Scaling Direct Indexing Solutions
for a Leading TAMP
SoftPak is your go-to full-service provider in custom fintech software development with
award-winning products in our arsenal. Meet the team that made this all possible.
Overview
The demand for personalization in wealth management is on the rise. Personalization refers to the ability to own a portfolio of individual securities that are customized to offset risks and taxes based on an investor’s preferences. Direct indexing is one such personalized investment strategy, allowing investors to closely mirror indexes like the S&P 500 while owning a fraction of the stocks within the index.
In response to the growing interest in direct indexing among high-net-worth clients, one of the largest turnkey asset management platforms (TAMP) serving the regional investment advisory (RIA) market sought to implement scalable technology that would deliver these strategies to their clients. They turned to SoftPak Financial Systems to address this challenge.
Key Challenges
Direct indexing requires the use of factor-based risk models and optimization algorithms to manage portfolio risk and tax efficiency. Before 2010, these methods were primarily employed by institutional asset management firms, with the wealth management industry relying more on rule-based algorithms for portfolio rebalancing.
The TAMP faced several challenges in adopting factor-based risk models for their RIA clients:
Technical Expertise
They needed the in-house expertise to configure and operate optimization algorithms that required deep knowledge of risk modeling.
Scalability
The firm needed to build technology capable of scaling the optimization process to
manage thousands of personalized portfolios.
Advisory Adaptation
They had to ensure that advisory firms would be able to integrate and effectively use these new personalized portfolio solutions.
Our Solution
In 2016, SoftPak Financial Systems was engaged to develop a solution that would integrate a mean-variance tax optimizer from Northfield, a respected firm in risk models and optimization tools. SoftPak’s experience in building scalable wealth management technology made them the ideal partner for the project.
Together with the TAMP, SoftPak delivered an intuitive, web-based application designed to streamline the deployment of direct indexing strategies. The application allowed the TAMP’s 2,000+ advisory firms to create and manage personalized portfolios tailored to the tax and risk preferences of their clients.
Results & Growth
The impact of the solution was substantial. Initially tested with a single RIA firm, the direct indexing solution now supports tens of thousands of customized portfolios across 400+ advisory firms. As RIA clients become more familiar with the tax optimization tool, the platform has evolved to meet more sophisticated needs, such as asset location and allocation.
SoftPak’s ongoing partnership with the TAMP has driven continuous improvements to the platform, incorporating newer technologies and further enhancing performance. This collaboration has resulted in a
scalable, cutting-edge solution that empowers advisory firms to deliver personalized investment strategies.
Conclusion
SoftPak’s partnership with this TAMP demonstrates the company’s ability to build scalable, innovative solutions for the wealth management industry. By addressing the technical and operational challenges of direct indexing, SoftPak has helped this client transform their personalization business, significantly increasing both adoption and portfolio customization. Since 2016, the collaboration has continued to thrive, evolving with the growing needs of the industry.