First Trust buys direct indexing fintech Veriti

Another asset management company is buying into the increasingly crowded market for direct indexation.

First Trust Advisors, an asset management firm with $ 203 billion in assets under management, has agreed to buy the direct-index fintech company Veriti Management. The agreement is made through First Trust Capital Partners, the company’s business for investing in companies in the early and growth stages, and is expected to end on 31 July. The terms of the transaction were not disclosed.

Direct indexation continues to appeal as taxable losses in the stock market increase. First Trust is the last of more than a dozen financial institutions that have acquired direct indexing capabilities since 2020, but this agreement is about more than just catching up with competitors, said Jim Dilworth, Veritis’ co-founder and managing partner.

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

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

Specifically, the software is easier for advisors to use, collects data from multiple sources and is better at helping advisers articulate tax alpha to clients, Dilworth added. A recently launched user interface simplifies certain tasks and makes it easier for advisers to run through different scenarios with the client and further adapt portfolios.

“This idea of ​​personal asset management for individual customers, 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 fast.”

Launched in 2018 to give both financial advisors and institutional investors access to direct indexing, Veriti now has more than $ 1 billion in assets on its platform. The company received significant interest from other large institutions that wanted to enter the area, but First Trust offered the distribution muscle to make Veriti a dominant product among financial advisors, Dilworth said.

“First Trust has been looking at this area for quite some time,” he said. “They have had a lot of demand from customers for direct indexing … and spent a lot of time thinking strategically about getting into the area.”

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 giving advisors the opportunity to deliver personalized and tax-driven solutions that better align with the client’s investment goals, values ​​and interests.

The most quantifiable benefit of direct indexing is tax optimization and the resulting tax savings, according to research firm Cerulli Associates. A survey of advisers found that 48.4% see ongoing tax optimization through direct indexing as a great opportunity, while 51.6% rated 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 the defunct digital consultant Motif in May 2020. In October 2020, Morgan Stanley followed up with the acquisition of Eaton Vance, an agreement that brought with it the direct indexing pioneer Parametric. Other asset managers, wirehouses and custodians have all entered the market either through acquisitions or construction of the technology internally.

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

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

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