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DIY Index Tracker Could Slash Managed Account Costs, Elbow Out Managers

By Thomas Coyle January 29, 2018

Big money managers might be on the run when Orion Advisor Services debuts in March a tax-smart direct-indexing widget for financial advisors. The new tool lets advisors build their own trackers and has the potential, Orion claims, to boost customization for separately managed accounts while lowering costs.

The Omaha, Neb.-based portfolio-service provider to 1,400 RIAs and their affiliated representatives says in a press release its Advisor Strategy and Tax Return Optimization tool -- "Astro" for short -- lets FAs tailor tax-efficient non-qualified SMA portfolios to individual clients "faster and with less expense than ever."

Orion will charge a flat rate of $50 per account per year to use Astro, the company’s CEO Eric Clarke tells FA-IQ.

Using Astro, advisors can supposedly do things like replicate indexes with customized tilts, mesh legacy stock positions with model portfolios, accommodate environmental, social and governance requests, and get "notifications when an account is out of tolerance" along with "automated tax-loss harvesting," according to Orion.

In other words, FAs can use Astro to start an index or style tracker of their own, or customize existing models models for individual clients, without -- at least in theory -- having to pass on industry rates.

Joseph Smith

SMAs encompass a broad investing category with broad range of fees. At the high end though, they can cost end-clients something in the range of 200 to 300 basis points, according to The Balance, a consumer-oriented publication that covers retirement personal finances.

Traditionally, says Clarke, "the high costs and massive time commitment associated with building highly customized" SMAs kept advisors "from bringing these capabilities to clients." But with Astro, he says, FAs can create, and subsequently tend to, such portfolios "in minutes."

Bottom line, Astro "enhances the advisor’s ability to have input and control" over client portfolios, according to Clarke.

By coming in “at a disruptive price point," Astro arms FAs to underline "their value to increasingly savvy investors.”
Eric Clarke
Orion Advisor Services

For Joseph Smith, senior market strategist at Orion’s cross-town client and Astro beta tester CLS Investments, Astro helps "in an area that often demands too much manual effort."

And because it streamlines a lot of expensive busywork that’s usually the province of fund companies with lots of scale, Smith, whose employer manages about $7 billion, sees Astro "leveling the playing field between advisors and the large asset managers."

Clarke has no trouble swallowing that. By coming in "at a disruptive price point," he says, Astro arms FAs to underline "their value to increasingly savvy investors" at a time when traditional asset management is under assault from so-called robo advisors and "low-cost products like ETFs and index funds."

As far as Clarke knows, there’s no other product out there like Astro. But he says the advisors he and his colleagues have talked to get the concept, recognize the need for it, and are already "excited to use the technology."

Eventually, Orion -- which administers about two million accounts worth $600 billion -- expects to license another two million Astro accounts, with "tens of thousands" on its books by the end of 2018.