Orion Advisor Services is adding direct indexing capabilities to its Eclipse trading and rebalancing platform.
The technology vendor introduced direct indexing in 2018 as a stand-alone tool it called Advisor Strategy and Tax Return Optimization, or ASTRO. Embedding ASTRO into the Eclipse platform allows registered investment advisers to build custom separately managed account portfolios, review trades and submit orders on one tool.
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Direct indexing involves replicating the performance of an index by purchasing the underlying individual equities instead of using an ETF or mutual fund.
Proponents say direct indexing is the next frontier of investment management, arguing that it provides tax advantages and allows for more customization around an investor's individual risk tolerance and investment preferences.
Until recently, the strategy has only been available to the ultra-wealthy because of the immense amount of work that's involved. Digital tools like ASTRO are automating the process and making direct indexing accessible to advisers who serve smaller accounts.
"We integrated ASTRO into Eclipse Trading to create meaningful back-office efficiencies for our advisors and empower them to add additional alpha, which can be passed onto their clients," Trent Mumma, Orion's chief strategy officer, said in a statement.
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Orion users can select from five predefined model portfolios built with direct indexing or build their own. Advisers can then customize the models by adding restrictions around certain assets, securities and industries, or using filters for environmental, social and governance investing preferences.
Once the client's preferences are determined, ASTRO recommends securities from the model buy list and sends trades to an order grid for advisers to approve or decline.
Eclipse will alert advisers if one of portfolios strays from a client's tolerance threshold for cash, risk or tracking error to allow for a quick correction. The system will also alert advisers of any opportunities for tax-loss harvesting.
Direct indexing is gaining momentum in the RIA community. At Wealth/Stack, a adviser technology conference hosted by Ritholtz Wealth Management this week, O'Shaughnessy Asset Management CEO Patrick O'Shaughnessy
demonstrated a direct indexing tool his firm created called Canvas.
Last year,
Principal Financial Group acquired RobustWealth, a for-advisers robo that provides direct indexing capabilities. In July,
Fidelity Investments and Dynasty Financial Partners backed a digital asset manager that allows advisers to build custom
ESG model portfolios with direct indexing.
