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4. Fidelity Investments

Portfolio > Portfolio Construction

Fidelity Rolls Out Institutional Custom SMAs

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What You Need to Know

  • Broad availability to RIAs, broker-dealers and family offices is expected in early 2023.
  • Fidelity sees the offering as a step to offering sophisticated, personalized services more broadly.
  • The product won't compete with other Fidelity programs, quant leader Neil Constable says.

Fidelity Investments says it is expanding its direct indexing capabilities with the Fidelity Institutional Custom Separately Managed Account lineup for wealth management firms and institutions.

The Institutional Custom SMA offering, announced Monday, is being introduced to some clearing and custody clients in the coming months — expanding a limited rollout that began Oct. 1 — with broader availability to all RIA, broker-dealer and family office clients expected in 2023.

“Financial advisors are increasingly looking to help improve client outcomes and deliver personalized investment solutions, and we see custom SMAs as an opportunity to address these needs with scalable yet highly customizable solutions,” Gary Gallagher, head of Fidelity Institutional Wealth Management & Advisory Solutions, said in a statement.

Fidelity, which historically focused such services in the ultra-high-net-worth space, now aims to extend them “much more broadly across the wealth spectrum” through the Custom SMA, Gallagher told ThinkAdvisor, noting that the offering can help advisors provide a more personalized product to lower net worth investors who also need customized services and tax management.

Program Details

Through the program, Fidelity builds and manages equity portfolios customized to investors’ needs and preferences, it says. The current lineup includes 10 tax-managed equity strategies with U.S., international, global and sustainable equity holdings. 

As it further expands its custom SMA offering, the firm is aiming to target more market exposures. Also, advisors and their clients can use the program to tailor SMAs for clients by applying tax management; excluding certain securities, sectors or industries; and applying a sustainable overlay.

 “We’re moving into a world where hyper-personalization is becoming the norm,” Neil Constable, head of Fidelity’s Quantitative Research and Investments division, told ThinkAdvisor.

Fidelity sees the offering as the start of the company’s ability to offer highly personalized and customized portfolios to all advisor clients, expanding the reach of its sophisticated asset management services, Constable said.

The new offering won’t compete with other Fidelity programs, Constable said, noting that a similar product is available to the company’s retail investor clients. “We very intentionally created a different product” because retail and advisor clients have different needs and market research indicated the programs needed to be delivered differently, he said. 

Fidelity has developed dedicated service and investment teams in-house to work with advisors to thoughtfully introduce the SMAs, Gallagher explained. “We can do all this in a highly integrated vertical way,” offering seamless, integrated and scalable services to clients.

Earlier this year, Fidelity acquired Geode Capital Management, which brought a $3 billion customized SMA business for family offices, now branded as Fidelity Institutional Custom SMAs.

The Power of Data

Fidelity said it continues to invest heavily in quantitative resources to help harness the power of data and technology and combine it with the firm’s long-standing fundamental investment philosophy anchored on research. 

Advisors are seeking solutions that can help them go beyond managing money so they can spend more meaningful time helping clients build holistic financial plans, according to Fidelity, which noted the Institutional Custom SMAs extend Fidelity’s broader portfolio construction capabilities for advisors.

Many advisors see direct indexing as an investment strategy that, by directly owning all or a subset of the individual securities of an index, allows investors to tailor their accounts to their tax situation and individual preferences at the security level, the company noted. 

While the Institutional Custom SMAs will provide direct indexing capabilities to advisors, the offering will go beyond index-oriented strategies with plans for active and blended strategies as well.


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