What's the role of index providers in today's markets? Watch highlights from S&P DJI's Brandon Hass, Cerulli Associates' Brendan Powers, Delta Wealth Advisors' Niko Finnigan and Sunpointe Investments' Rob Mooney’s deep dive into how advisors are putting an expanding range of index tools to work to build model portfolios, increase efficiencies and tailor strategies to meet client objectives.
[Transcript]
Jeane Coakley:
How do you use indices in your practice today, and how has that evolved in recent years?
Niko, we'll start with you.
Niko Finnigan:
I think that how we're using indices obviously is in model portfolios, as both Brendan and Brandon were speaking about, and, in using these indices, we always talk around the office, we say, standardize the process, customize the advice. So, we're able to spend time with our clients during the work hours. Clients don't necessarily want to be having a meeting at 8:00 at night.
That allows us then to do our investment research on the weekends and at nights outside of market hours, because when clients want to speak, they want to speak during normal hours, that is, right. So, using the indices, we're able to then build upon it over time.
Jeane Coakley:
How do you evaluate the indices that sit underneath ETFs or SMAs that you use?
Rob Mooney:
If I'm looking at a really esoteric corner of the market, I look to see who built the index, and, I was really pleased to see in your research that other advisors feel the same way that I do. The other thing that's important to me when evaluating an index provider is, does the index provider have the capability and resources to evolve their index as the underlying companies evolve across time?
Jeane Coakley:
Alright, Brandon. Let's get back to what role does direct indexing play in expanding index use, and how is index design evolving to support that?
Brandon Hass:
There's a handful of things that you can do with direct indexing that are fairly unique, when you're comparing them to other conventional wrappers like ETPs and mutual funds. So, within a direct index, you own the underlying securities, and, so, what you're able to do is address this concept of scale that we've talked about with financial planning and rules-based structures, but
also customization, and those two things tend to be historically oxymoronic, or, at least, kind of a zero-sum game, where you have to kind of weigh the benefits of customization or scale. And, what we're finding is, based on this convergence of factors, that a lot of asset managers and wealth managers alike can deliver both at the same time, right. It's no longer a zero-sum game,
and, so, as we think about this as an index provider. I mean, indexing is in the name, direct indexing, right. So, we are product-agnostic, we are wrapper-agnostic, and, so, most direct indexes or indices exist within an SMA, or within now a UMA structure, but the index itself is still kind of the bedrock of the intellectual property, is what kind of guides the investment solution, or
the investment solution that tracks the benchmark or the index itself. And, so, if you look at the market and the landscape today, a lot of that is still in large-cap core.
Jeane Coakley:
So, why do you think some advisors still underutilize index providers, and how do you think they could change that?
Brendan Powers:
There's a gap between those who are using index-based product and those who are engaging or are using content from index providers. How do we see that gap closing? I think one of the issues preventing that from closing right now is advisors frankly don't know the resources are available. When they're using index-based products, they tend to get information from asset managers that are building those products, but they're not going necessarily to the source who are building the indices that that product is constructed off of.
Jeane Coakley:
What are some of the tools provided by S&P DJI that you've found most useful in this practice?
Niko Finnigan:
Knowledge is like an island, the bigger it gets, the more there is to explore. And, so, we're always trying to say, okay, well, we understood this about the index, how can we take it to the next level, where can we learn about this or that. And, so, like you were saying, having those white papers, you can consume it when you want to consume it, right.
And you're not being pushed into a product. And, so, you're just, it's education, you're saying, okay, do I want more of this in my portfolio, do I want less of it? And, if I did, where do I swap it? And then, because it is rules-based, you can go and back-test it. So, I always tell our clients, we look at making trades is like taking a test. You want to spend more time preparing for the test
than actually taking the test. So, you want to be researching and studying ahead of time, not just making willy-nilly trades in the force of a market, ripping up or down, right.
