Wondering whether adding Vanguard Personalized Indexing to your offerings could help you build your business? Listen in to hear how longtime direct indexing users Matt Shibata, managing partner of Morling Financial Advisors, and Dave Murdock, managing partner of Bordeaux Wealth Advisors, have been using the strategy to help improve outcomes for their clients.
On attracting and retaining clients (Dave Murdock)
How do you approach the topic of personalized indexing with clients who haven’t heard of it?
Frankly, the use of this product and others, in my opinion, really helps to reframe the discussion. If you’re used to talking about performance and quantitative numbers... you know, we all know the stat, ‘you live and die by performance’... get that out of your lexicon. Because what you can talk about here are the benefits to investing. You get to talk about tax savings, you get to talk about ways you can customize a portfolio, you get to talk about the things that they care about, which is what they keep at the end of the day. So, it brings in this qualitative discussion that we really like.
On improving client outcomes (Matt Shibata)
Is there a story you can share about a time when you used Vanguard Personalized Indexing to solve a problem for a client, or better the outcome you were able to deliver?
Something we did a lot in 2020 and 2021, when the IPO market was going and a lot of people had some pretty large exits from real estate and other types of private assets, is we could roll those gains into an opportunity zone. And then you can take the basis and you could roll that into direct indexing. So, you’re able to manage the portfolio, you defer that capital gain through the opportunity zone for many years into the future—at that point, it was about five or six years, now it’s a little bit shorter. We could harvest losses in the meantime, through the personalized indexing strategy, to offset current gains or to carry those gains forward to when that tax liability would be due in 2026, 2027. So, there’s a lot of great benefits of personalized indexing by itself, but really marrying it with other alternative investments and other tools that you have, we’re able to create even better outcomes.
On the value of customization (Dave Murdock)
Is there a story you can share about a time when you used Vanguard Personalized Indexing to solve a problem for a client, or better the outcome you were able to deliver?
They have an online portal that advisors have access to, and it’s very, very good. And whenever we meet with a new client to use this product, we’ll do a webinar with them and show this tool right on the screen. We’ll have their portfolio size loaded right into it, and we’ll walk through every one of the customization opportunities, from screens, tilts, factors—I mean, Jonathan and Sherwood have built a lot of things that you can factor in to building this portfolio—and we’ll go through that. We had a client as we were going through and he stopped me and said, ”Listen, we’re morally conscious.” So, I went to the screens around religious areas and other items, and he said, “That’s exactly what I want.” And so, we were able to factor in a few things for him here and there. He works for a very large publicly traded biotech firm here in town. We were able to exclude that stock from his portfolio. And so, we customized, if you will, this index for him, putting him in control, which is always important for type A clients, and giving him something that was unique to his situation.
Something we did a lot in 2020 and 2021, when the IPO market was going and a lot of people had some pretty large exits from real estate and other types of private assets, is we could roll those gains into an opportunity zone. And then you can take the basis and you could roll that into direct indexing. So, you’re able to manage the portfolio, you defer that capital gain through the opportunity zone for many years into the future—at that point, it was about five or six years, now it’s a little bit shorter. We could harvest losses in the meantime, through the personalized indexing strategy, to offset current gains or to carry those gains forward to when that tax liability would be due in 2026, 2027. So, there’s a lot of great benefits of personalized indexing by itself, but really marrying it with other alternative investments and other tools that you have, we’re able to create even better outcomes.
