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Introducing Optimus: Simple, Tax-Efficient ESG for Advisers

Published on

May 8, 2019

To grow, Registered Investment Advisers have a few options. They can acquire other practices or grow their share of existing clients’ assets. They can focus on referrals — after all, sound investment advice never goes out of style, and passive investments have made sound investing more accessible to many. On the other hand, the complexity of clients’ individual situations can result in portfolios far from Harry Markowitz’s efficient frontier. With inherited or long-held assets, low costs basis positions may result in poor diversification. Pre-packaged mutual funds and ETFs get in the way of true personalization of investment assets, which clients crave. To top it off, advisers need to differentiate themselves from other advisers.

To serve as truly trusted advisers, they also need to understand the changing tides of client preferences, while staying true to their fiduciary duty. Sixty-four percent of people in their 30s prefer investing with an ESG (environmental, social and corporate governance) approach, according to Cerulli Associates. It’s not just Millennials: nearly half of US households now prefer values-based investing.

Asset managers have responded by creating a plethora of ESG investment products. But despite the growing demand from current and future clients and the corresponding proliferation of ESG investment products, advisers have remained skeptical.

Bar chart showing a comparison of where ETF issuers and advisers see unmet product demand. The largest gap is for ESG/SRI product.

Source: InvestmentNews

There are good reasons for advisers to be reluctant: performance has been inconsistent, especially among actively managed funds. Even the best-performing funds boast expense ratios close to 1%, which are hard to justify when passive products can go for half that price. Furthermore, ETFs and mutual funds are not tax-efficient, so clients may lose out on smart tax management because they want to invest with their values. But the primary reason advisers are reluctant is a lack of perceived fit to their clients’ investment policy statement.

Introducing Optimus, OpenInvest’s portfolio generation tool for Registered Investment Advisers seeking to grow their business. Optimus leverages technology to offer new value-added services to every client. It empowers advisers to create low-fee, bespoke portfolios for clients who want to invest with their values, providing seamless customization at scale. With Optimus, advisers can generate multi-benchmark passive equity portfolios on the fly. They can also immediately present the concrete impact these portfolios have on taxes, returns, and the environmental and social causes their clients care about most.

Optimus helps advisers grow be offering premium, tech-enabled services to every client.

This isn’t stock-picking: Optimus is fully tech-driven and rules-based, investing to create portfolios that track a chosen benchmark, at prices and investment minimums comparable to those of an ETF. For the cost-conscious adviser, Optimus offers sophisticated portfolios at a fraction of the price, a direct benefit for investors who are increasingly attentive to expense ratios. What’s more, dynamic custom indexing also skips ETF and mutual fund fees.

With Dynamic Custom Indexing, OpenInvest purchases securities directly, enabling a uniquely high level of customization. DCIs empower advisers to create their own investment models, while Optimus generates versions personalized to each investor’s unique situation. For the adviser focused on building deep relationships, Optimus enables customization for every client, at every asset level, without compromising risk management.

Another benefit of DCIs is the granularity with which losses can be harvested for tax management. For the tax-sensitive investor, OpenInvest’s automated trading system opens up tax-loss harvesting for everyone, at the individual stock level. No need to reserve this service for only your largest accounts — advisers can bank the time saved to build their relationships and grow their book.

Optimus shows both the process and the outcome of investing in strategies that reflect an investor’s values. Is she fired up about female CEOs? Show her just how many more women in leadership her portfolio has compared to the benchmark. Did he lose an uncle to smoking? Make sure he knows exactly how many cigarettes his portfolio would be producing without your customizations. For the socially-minded investor, Optimus reports on the environmental and social impact scores of client portfolios in concrete, intuitive terms.

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice. OpenInvest may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information herein that has been provided or obtained by third parties.

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