18,720 --> 00:15:22,280 Speaker 1: in the king And what percent are you dealing with 302 00:15:22,320 --> 00:15:28,040 Speaker 1: the advisor versus a direct investor. Almost every UH portfolio 303 00:15:28,080 --> 00:15:31,120 Speaker 1: that we manage comes with an advisor. And I think 304 00:15:31,240 --> 00:15:34,080 Speaker 1: you hit on the point. One thing that direct indexing 305 00:15:34,120 --> 00:15:37,520 Speaker 1: does above and beyond this after tax performance value and 306 00:15:37,520 --> 00:15:40,320 Speaker 1: customization value relative to its fees is it becomes a 307 00:15:40,360 --> 00:15:43,440 Speaker 1: tool for the advisor to do value added wealth management. 308 00:15:43,760 --> 00:15:46,440 Speaker 1: So it's good for the client, but it's great for 309 00:15:46,520 --> 00:15:50,040 Speaker 1: the advisors conversation. They can create a portfolio that has 310 00:15:50,080 --> 00:15:52,800 Speaker 1: real value that you can't just walk across the street 311 00:15:52,840 --> 00:15:54,240 Speaker 1: and get another one that looks like it. You can't. 312 00:15:54,240 --> 00:15:56,440 Speaker 1: You don't see an advertisement for it on the Super 313 00:15:56,480 --> 00:15:59,520 Speaker 1: Bowl uh television where you think here's a branded et F. 314 00:15:59,800 --> 00:16:02,840 Speaker 1: This is a bespoke portfolio created in concert with the 315 00:16:02,880 --> 00:16:06,080 Speaker 1: advisor that solves a problem for the investor. Yeah, we'll 316 00:16:06,080 --> 00:16:08,600 Speaker 1: say we um we I just went to Wealth Stack, 317 00:16:09,000 --> 00:16:13,000 Speaker 1: which is that conference fintech ish. This is a big deal. 318 00:16:13,040 --> 00:16:14,720 Speaker 1: And Morgan and I talked about this a lot. When 319 00:16:14,760 --> 00:16:16,840 Speaker 1: we look at the tail of the tape is the 320 00:16:16,880 --> 00:16:19,560 Speaker 1: technology and the value add Advisors are on the hunt 321 00:16:19,600 --> 00:16:22,600 Speaker 1: for value add let's face it, because they better min Vanguard. 322 00:16:22,680 --> 00:16:26,800 Speaker 1: Everybody's doing cheap advice. Now, Morgan, um, why don't you 323 00:16:26,880 --> 00:16:29,240 Speaker 1: riff on this because I think you have the most 324 00:16:30,000 --> 00:16:33,040 Speaker 1: knowledge about this sort of technological revolution going on in 325 00:16:33,040 --> 00:16:35,080 Speaker 1: the advisor world. Yeah, I'm so interested in the way 326 00:16:35,080 --> 00:16:37,880 Speaker 1: that it seems like parametric and eating vans are now 327 00:16:37,960 --> 00:16:41,400 Speaker 1: so focused on the ability to scale accounts at a 328 00:16:41,400 --> 00:16:44,680 Speaker 1: lower um, a lower access point, but in part create 329 00:16:44,960 --> 00:16:48,800 Speaker 1: create efficiencies you can continue to really invest. There's this 330 00:16:48,920 --> 00:16:53,360 Speaker 1: seems like such a period for investing in technology enables advisors. 331 00:16:53,440 --> 00:16:57,040 Speaker 1: What how does that plan to the distribution um. The 332 00:16:57,040 --> 00:17:00,120 Speaker 1: dilemma that I think in understanding this marketplace is how 333 00:17:00,240 --> 00:17:02,720 Speaker 1: much of the marketplace for this type of investing is 334 00:17:02,720 --> 00:17:04,439 Speaker 1: to do it yourself? Because there are tools that the 335 00:17:04,440 --> 00:17:07,160 Speaker 1: investor can just log on and build these portfolios or 336 00:17:07,280 --> 00:17:09,960 Speaker 1: a robo when they can hire someone, or are these 337 00:17:09,960 --> 00:17:12,880 Speaker 1: tools that an advisor can use themselves in their practice 338 00:17:12,920 --> 00:17:15,440 Speaker 1: to do it themselves. My belief after watching this for 339 00:17:15,440 --> 00:17:18,119 Speaker 1: about twenty five years is that the market for the 340 00:17:18,160 --> 00:17:20,359 Speaker 1: do it yourself investor, to do it yourself advisor is 341 00:17:20,400 --> 00:17:23,840 Speaker 1: relatively small. Uh and that's talking my own book. We've 342 00:17:23,880 --> 00:17:25,720 Speaker 1: seen the growth, we continue to see it. Maybe that 343 00:17:25,760 --> 00:17:30,840 Speaker 1: will change, but the the tools are are improving. But 344 00:17:31,080 --> 00:17:36,600 Speaker 1: the advice, the consultative, the defense, the ultimate fiduciary responsibility 345 00:17:36,600 --> 00:17:39,800 Speaker 1: for the performance and any errors or that occurred to 346 00:17:39,800 --> 00:17:42,400 Speaker 1: it need to land on a money manager. So most 347 00:17:42,440 --> 00:17:45,400 Speaker 1: of the fintech firms. We had our head trader leave 348 00:17:45,440 --> 00:17:48,240 Speaker 1: Parametric twenty some years ago and start a firm to 349 00:17:48,359 --> 00:17:50,960 Speaker 1: bring direct indexing technology directly and put it on the 350 00:17:50,960 --> 00:17:54,320 Speaker 1: desk of the advisor. They eventually pivoted away. There are 351 00:17:54,320 --> 00:17:57,240 Speaker 1: a lot of firms out there, but the our size 352 00:17:57,240 --> 00:17:59,840 Speaker 1: and the size of our largest competitors in this space 353 00:18:00,119 --> 00:18:02,880 Speaker 1: are people who actually manage the money. So our job 354 00:18:02,920 --> 00:18:04,960 Speaker 1: and our goal and our vision is to continue to 355 00:18:05,080 --> 00:18:09,280 Speaker 1: build technology that enables the advisor to use our services 356 00:18:09,480 --> 00:18:19,040 Speaker 1: to the best advantage for themselves and the clients. And 357 00:18:19,080 --> 00:18:21,479 Speaker 1: how about some of the turn key asset management players 358 00:18:21,520 --> 00:18:24,800 Speaker 1: that are sort of developing these They already have huge 359 00:18:25,119 --> 00:18:29,159 Speaker 1: advisor networks and this becomes defense for them from you know, 360 00:18:29,240 --> 00:18:35,159 Speaker 1: clients you know considering either being bequested accounts or you know, 361 00:18:35,200 --> 00:18:37,959 Speaker 1: considering self managing. How does that play? We view them 362 00:18:37,960 --> 00:18:40,520 Speaker 1: as clients for us. We we work within many of 363 00:18:40,560 --> 00:18:43,120 Speaker 1: the largest turn key asset management providers. We work within 364 00:18:43,560 --> 00:18:48,639 Speaker 1: every wealth management platform, advice platform. UM. They can choose 365 00:18:48,680 --> 00:18:52,240 Speaker 1: to build the technology themselves, hire someone else by a fintech, 366 00:18:52,359 --> 00:18:54,560 Speaker 1: or they can work with a firm like ours. The 367 00:18:54,600 --> 00:18:57,400 Speaker 1: market continues to expand there will be room for all 368 00:18:57,440 --> 00:19:01,440 Speaker 1: of those business models. UM. You know, we'll see. And 369 00:19:01,880 --> 00:19:05,320 Speaker 1: when I posted about this on Twitter, UM two advisors 370 00:19:05,400 --> 00:19:08,320 Speaker 1: wrote back and just said, if I use direct indexing, 371 00:19:08,680 --> 00:19:12,280 Speaker 1: does the client statement show five hundred stocks? And um, 372 00:19:12,359 --> 00:19:14,960 Speaker 1: I remember looking. I did a every time that there's 373 00:19:14,960 --> 00:19:18,520 Speaker 1: an election for president, I look at the financial disclosures 374 00:19:18,520 --> 00:19:21,840 Speaker 1: of each candidate to find out like how they invest them. Yeah, 375 00:19:21,880 --> 00:19:23,639 Speaker 1: and you look at like when you get them, and 376 00:19:23,720 --> 00:19:28,240 Speaker 1: it's always like seven to thirty mutual funds, maybe some ETFs, 377 00:19:28,240 --> 00:19:31,880 Speaker 1: but Donald Trump was like thirty five pages of stocks. 378 00:19:31,920 --> 00:19:35,240 Speaker 1: And I I imagine something overwhelming coming to a client 379 00:19:35,320 --> 00:19:37,959 Speaker 1: or an advisor, having that fear of handing them just 380 00:19:38,040 --> 00:19:40,480 Speaker 1: pages and pages of equities and them not really understanding 381 00:19:40,480 --> 00:19:41,640 Speaker 1: what they do. Because when you look at a couple 382 00:19:41,680 --> 00:19:43,840 Speaker 1: of funds, you kind of understand where you are. Yeah, 383 00:19:43,840 --> 00:19:46,520 Speaker 1: that partment feels like really old school. Actually, it's like 384 00:19:46,520 --> 00:19:48,800 Speaker 1: a step back. That's what somebody said when we when 385 00:19:48,840 --> 00:19:52,879 Speaker 1: we started in the broker dealer platforms and took our 386 00:19:52,920 --> 00:19:56,320 Speaker 1: family office services and move them into the advice platform. 387 00:19:56,400 --> 00:19:58,520 Speaker 1: Some of the initial advisors used to call it management 388 00:19:58,520 --> 00:20:01,680 Speaker 1: by phone book because is the statements that would show 389 00:20:01,760 --> 00:20:05,600 Speaker 1: up on their clients doorstep worth so thick. Uh. But 390 00:20:05,880 --> 00:20:08,520 Speaker 1: the industry, the value is here. So the inventustry evolved 391 00:20:08,600 --> 00:20:11,600 Speaker 1: one way to keep your job out, Yeah, exactly. The 392 00:20:11,600 --> 00:20:16,160 Speaker 1: the the suppression of movement to our electronic confirms electronic statements, 393 00:20:16,160 --> 00:20:19,720 Speaker 1: and the way that the savvy platforms and advisors compressed 394 00:20:19,720 --> 00:20:22,240 Speaker 1: the parametric line or a competitors line into a single line. 395 00:20:22,400 --> 00:20:25,720 Speaker 1: We've we've solved that for a large part um. We 396 00:20:25,720 --> 00:20:28,280 Speaker 1: don't own all five hundred stocks in the SP's it's 397 00:20:28,359 --> 00:20:30,359 Speaker 1: maybe a difference without a distinction, without a difference, we 398 00:20:30,400 --> 00:20:33,359 Speaker 1: own maybe three twenty five or two hundred and fifty, 399 00:20:33,359 --> 00:20:35,760 Speaker 1: and we'll let people cap it. There are competitors of 400 00:20:35,800 --> 00:20:39,120 Speaker 1: eyes who who build direct indexing with seventy five twenty 401 00:20:39,160 --> 00:20:42,719 Speaker 1: five names, you know, more than seven or eight mutual funds. 402 00:20:42,760 --> 00:20:45,760 Speaker 1: But maybe I wasn't quite fair earlier. There's two trade 403 00:20:45,760 --> 00:20:48,320 Speaker 1: offs between stepping away from an et F and moving 404 00:20:48,359 --> 00:20:50,359 Speaker 1: to a direct indexing. First is that tracking or that 405 00:20:50,480 --> 00:20:52,960 Speaker 1: mistracking difference that I think pays you very well. The 406 00:20:52,960 --> 00:20:56,800 Speaker 1: second is complexity, and technology is helping us deliver this 407 00:20:57,000 --> 00:21:01,280 Speaker 1: service cheaper with less of that complexity. Bird And but look, 408 00:21:01,480 --> 00:21:04,240 Speaker 1: if you can add the kind of value that's shown 409 00:21:04,280 --> 00:21:07,280 Speaker 1: here relative to the other opportunities that advisor and clients 410 00:21:07,280 --> 00:21:10,560 Speaker 1: have to improve their performance. I think people increasingly get 411 00:21:10,640 --> 00:21:12,520 Speaker 1: over those two things. One other thing, though, is that 412 00:21:12,600 --> 00:21:15,119 Speaker 1: the e d F comes with this rapper, right, and 413 00:21:15,200 --> 00:21:17,680 Speaker 1: that rapper is backed by the SEC and it's all 414 00:21:17,680 --> 00:21:20,560 Speaker 1: sanctioned and everything. This is a step outside that world. 415 00:21:20,960 --> 00:21:23,159 Speaker 1: How do you address that want to client? Yeah, I 416 00:21:23,160 --> 00:21:25,520 Speaker 1: haven't seen that so much. I think that's already been 417 00:21:25,560 --> 00:21:28,399 Speaker 1: done on the advice advisor's side. They've already educated their 418 00:21:28,440 --> 00:21:31,840 Speaker 1: client on the value of an acseparately managed account. You know. 419 00:21:31,960 --> 00:21:34,960 Speaker 1: I think that's a headline, a pretty interesting idea. But 420 00:21:35,320 --> 00:21:37,560 Speaker 1: if you're really lift up the hood and say, look 421 00:21:37,560 --> 00:21:40,000 Speaker 1: what I am owning here is three hundred of the 422 00:21:40,240 --> 00:21:42,919 Speaker 1: S and P five hundred names, the you know, the 423 00:21:42,960 --> 00:21:46,440 Speaker 1: most highly evaluated and followed companies in the world. I'm 424 00:21:46,440 --> 00:21:49,639 Speaker 1: owning them in a fully transparent, separate account. If something 425 00:21:49,680 --> 00:21:53,639 Speaker 1: happens to Parametric or happens, you know, they blow up. 426 00:21:53,760 --> 00:21:55,919 Speaker 1: I still own those stocks tomorrow in my brokerage account. 427 00:21:55,960 --> 00:22:00,000 Speaker 1: There's no black box, inherent secret mix here, there's no leverage, 428 00:22:00,240 --> 00:22:03,480 Speaker 1: there's no there's very little trading. So I think people think, Okay, 429 00:22:03,520 --> 00:22:06,240 Speaker 1: I don't have an SEC forty Act registration fund. But 430 00:22:06,320 --> 00:22:09,119 Speaker 1: I get over that pretty quickly, let's talk about the taxes. 431 00:22:09,200 --> 00:22:11,160 Speaker 1: So that obviously this tax advantage you said a hundred 432 00:22:11,200 --> 00:22:14,880 Speaker 1: fifty points. I was talking to somebody who said, yeah, 433 00:22:14,880 --> 00:22:17,520 Speaker 1: that that's good for a while, but it does run out, 434 00:22:17,680 --> 00:22:20,399 Speaker 1: especially if the market keeps going up. Obviously, with the 435 00:22:20,400 --> 00:22:23,440 Speaker 1: market going up, finding losses is hard, and I think 436 00:22:23,480 --> 00:22:26,280 Speaker 1: that's why in twenty team we saw a huge dramatic 437 00:22:26,359 --> 00:22:28,560 Speaker 1: move of flows because people realize some gains, and mutual 438 00:22:28,560 --> 00:22:30,119 Speaker 1: funds we saw et F taken way more money than 439 00:22:30,119 --> 00:22:32,800 Speaker 1: they should have. So the two questions are, one, do 440 00:22:32,840 --> 00:22:34,840 Speaker 1: you if the market keeps going up, do you run 441 00:22:34,840 --> 00:22:38,840 Speaker 1: out of losses and that tax benefit just diminishes? And 442 00:22:38,880 --> 00:22:41,080 Speaker 1: then too, if the market goes down, obviously then you 443 00:22:41,119 --> 00:22:42,960 Speaker 1: could you use e t F s as well. So 444 00:22:43,119 --> 00:22:45,959 Speaker 1: can you talk about like the head winds of the 445 00:22:46,000 --> 00:22:48,000 Speaker 1: tax Yeah, so let's take those in a couple of 446 00:22:48,080 --> 00:22:52,160 Speaker 1: couple of both of those dimensions. So you're absolutely right. 447 00:22:52,320 --> 00:22:54,760 Speaker 1: Over time, given an upward trending market and a loss 448 00:22:54,800 --> 00:22:57,800 Speaker 1: harvesting portfolio, the portfolio becomes what we call locked up. 449 00:22:58,080 --> 00:23:00,760 Speaker 1: Every position in the portfolio was at an unrealized gain. 450 00:23:00,800 --> 00:23:02,600 Speaker 1: If it wasn't, you would have traded it brought the 451 00:23:02,640 --> 00:23:07,320 Speaker 1: cost basis down, and so the after tax value of 452 00:23:07,359 --> 00:23:11,280 Speaker 1: loss harvesting diminishes over time. How fast depends where the 453 00:23:11,320 --> 00:23:14,080 Speaker 1: markets are headed, what initial cost basis you started with, 454 00:23:14,280 --> 00:23:17,280 Speaker 1: what the what we call the internal volatility of the 455 00:23:17,320 --> 00:23:20,399 Speaker 1: market is. But to me, that is a criticism but 456 00:23:20,560 --> 00:23:23,880 Speaker 1: also a wonderful outcome. If you can buy a broad 457 00:23:23,920 --> 00:23:28,520 Speaker 1: based equity portfolio loss harvested for ten years, track the market, 458 00:23:28,560 --> 00:23:30,760 Speaker 1: how this tax benefit, and end up with a broadly 459 00:23:30,800 --> 00:23:34,200 Speaker 1: diversified equity portfolios cost basis is significantly lower than its 460 00:23:34,240 --> 00:23:37,520 Speaker 1: market value. Uh, you've won, all right, So that's not 461 00:23:37,560 --> 00:23:39,680 Speaker 1: a reason not to do it ten years ago. It's 462 00:23:39,680 --> 00:23:41,760 Speaker 1: but you may want to shift your focus at the 463 00:23:41,800 --> 00:23:43,800 Speaker 1: end of ten years too. You know, you may have 464 00:23:43,800 --> 00:23:46,160 Speaker 1: additional cash flows, you may be gifting. You may want 465 00:23:46,200 --> 00:23:49,680 Speaker 1: to terminate the manager or lower the fee because you're 466 00:23:49,680 --> 00:23:52,560 Speaker 1: no longer getting that tax advantage when the portfolios locked up. 467 00:23:52,840 --> 00:23:55,800 Speaker 1: But that's a that's an observation, But to me, it's 468 00:23:55,840 --> 00:23:58,600 Speaker 1: not a very powerful criticism. I'm saying that's the best 469 00:23:58,600 --> 00:24:01,560 Speaker 1: possible outcome. We could track the market for fifteen years, 470 00:24:01,640 --> 00:24:04,320 Speaker 1: end up with a locked up portfolio, have ourselves the 471 00:24:04,359 --> 00:24:07,960 Speaker 1: full granular customization ability to do gifting and estate planning, 472 00:24:08,160 --> 00:24:10,639 Speaker 1: whatever it may be, and continue to track the market. 473 00:24:10,920 --> 00:24:13,320 Speaker 1: So it is what it is. It's a great outcome. 474 00:24:14,440 --> 00:24:16,080 Speaker 1: A little bit of a red herring in terms of 475 00:24:16,080 --> 00:24:18,360 Speaker 1: a criticism. Let's say the market goes down, does your 476 00:24:18,400 --> 00:24:22,160 Speaker 1: does that tax advantage pitch diminished? Because now advisors like, well, yeah, 477 00:24:22,160 --> 00:24:24,520 Speaker 1: I'm sitting on a bunch of losses in funds. Yeah, 478 00:24:24,520 --> 00:24:26,520 Speaker 1: as you might suspect that. We we we thought deeply 479 00:24:26,560 --> 00:24:28,439 Speaker 1: about that. Or it's pretty the if you if you 480 00:24:28,480 --> 00:24:30,399 Speaker 1: own a fund and you want to lost harvest, you 481 00:24:30,480 --> 00:24:32,280 Speaker 1: gotta get all the wayut of that fund. Okay, you 482 00:24:32,280 --> 00:24:33,720 Speaker 1: have to be out of the market for thirty days, 483 00:24:33,800 --> 00:24:35,359 Speaker 1: or you buy an equivalent et F and you have 484 00:24:35,359 --> 00:24:38,080 Speaker 1: to worry about wash sales. If you want harvest losses 485 00:24:38,119 --> 00:24:40,480 Speaker 1: in a in a diversified separate account with the granular 486 00:24:40,520 --> 00:24:43,240 Speaker 1: individual stocks, you can maintain your full market exposure and 487 00:24:43,240 --> 00:24:46,920 Speaker 1: harvest the losses. Uh, you can harvest, you know, so 488 00:24:47,400 --> 00:24:50,439 Speaker 1: if you know you have that degrees of freedom, you 489 00:24:50,440 --> 00:24:52,560 Speaker 1: have that so you can harvest more losses. Because the 490 00:24:52,560 --> 00:24:54,800 Speaker 1: average market may have gone to the et F may 491 00:24:54,800 --> 00:24:56,720 Speaker 1: have gone down eight percent, but the segments of the 492 00:24:56,720 --> 00:24:59,280 Speaker 1: market individual securities that are down fifteen twenty, and you 493 00:24:59,320 --> 00:25:02,399 Speaker 1: can harvest that out, maintain your market exposure. Continue to 494 00:25:02,440 --> 00:25:06,479 Speaker 1: look at that as a as an opportunity. You cannot 495 00:25:06,520 --> 00:25:09,960 Speaker 1: do any worse and an individually managed, separate account and 496 00:25:10,000 --> 00:25:12,800 Speaker 1: lost harvesting than you can in an ETF portfolio, and 497 00:25:12,800 --> 00:25:16,520 Speaker 1: you can certainly do better. One thing, you know, we 498 00:25:16,760 --> 00:25:19,840 Speaker 1: we're watching and considering is this huge wealth transfer coming 499 00:25:19,920 --> 00:25:22,280 Speaker 1: from you know, a prior generation. So one of the 500 00:25:22,320 --> 00:25:24,879 Speaker 1: huge benefits I think is like considered to be the 501 00:25:24,960 --> 00:25:28,960 Speaker 1: largest transfer of wealth over intrillian so I think over 502 00:25:29,119 --> 00:25:33,359 Speaker 1: something over three trillion. So, by the way, is this 503 00:25:33,440 --> 00:25:37,120 Speaker 1: is millennials inheriting from boomers who they're constantly like yelling at, 504 00:25:37,480 --> 00:25:42,000 Speaker 1: how nice talk about in the hand that fees you. Sorry, 505 00:25:42,280 --> 00:25:44,439 Speaker 1: just a side note that I can't help. But one 506 00:25:44,440 --> 00:25:47,160 Speaker 1: of the huge benefits is being able to fund um 507 00:25:47,200 --> 00:25:50,160 Speaker 1: one of these accounts within kind scurities. Right, So, how 508 00:25:50,200 --> 00:25:53,400 Speaker 1: many of the clients new clients that you see are 509 00:25:53,720 --> 00:25:58,200 Speaker 1: younger investors that are gifted individual securities and are way 510 00:25:58,200 --> 00:26:01,200 Speaker 1: more prone to manage those in a passive way as 511 00:26:01,200 --> 00:26:03,760 Speaker 1: opposed to how they were formerly managed. Yeah, so there's 512 00:26:03,800 --> 00:26:05,560 Speaker 1: there's nuances in there that's been to start with the 513 00:26:05,640 --> 00:26:09,400 Speaker 1: headline fifty in the portfolios we open five zero fund 514 00:26:09,480 --> 00:26:12,520 Speaker 1: with individual securities in kind. So we're almost a lead 515 00:26:13,000 --> 00:26:15,959 Speaker 1: lead pipe cinch. No brainer for funding in kind, because 516 00:26:16,359 --> 00:26:17,960 Speaker 1: if you fund an e t F, you're gonna sell 517 00:26:18,000 --> 00:26:19,960 Speaker 1: everything realized the gains and walk in the door and 518 00:26:20,000 --> 00:26:23,080 Speaker 1: you maybe create a tax drag you'll never overcome with 519 00:26:23,119 --> 00:26:26,920 Speaker 1: a feed difference. So um, there's a lot of things 520 00:26:26,920 --> 00:26:29,640 Speaker 1: that go into thinking about that. Our current tax law 521 00:26:29,680 --> 00:26:33,639 Speaker 1: allows stocks with unrealized gains to be stepped up and 522 00:26:34,000 --> 00:26:36,119 Speaker 1: you know, and have their basis marked up to the 523 00:26:36,160 --> 00:26:38,840 Speaker 1: market value if it goes through an estate planning process. 524 00:26:38,880 --> 00:26:43,520 Speaker 1: So a lot of inheritors you know, uh errors uh, 525 00:26:43,840 --> 00:26:46,360 Speaker 1: don't come with large unrealized gains because they've had their 526 00:26:46,400 --> 00:26:49,680 Speaker 1: cost bases stepped up. But so many of the actual 527 00:26:49,720 --> 00:26:54,320 Speaker 1: portfolios that we look at are coming from a historical 528 00:26:55,280 --> 00:26:59,040 Speaker 1: uh individual security management, either themselves or their advisor or 529 00:26:59,080 --> 00:27:02,679 Speaker 1: an sim A program that may have stocks. And we 530 00:27:03,080 --> 00:27:06,639 Speaker 1: very very commercially point at that benefit and say, if 531 00:27:06,680 --> 00:27:09,880 Speaker 1: you were to liquidate this portfolio and fund and ETF, 532 00:27:10,040 --> 00:27:13,960 Speaker 1: it costs you seventy dollars and realized tax in taxes, 533 00:27:14,359 --> 00:27:16,120 Speaker 1: and if you give it to a parametry portfolio, allow 534 00:27:16,200 --> 00:27:19,120 Speaker 1: us to work it around, it'll cost you three dollars. 535 00:27:19,119 --> 00:27:22,600 Speaker 1: I'm giving a hypothetical example. And this process is now 536 00:27:22,880 --> 00:27:26,600 Speaker 1: kept in your portfolio. It's deferral fifty some thousand dollars 537 00:27:26,600 --> 00:27:28,639 Speaker 1: in that rough example. That can work for you for 538 00:27:28,960 --> 00:27:31,000 Speaker 1: as long as you need that index exposure. You need 539 00:27:31,040 --> 00:27:35,440 Speaker 1: that exposure. Uh, that's just that drives a great deal 540 00:27:35,480 --> 00:27:38,440 Speaker 1: of the interest. Yeah, and we mentioned we talked about 541 00:27:38,560 --> 00:27:41,919 Speaker 1: thirty thirty five basis points for for these strategies. That's 542 00:27:41,920 --> 00:27:44,720 Speaker 1: obviously a little bit dilutive to your parent company's sort 543 00:27:44,760 --> 00:27:49,040 Speaker 1: of usual margins. And now you're looking at really scaling. 544 00:27:49,080 --> 00:27:53,360 Speaker 1: How does the conversation go for how sticky these assets 545 00:27:53,359 --> 00:27:56,359 Speaker 1: are that the total margin dollars might be be better 546 00:27:56,480 --> 00:27:58,760 Speaker 1: over time. What are the conversations? Yeah, so you have 547 00:27:58,840 --> 00:28:03,240 Speaker 1: to distinguish between the revenue realization. So the fee rate 548 00:28:03,320 --> 00:28:07,720 Speaker 1: is lower, I would argue that the operating margins are not. 549 00:28:08,560 --> 00:28:12,240 Speaker 1: So we may earn thirty basis points for a portfolio, 550 00:28:12,320 --> 00:28:15,280 Speaker 1: twenty five or less for a very large one versus 551 00:28:15,320 --> 00:28:18,240 Speaker 1: a traditional active strategy in which may earn the company 552 00:28:18,240 --> 00:28:20,360 Speaker 1: fifty or sixty basis points. But if we can get 553 00:28:20,359 --> 00:28:22,200 Speaker 1: to scale and we can provide that and we can 554 00:28:22,280 --> 00:28:25,600 Speaker 1: have a long term portfolio. These are long term portfolio. 555 00:28:25,640 --> 00:28:27,200 Speaker 1: If you have a short time arise and loss harvesting 556 00:28:27,240 --> 00:28:28,800 Speaker 1: makes no sense at all because you're just going to 557 00:28:29,000 --> 00:28:31,320 Speaker 1: harvest the loss and then realize the subsequent gain when 558 00:28:31,359 --> 00:28:34,040 Speaker 1: you trade the portfolio. We can build a pretty compelling 559 00:28:34,080 --> 00:28:37,320 Speaker 1: net present value business. So I think we'll eat Vans 560 00:28:37,359 --> 00:28:39,160 Speaker 1: recognize that in two thousand three when they made the 561 00:28:39,200 --> 00:28:43,960 Speaker 1: investment in Parametric. In two thousand nineteen, they recognize that. 562 00:28:44,240 --> 00:28:47,959 Speaker 1: We recognize that, you know, to a much much larger degree. 563 00:28:48,200 --> 00:28:53,840 Speaker 1: And and this year especially, how is the distribution conversation changed? 564 00:28:54,800 --> 00:28:58,280 Speaker 1: How does this how does this more strategic combination change 565 00:28:58,760 --> 00:29:01,479 Speaker 1: sort of advisors act us to what you've been providing 566 00:29:01,520 --> 00:29:03,280 Speaker 1: for so many years. Yeah, I think we're turning up 567 00:29:03,320 --> 00:29:07,600 Speaker 1: the volume a bit. We're trying to bring connected, uh 568 00:29:07,800 --> 00:29:11,440 Speaker 1: coordinated products to the market which have fixed income and 569 00:29:11,440 --> 00:29:15,160 Speaker 1: and and and equities in the same portfolio or in 570 00:29:15,160 --> 00:29:17,440 Speaker 1: the same conversation. We can you know, you can do 571 00:29:17,520 --> 00:29:20,120 Speaker 1: lost harvesting, and we do in our Ladder Communities Municipal 572 00:29:20,120 --> 00:29:23,200 Speaker 1: bond in corporate portfolios. You can you can tax aware, 573 00:29:23,280 --> 00:29:27,520 Speaker 1: rebalance the portfolio, crossed asset classes, we can provide consolidated reporting. 574 00:29:27,920 --> 00:29:30,640 Speaker 1: We can bring the other wealth management solutions like the 575 00:29:30,680 --> 00:29:35,440 Speaker 1: exchange fund that EAT events delivers to the market. So 576 00:29:35,640 --> 00:29:38,800 Speaker 1: we're trying to put all of these like capabilities which 577 00:29:38,800 --> 00:29:41,880 Speaker 1: we think are industry leading as individual products, but certainly 578 00:29:41,880 --> 00:29:44,840 Speaker 1: industry leading as a combination, and we're trying to just 579 00:29:44,920 --> 00:29:47,840 Speaker 1: make sure that there is understood as possible in the market. Okay, 580 00:29:47,920 --> 00:29:51,640 Speaker 1: let's talk about tracking. Um it's for topic, but it's important. 581 00:29:52,000 --> 00:29:55,440 Speaker 1: Tracking difference is ultimately the cost you pay because it's 582 00:29:55,480 --> 00:29:57,840 Speaker 1: net all the fees, right e t f s like 583 00:29:57,880 --> 00:30:01,400 Speaker 1: the Vanguard and Black Rocks, they are insanely good at tracking. 584 00:30:01,720 --> 00:30:04,160 Speaker 1: They've got desks, they can do security lendings, they know 585 00:30:04,200 --> 00:30:06,120 Speaker 1: how to outsmart the hedge funds for the most part. 586 00:30:06,440 --> 00:30:07,840 Speaker 1: So if you look at something like v o O, 587 00:30:08,440 --> 00:30:10,360 Speaker 1: it may charge three, but it's tracking is like one 588 00:30:10,400 --> 00:30:15,720 Speaker 1: basis point. Tracking requires rebalances, dividends, corporate actions. How confident 589 00:30:16,080 --> 00:30:18,080 Speaker 1: could I be if I was an adviser to say, 590 00:30:18,240 --> 00:30:20,000 Speaker 1: you know, how much slippage am I going to get 591 00:30:20,000 --> 00:30:23,440 Speaker 1: with you? Because you're not one of these gigantic experienced 592 00:30:23,720 --> 00:30:27,280 Speaker 1: firms that is tracking UM with you know, much more 593 00:30:27,320 --> 00:30:29,800 Speaker 1: money and has a lot more um I don't know 594 00:30:30,200 --> 00:30:32,920 Speaker 1: brand name behind it. Yeah, So think about tracking is 595 00:30:32,960 --> 00:30:34,960 Speaker 1: being two things. First of all, the costs that you 596 00:30:35,000 --> 00:30:37,600 Speaker 1: say are always negative, you know, so they don't they're 597 00:30:37,640 --> 00:30:39,760 Speaker 1: tracking only goes one direction. Your cost is going to 598 00:30:39,800 --> 00:30:43,640 Speaker 1: subtract from your return. The other tracking are from your miswaiting. 599 00:30:43,720 --> 00:30:47,320 Speaker 1: The purposeful miswaiting of the securities has an our view, 600 00:30:47,720 --> 00:30:49,719 Speaker 1: a mean of zero. It can be positive, it can 601 00:30:49,760 --> 00:30:52,160 Speaker 1: be negative, and given a long enough time, it's going 602 00:30:52,200 --> 00:30:56,080 Speaker 1: to average itself out if you're doing this consciously. And 603 00:30:56,160 --> 00:30:59,920 Speaker 1: so we we we create let's it's typical to have 604 00:31:00,040 --> 00:31:02,160 Speaker 1: the tracking error. Let's just use that term, which is 605 00:31:02,240 --> 00:31:05,000 Speaker 1: think about it as the kind of a common boundaril 606 00:31:05,000 --> 00:31:07,120 Speaker 1: of about fifty basis points. So we're not even in 607 00:31:07,160 --> 00:31:09,080 Speaker 1: the same game as the v Oh, we're not even 608 00:31:09,080 --> 00:31:11,800 Speaker 1: in the same game. Let me pause there. I just 609 00:31:11,840 --> 00:31:14,200 Speaker 1: want to say, let's assume I just wanted the SMP 610 00:31:14,840 --> 00:31:16,480 Speaker 1: because I know I'm going to pick these thocks or 611 00:31:16,520 --> 00:31:19,120 Speaker 1: eliminate a couple that are gonna it's my tracking. But 612 00:31:19,200 --> 00:31:21,240 Speaker 1: for the rest I want to make sure that I'm 613 00:31:21,240 --> 00:31:24,200 Speaker 1: getting every last bit of juice from the SMP index, 614 00:31:24,840 --> 00:31:27,200 Speaker 1: and I don't want any slippage for the rest. But 615 00:31:27,280 --> 00:31:29,120 Speaker 1: so let's just say I just wanted SMP from you. 616 00:31:29,640 --> 00:31:32,240 Speaker 1: Could you deliver tracking that is in line with a 617 00:31:32,320 --> 00:31:34,160 Speaker 1: Van Garter black Rock. You wouldn't want to hire us, 618 00:31:34,280 --> 00:31:37,280 Speaker 1: I shouldn't hire us. Yeah. So a family office early 619 00:31:37,360 --> 00:31:39,200 Speaker 1: days looked at me when I explained tracking air and 620 00:31:39,200 --> 00:31:41,560 Speaker 1: he says, look, you're whipping the wrong horse. He says, 621 00:31:41,600 --> 00:31:43,800 Speaker 1: I'm going to be invested in this twenty years. And 622 00:31:43,840 --> 00:31:45,760 Speaker 1: whether or not I get the SMP plus ten or 623 00:31:45,800 --> 00:31:48,560 Speaker 1: minus ten or plus thirty or minus thirty, that doesn't 624 00:31:48,600 --> 00:31:50,840 Speaker 1: matter to me. I'm trying to create and build my wealth. 625 00:31:50,960 --> 00:31:52,880 Speaker 1: I'm trying to protect it. And if I can get 626 00:31:53,120 --> 00:31:56,000 Speaker 1: fifty sixty basis points of tax value and that tracking error, 627 00:31:56,160 --> 00:31:59,040 Speaker 1: that's the right horse. Whether or not I'm up five 628 00:31:59,080 --> 00:32:01,400 Speaker 1: or basis points more fiber basis points less than a 629 00:32:01,520 --> 00:32:05,720 Speaker 1: than an ultimate arbitrary market measure, that's the wrong horse. 630 00:32:05,800 --> 00:32:07,640 Speaker 1: But you do all those things right. You can take 631 00:32:07,640 --> 00:32:11,360 Speaker 1: care of the corporate action solutely, every detail, reinvest the 632 00:32:11,400 --> 00:32:15,520 Speaker 1: dividends and markets and international we do, we do, We 633 00:32:15,560 --> 00:32:18,200 Speaker 1: do a little less liquid, right, Yeah, we do a 634 00:32:18,280 --> 00:32:21,280 Speaker 1: lot increasingly the portfolios that we invest in. Our global 635 00:32:21,600 --> 00:32:26,000 Speaker 1: investors advisors want to create a global beta portfolio tracking 636 00:32:26,040 --> 00:32:29,080 Speaker 1: a global you know, all world index. Why do you 637 00:32:29,120 --> 00:32:31,240 Speaker 1: think that's happening? Well, I think that again. You you 638 00:32:31,320 --> 00:32:33,960 Speaker 1: want to you want to give yourself as many degrees 639 00:32:34,000 --> 00:32:36,200 Speaker 1: of freedom as you can. So instead of just investing 640 00:32:36,240 --> 00:32:38,120 Speaker 1: in the SMP market, you can invest in the FA market. 641 00:32:40,200 --> 00:32:43,280 Speaker 1: International is not having a good run. Later, cross sectional volatility, 642 00:32:43,280 --> 00:32:45,360 Speaker 1: I'll get nerdy on you. So cross sectional volatility when 643 00:32:45,400 --> 00:32:48,600 Speaker 1: Japan's up, UK maybe down, when securities in the tech 644 00:32:48,640 --> 00:32:51,000 Speaker 1: sector in in the United States are up, you know, 645 00:32:51,040 --> 00:32:53,880 Speaker 1: maybe the German banks are down. So you can again 646 00:32:54,000 --> 00:32:57,240 Speaker 1: have as a quant you can have a more successful 647 00:32:57,280 --> 00:33:01,200 Speaker 1: outcome of tracking this diverse index and harvesting losses across it. 648 00:33:01,440 --> 00:33:04,240 Speaker 1: So you've gone, you've you've expanded your tools set in 649 00:33:04,320 --> 00:33:06,800 Speaker 1: your granular, separate account and so that makes a lot 650 00:33:06,840 --> 00:33:10,920 Speaker 1: of sense. And basically, since you've been running like a 651 00:33:11,040 --> 00:33:15,000 Speaker 1: ten billion a year net inflow for that custom core, 652 00:33:16,320 --> 00:33:18,800 Speaker 1: you know, do you see that accelerating with you know, 653 00:33:18,840 --> 00:33:22,920 Speaker 1: lower account minimums. Yeah, I don't necessarily think lower account 654 00:33:22,920 --> 00:33:25,200 Speaker 1: minimums are are going to drive and maybe as much 655 00:33:25,240 --> 00:33:26,800 Speaker 1: as some. And I'm not a big believer in the 656 00:33:26,840 --> 00:33:28,720 Speaker 1: e t F killer and kind of driving this down. 657 00:33:28,840 --> 00:33:31,120 Speaker 1: I think you need to be an investor with a 658 00:33:31,160 --> 00:33:34,000 Speaker 1: certain type of portfolio and a certain tax sensitivity, and 659 00:33:34,040 --> 00:33:36,600 Speaker 1: a certain relationship with the advisor. So many people may 660 00:33:36,640 --> 00:33:39,280 Speaker 1: differ from me on that um I think this is 661 00:33:39,400 --> 00:33:44,440 Speaker 1: ultimately a advisor driven high net worth market product, but 662 00:33:44,480 --> 00:33:47,160 Speaker 1: there's a lot of opportunity for us to continue to 663 00:33:47,200 --> 00:33:49,840 Speaker 1: grow and faster. I think of it as this. You know, 664 00:33:49,960 --> 00:33:51,400 Speaker 1: you guys know this better than me, and you can 665 00:33:51,440 --> 00:33:53,840 Speaker 1: quote the statistics. But every year there's a flow of 666 00:33:53,920 --> 00:33:56,560 Speaker 1: money toward index base most of them and e t 667 00:33:56,720 --> 00:33:59,760 Speaker 1: f s and opening mutual funds into index based strategies, 668 00:33:59,800 --> 00:34:02,880 Speaker 1: both equity and fixed income, hundreds of billions of dollars 669 00:34:03,080 --> 00:34:06,640 Speaker 1: parametric and our competitors. We divert off of that stream, 670 00:34:06,680 --> 00:34:11,080 Speaker 1: a small percentage of that into custom separate accounts uh where, 671 00:34:11,520 --> 00:34:13,920 Speaker 1: And the people who choose it are choosing it rationally 672 00:34:13,920 --> 00:34:16,279 Speaker 1: because the value to them is much greater than the 673 00:34:16,280 --> 00:34:19,920 Speaker 1: tracking air in the feast. We can, through education and 674 00:34:19,960 --> 00:34:22,840 Speaker 1: continued innovation, continue to divert off more and more of 675 00:34:22,880 --> 00:34:25,440 Speaker 1: that every year and parametric. We want our share. We 676 00:34:25,480 --> 00:34:27,520 Speaker 1: want to continue to grow market share and b the 677 00:34:27,520 --> 00:34:29,239 Speaker 1: market leader, but the others will get it as well. 678 00:34:29,400 --> 00:34:31,360 Speaker 1: How big can it get? You can get a lot 679 00:34:31,400 --> 00:34:33,439 Speaker 1: bigger than it is, and it should in my view. 680 00:34:33,760 --> 00:34:36,160 Speaker 1: But I would have told you that in nineteen and 681 00:34:36,160 --> 00:34:38,840 Speaker 1: then you know we're a we're a three d billion. 682 00:34:38,880 --> 00:34:45,440 Speaker 1: But that's a thirty year road. Yeah, that's interesting. Yes, 683 00:34:45,560 --> 00:34:48,279 Speaker 1: By launched the ninete So you guys are actually just 684 00:34:48,320 --> 00:34:52,520 Speaker 1: as old twenty six years ash or whatever, early nineties. 685 00:34:52,880 --> 00:34:54,640 Speaker 1: You're not based in New York. You're based in Seattle, 686 00:34:54,680 --> 00:34:56,960 Speaker 1: that's right, So talk to us about what you're in 687 00:34:56,960 --> 00:34:59,520 Speaker 1: Seattle in the early nineties, which is like, that's like 688 00:35:00,000 --> 00:35:03,080 Speaker 1: being in the nucleus of one of the greatest musical 689 00:35:03,760 --> 00:35:08,680 Speaker 1: rock renaissance is known demand known as grunge. Can tell 690 00:35:08,719 --> 00:35:12,120 Speaker 1: me some stories. Oh, well, you know, I graduated from 691 00:35:12,120 --> 00:35:14,799 Speaker 1: college the University of Washington nineteen ninety and all of 692 00:35:14,840 --> 00:35:19,360 Speaker 1: the bands that you're talking about, Nirvana, you know, Pearl Jam, 693 00:35:19,400 --> 00:35:21,279 Speaker 1: all of those were just starting to show up in 694 00:35:21,280 --> 00:35:23,160 Speaker 1: the clubs and so you know, as a young person, 695 00:35:23,280 --> 00:35:26,240 Speaker 1: we would we would find ourselves. That shows that in hindsight, 696 00:35:26,280 --> 00:35:28,080 Speaker 1: we would think that was incredible and we could tell 697 00:35:28,080 --> 00:35:29,600 Speaker 1: these great stories. At the moment, we may have not 698 00:35:29,680 --> 00:35:32,319 Speaker 1: a predicative. You were around when Eddie Vetter used to 699 00:35:32,360 --> 00:35:34,880 Speaker 1: climb on top of the roof the ceiling and like 700 00:35:35,000 --> 00:35:38,319 Speaker 1: dropped down into the crowd. Right, Yeah, seeing Alison change, 701 00:35:38,480 --> 00:35:40,239 Speaker 1: he got wealthy and he's like, yeah, I I'm not 702 00:35:40,280 --> 00:35:43,440 Speaker 1: going to do yeah. Yeah, well now he plays Safeco 703 00:35:43,520 --> 00:35:46,279 Speaker 1: Field and three nights and and uh, yeah, you can't 704 00:35:46,280 --> 00:35:48,080 Speaker 1: do that and brings out the last time I was there, 705 00:35:48,080 --> 00:35:50,840 Speaker 1: he brought out to teach his children's teacher onto the stage. 706 00:35:50,840 --> 00:35:54,759 Speaker 1: It's a different world. Um. Yeah, the Crocodile Cafe. I 707 00:35:54,800 --> 00:35:56,120 Speaker 1: don't know if you guys come there, you know, one 708 00:35:56,120 --> 00:35:58,440 Speaker 1: of the you know, seeing seeing some of the initial 709 00:35:58,480 --> 00:36:01,560 Speaker 1: bands there. I'm going there in nineteen. It was a 710 00:36:01,560 --> 00:36:04,359 Speaker 1: great fun. Well again, you don't know that. You're twenty 711 00:36:04,440 --> 00:36:06,239 Speaker 1: two year old kid. You're trying to find a job 712 00:36:06,360 --> 00:36:08,960 Speaker 1: and you're going to music and you know, I mean 713 00:36:09,440 --> 00:36:11,040 Speaker 1: when we showed up, I think Seattle showed up on 714 00:36:11,040 --> 00:36:13,279 Speaker 1: the cover of Time magazine and we became this hot 715 00:36:13,280 --> 00:36:15,759 Speaker 1: place and everybody was wearing their plaid and and uh, 716 00:36:16,280 --> 00:36:18,319 Speaker 1: we kind of sense. This was kind of cool. But 717 00:36:18,360 --> 00:36:20,440 Speaker 1: you know, the Seattle music scene continues to be interesting. 718 00:36:20,520 --> 00:36:22,400 Speaker 1: Do you take some of that into your job, some 719 00:36:22,480 --> 00:36:25,120 Speaker 1: of that like grunge, rebellious spirit. Yeah, I don't know. 720 00:36:25,680 --> 00:36:28,799 Speaker 1: We do take Seattle and I do. Yeah, I was there. 721 00:36:28,840 --> 00:36:31,160 Speaker 1: I saw Pearl Jam when they played Safegal last year. No, now, 722 00:36:31,200 --> 00:36:33,799 Speaker 1: I'm you know, fifty something with my wife and trying 723 00:36:33,840 --> 00:36:38,080 Speaker 1: to leave leave earlier teacher, Yeah, cheering for And you 724 00:36:38,120 --> 00:36:41,839 Speaker 1: said earlier your your neighbor opened for Pearl James first year. Yeah. 725 00:36:41,880 --> 00:36:44,359 Speaker 1: So my neighbor, who's now a vice president of Microsoft, 726 00:36:44,480 --> 00:36:47,279 Speaker 1: was the lead singer in a band that opened for Mike. 727 00:36:47,440 --> 00:36:50,720 Speaker 1: Uh so. But again, even looking at him across the fence, 728 00:36:50,760 --> 00:36:52,719 Speaker 1: now you think what happened to you? You know, at 729 00:36:52,760 --> 00:36:55,640 Speaker 1: one point you were at the epicenter and uh but 730 00:36:55,680 --> 00:37:00,799 Speaker 1: it's great fun. But the audacity of Seattle, Amazon, Starbucks, Microsoft, 731 00:37:01,120 --> 00:37:03,600 Speaker 1: the business building and it does wash over you. You 732 00:37:03,800 --> 00:37:05,960 Speaker 1: do have a sense that you can do something, maybe 733 00:37:05,960 --> 00:37:08,040 Speaker 1: on a national scale or global scale, where you wouldn't 734 00:37:08,160 --> 00:37:11,760 Speaker 1: from someone from Portland. Yeah, well, there's a little rivalry. 735 00:37:12,600 --> 00:37:15,040 Speaker 1: He's a husky, I'm a duck. Oh no, you didn't 736 00:37:15,040 --> 00:37:18,320 Speaker 1: tell me that at the beginning this all off, who's 737 00:37:18,320 --> 00:37:20,919 Speaker 1: from Portland? So he just rattled off, like so many 738 00:37:20,960 --> 00:37:24,919 Speaker 1: cool people, Well you know Nike Adidas, like we'll throw back. 739 00:37:24,960 --> 00:37:27,759 Speaker 1: It's yeah, it's just a friend. You know the Ducks 740 00:37:27,800 --> 00:37:30,840 Speaker 1: one this year though, the football game, that was a 741 00:37:30,880 --> 00:37:33,839 Speaker 1: great Yeah. You know, I wanted to actually ask you, 742 00:37:33,920 --> 00:37:36,920 Speaker 1: like one final question, which was this started with a 743 00:37:36,920 --> 00:37:39,239 Speaker 1: conversation with the family office way back. When are you 744 00:37:39,280 --> 00:37:41,920 Speaker 1: guys still working with that family there's still a client today. 745 00:37:41,960 --> 00:37:43,600 Speaker 1: I mean that's a layup question. Thank you for asking, 746 00:37:43,680 --> 00:37:45,719 Speaker 1: but yes, twenty seven years later, that group is still 747 00:37:45,719 --> 00:37:49,719 Speaker 1: works with it. Brian Morgan, thank you so much for 748 00:37:49,760 --> 00:37:56,600 Speaker 1: joining us on Trillians. Thank you for having me, Thanks 749 00:37:56,600 --> 00:37:59,080 Speaker 1: for listening to Trillions until next time. You can find 750 00:37:59,120 --> 00:38:03,640 Speaker 1: us on the Bloomberg term, Bloomberg dot com, Apple Podcasts, Spotify, 751 00:38:03,760 --> 00:38:06,000 Speaker 1: and wherever else you'd like to listen. We'd love to 752 00:38:06,000 --> 00:38:09,120 Speaker 1: hear from you. We're on Twitter, I'm at Joel Weber Show, 753 00:38:09,520 --> 00:38:13,360 Speaker 1: He's at Eric Ballcunas. You can find Morrigan at m 754 00:38:13,480 --> 00:38:19,000 Speaker 1: Barnes six and Parametric at Parametric LLC. Trillions is produced 755 00:38:19,040 --> 00:38:22,720 Speaker 1: by Magnus Hendrickson. Francesca Levy is the head of Bloomberg Podcast. 756 00:38:23,160 --> 00:38:24,200 Speaker 1: Bye