All the Tax Efficiencies and Transition Management of the Big Firms’ Direct Index Solutions…
But with data-driven, authentic Environmental, Social, and Governance (ESG) customization, down to the individual company to include or exclude. Now you can align investment dollars with the values and impact you or your clients demand — with as little as a $25,000 initial investment. (Yes, we have knocked a zero off the typical minimum investment for direct indexing.)
Introducing our Values-Aligned Direct Index Solution (VADIS).
In Latin, “vadis” means, “where are you going?” With VADIS, you and your clients are moving toward a future where every investment reflects the impact you want to see in the world, with the greatest transparency, customization, and ability to realize tax efficiencies, and your financial objectives, at the lowest cost in the industry.
- Personalized Client Values Alignment: Client onboarding tools are designed to identify a client’s “ESG Personality Type” via the first-ever Myers-Briggs style behavioral questionnaire for impact investing.
- Benchmark flexibility: Advisors can work with their clients to determine an appropriate and customized benchmark or risk profile for their portfolio.
- Add tax alpha to client portfolios: Clients can capitalize on tax loss harvesting opportunities and defer capital gains.
- Evidence-driven NoScore ESG Screens: Dynamic, personalized “NoScore ESG” screens for funds and individual stocks leverage transparent data from more than 100 independent sources that meet global regulatory standards.
- Portfolio Optimization: Trading and rebalancing tools, powered by Orion with oversight from First Affirmative, use the client’s personalized ESG screens to create tax-managed SMA portfolios, customized down to the individual company equities to include or exclude.
- Back-end Support: Support from First Affirmative’s multi-custodian back-office and investment teams.
- Dynamic, Real-World Reporting: YourImpact Metaphor Metrics translates back-end ESG screens into real-world examples of investment impact tailored to clients’ and prospects’ preferences. Advisors and their clients may access an individualized YourStake impact performance report using their Orion portal, in addition to a traditional performance report.
VADIS Case Study
Is this as big of a deal as it sounds?
Yes. Independent Advisors, mid-market and retail investors have traditionally been shut out of Direct Index Solutions, which often require a minimum of $250K — and often with only nominal ESG integration or even greenwashing. We are excited to bring a better ESG Direct Index Solution for everyone, with true, transparent, customized ESG investments — down to the specific companies to include or exclude — for a larger universe of investors, from high net-worth individuals, investors, and advisors, to those just getting started in impact investing.
What does YourStake Do?
YourStake is the top-rated ESG/SRI portfolio analysis tool for financial advisors. YourStake brings ESG customization to VADIS. YourStake’s behavioral questionnaire helps you set customization preferences with your clients. Then you can use the YourStake interface to add additional ESG thresholds and exclusions to perfectly match client values. Finally, YourStake’s impact reporting will help put your portfolios in relatable terms (how many fewer asthma attacks is this custom portfolio responsible for vs. its benchmark). Learn more at YourStake.org.
Is the onboarding process complicated?
No. In fact, it’s easier. Early trials show it’s pretty painless.
Who are the custodians?
This is a multi-custodian platform, with three well-known custodians and more coming.
First Affirmative receives a soft dollar benefit for accounts using Apex Clearing as Custodian of client assets. First Affirmative has agreements with several custodians with different functionality and costs. Advisors and Clients decide which custodian to use based on services they need and not on any monetary benefit to the firm. For more information please see our ADV Disclosure Brochure available on our website.
Will the impact preferences list change?
Yes. We’ve expanded the list to include choices that will more fully reflect your or your client’s values and environmental, social, and ethical preferences.
Can you please clarify whether the Direct Index solution on APEX is currently available to prospective clients?
The Values- Aligned Direct Index Solution is available on the Schwab platform and (to advisors with sub-advisory agreements only) on the TD Ameritrade platforms. We are in the process of onboarding APEX as a custodian and anticipate that APEX will be available within the next few weeks.
How much assurance do you have that fractional share trading will be available on Orion in time to replace AESG with the Direct Indexing solution, since fractional trading will be required for the latter.
APEX and Orion have been working toward enabling APEX’s fractional share trading capabilities on the Orion platform and have assured us that this functionality will be available by year end (or before). This is a top priority for both Orion and APEX, who are working in partnership to deliver fractional share trading functionality. Also, as a reminder, we received six months’ notice that Goldman Sachs will discontinue development of its Digital Wealth Platform, which includes AffirmativESG. Current functionality will be available at least through April 5, 2022.
Is 1.7% a low tracking error?
Yes. It is low for a portfolio of 180 stocks derived from a universe of 4,760 stocks and incorporating nearly 1,500 individual impact preferences. To provide additional color:
Tracking error (TE) is one of many financial metrics we use to measure the structural soundness of the portfolio. It measures the hypothetical variability of relative performance for a given period. For example, Parametric looked at 10-year pretax wealth outcomes at varying levels of TE for an S&P 500® investment from 2011-2020. The chart below shows the wide range outcomes at a 95% confidence interval for differing TE and shows how persistently high TE can affect investor outcomes over time. For example, $1 invested in the S&P 500® invested at the end of 2010 would have grown to $3.67 by the end of 2020. But a portfolio with 5% tracking error would be expected to fall within the range $2.69 to $5.00 with 95% confidence.1
Does this solution replace AffirmativESG?
Yes, it does. VADIS is the next generation solution First Affirmative developed with our partners at YourStake and Orion. It is a more comprehensive solution, which will be made available to a wider universe of investors — for as little as a $25,000 initial investment — by year-end 2021. Win-Win.
How will existing AffirmativESG Accounts be transitioned? Specifically taxable accounts and a tax transition?
The Northfield optimizer – available on the Orion platform – enables sophisticated tax management. These tax management tools are available for the transition of both AffirmativESG and new accounts to our Values-Aligned Direct Index Solution.
Is there a limit on the # of securities/specific amounts that can be included in a new account? If not, this could be a solution for new accts with lots of gains when they transfer over to us.
No. There is no limit on the number of securities or specific position sizes. The Northfield optimizer is designed to build optimal portfolios while “working around” existing positions and tax constraints. If an optimal solution cannot be reached due to a large number of constraints, we will work with you to adapt the constraints to deliver the best possible solution to your client.
If you’re an advisor, get the ins and outs about First Affirmative’s Values-Aligned Direct Index Solution (VADIS). Learn how you can customize client portfolios, distinguish ESG investments and align strategy with financial goals. Click here to learn more.
There’s plenty to learn about ESG/SRI and what that means from an investment perspective. First Affirmative is here to help potential clients be prepared to talk to their advisor about their options. Understand how to customize your portfolio with viable ESG investments with our Values-Aligned Direct Index Solution (VADIS). Click here to learn more.
Our Business Development Associate, Bill Hairgrove is ready to talk with you about VADIS and exactly how it will help you direct your clients wealth to the impact areas that matter most.
You can connect with us to schedule a demo in a variety of ways. Ready to schedule now? Please click the Schedule button below to immediately create an appointment. You are also able to email us directly or complete the Request a Demo form and we will reach out to you.