Vanguard is expected to finalize the acquisition later this year of Just Invest, a California-based asset manager that has created software that allows financial advisers to build in greater customization to clients’ portfolios.
Just Invest, founded in 2016 in Oakland, launched its direct indexing software initially for financial planners, but Vanguard could roll this out for its retail clients. The products are part of growing offerings in the industry that help clients mimic the holdings of a popular fund or tweak it to align better with an investor’s personal beliefs, such as avoiding oil companies, for example.
“Technology-driven solutions such as direct indexing continue to reshape our industry, driving better investment outcomes and lowering costs for clients,” said Tim Buckley, Vanguard chairman and CEO, in a press release.
“Just Invest’s mission has been to empower financial advisors through modern and scalable custom asset management technology like direct indexing, enabling them to focus on what matters most: their clients,” said Jonathan Hudacko, CEO of Just Invest, said in the release. “With Vanguard’s tremendous brand, reach, and investment leadership, we will be able to help even more advisors drive better investment outcomes for their clients.”
Vanguard’s acquisition is expected to be completed in the fourth quarter of 2021, according to the release. The companies didn’t disclose the terms of the transaction.
Just Invest’s programs such as Kaleidoscope provide post-tax performance and tax impact daily — instead of monthly or quarterly — so financial advisors have more transparency regarding tax benefits of direct indexing.
Vanguard watchers said the acquisition makes sense for the Malvern investment giant.
Vanguard “has proven to have problems with technology. It may be unrelated, but the retirements of two of their quantitative portfolio managers this summer could signal that Vanguard brass didn’t have faith that they could build a direct-indexing product in-house and it might be simpler and cheaper to just buy it,” noted Dan Wiener, editor of The Independent Adviser for Vanguard Investors newsletter.
It may also be an easier way for Vanguard to expand its socially responsible and impact investing offerings, known as ESG, or environmental, social and governance funds.
Custom indexes allow investors to carve out or include individual stocks in one basket, allowing easier screening.
“Direct indexing definitely dovetails with Vanguard’s desire to get into the ESG business with both feet. They’ve already launched several ESG ETFs and with direct indexing, they can now offer another, even more highly customized ESG portfolio solution,” Wiener said.
Although its index funds, particularly the Admiral shares and ETFs, are extremely tax efficient, direct indexing will allow Vanguard investors to generate losses that can offset gains in other parts of portfolios, he added.
“We’ll have to wait and see how Vanguard proposes to roll this one out once they seal the deal.”
Just Invest assets under management this year surpassed $1 billion. At the outset, the firm will augment Vanguard’s $3 trillion financial intermediary business, serving registered investment advisers (RIA), bank, and broker-dealer financial advisors.