First Trust acquires direct indexing fintech Veriti

Another asset management firm is buying its way into the increasingly crowded direct indexing market.

First Trust Advisors, an asset management firm with $203 billion in assets under management, has agreed to acquire direct indexing fintech company Veriti Management. The deal is being made through First Trust Capital Partners, the firm’s business for investing in early and growth stage companies, and is expected to close on July 31. Terms of the transaction were not disclosed.

Direct indexing continues to gain appeal as taxable losses on the stock market mount. First Trust is the latest of more than a dozen financial institutions to acquire direct indexing capabilities since 2020, but this deal is about more than just playing catch-up with the competition, said Jim Dilworth, Veriti’s co-founder and managing partner.

While other direct indexing companies were designed by technology entrepreneurs, Veriti was built by advisers with more than 20 years of experience offering the managed account strategy to clients, Dilworth said.

“The platform we built was designed with the adviser’s perspective in mind,” he said.

Specifically, the software is easier for advisers to use, brings together data from more sources and is better at helping advisers articulate tax alpha to clients, Dilworth added. A recently launched use interface simplifies certain tasks and makes it easier for advisers to run through various scenarios with client and further customize portfolios.

“This idea of personalized asset management for individual clients, not just around their values but around anything, it’s taking the industry by storm,” Dilworth said. “It’s not a fad, it’s here to stay and it’s moving very, very rapidly.”

Veriti launched in 2018 to provide both financial advisers and institutional investors access to direct indexing and it now has more than $1 billion in assets on its platform. The company received significant interest from other large institutions wanting to get into the space, but First Trust offered the distribution muscle to make Veriti a dominant product among financial advisers, Dilworth said.

“First Trust has been eying this space for quite some time,” he said. “They’ve had a lot of client demand for direct indexing … and spent a lot of time thinking strategically about entering the space.”

First Trust did not respond to a request for comment. In a statement, Ryan Issakainen, a senior vice president and ETF strategist at First Trust, said the company looks forward to providing advisers with the ability to deliver personalized and tax-advantaged solutions that better align with client investment objectives, values and interests.

Direct indexing’s most quantifiable advantage is tax optimization and the resultant tax savings, according to research firm Cerulli Associates. A survey of advisers found 48.4% see ongoing tax optimization through direct indexing as a major opportunity, while 51.6% ranked it as a moderate opportunity.

Interest in the technology began before the current market volatility. Charles Schwab Corp. acquired the technology and intellectual property of defunct digital adviser Motif in in May 2020. Morgan Stanley followed in October 2020 by acquiring Eaton Vance, a deal that brought along direct indexing pioneer Parametric. Other asset managers, wirehouses and custodians have all entered into the market either via acquisition or building the tech in-house.

Following the close of the deal, Veriti will continue to operate independently as a wholly owned subsidiary of First Trust.

Chapman and Cutler served as legal counsel to First Trust, while Nixon Peabody served as legal counsel to Veriti Management. Berkshire Global Advisors served as financial adviser.

[More: Morgan Stanley’s Parametric moves the wirehouse into ETF management]