Hi, everyone. This is Andy Rosenberger. Have varying custom indexing and I'm really excited to be here with you today. We're going to cover a lot of ground in our Webex and I'm really excited to show you a new technology that we've built to help you with custom indexing and building custom portfolios. Before we jump into the new technology, I just want to touch really quickly on some of the opportunities. You have with your firm and your clients to leverage custom indexing to manage your client portfolios. So today we're going to cover a couple of areas. First, we'll go over the benefits of custom indexing. We'll touch very quickly on that. Next, we'll go into different ways or unique ways that you can think about using custom indexing to manage different types of portfolios. When we hear indexing, people automatically think the S&P 500 or the Russell 3000. And what I would stress is that there's a lot of different ways. Outside of a traditional index that we can apply the technology and apply how we're managing portfolios, another way of thinking about this is that we're really coming to you and how you manage our portfolio rather than taking our strategies and forcing you to adopt them. So it's heavy on the custom, very light on the indexing. Next we'll walk through that new technology, show you how you can build a custom portfolio. Then we'll get into the reporting and then lastly, both tie it all together with how as part of the Orion experience, we've made this integrated to the Orion technology so that it's not just better and faster and less expensive, but also part of what you're already know and are familiar with today. So why don't we jump right into it? And I want to go through this very quickly, maybe just spend 2 minutes or so talking about what we can do with custom indexing. But I like this slide from the perspective of how do you explain this to a client? And when I think about all the different features and functions and abilities that you can apply to custom indexing, I like to think about it through these four different groupings or four different buckets. Now, these buckets aren't mutually exclusive, meaning that you can apply multiple buckets to the same client, or you could take parts and features from one and apply it to the other. But it's helpful to think about it through this construct just as a way of wrapping your arms around all the functionality that we have at our disposal. The first one would be tax conditioning. So tax transitioning would be how do you take a client assets and go from point A where they currently are to point B. We're trying to get them in a very measured approach with either a defined capital gain budget or by taking as much in kind as possible, including that as part of the new portfolio. That's what we're going to make the focus of our demo today. So we'll save that for just a couple of minutes from now. Second would be taxes harvesting. Texas harvesting is one of those things that I think we all know that we need to do in practice. But when it comes to actually implementing on the back end can be very time consuming. So I would just stress that know that as part of the custom index and offering this something that we take off your shoulders and something that we do automatically for you. And it's in fact something that we do on a daily basis where every day we go in, we look at our clients, we look for harvesting opportunities, we take those losses rebalance and then make that part of our overall process. ESG Sri faith-based screening. This could mean different things to different people, but it's a way of taking an investors preferences and applying it to their portfolio. And then very last bucket here on the far right we have investment customization. Investment customization would be things like tilting towards energy stocks, or removing certain securities from the portfolio, or removing automotive dealerships from a portfolio. Different levers you can pull to get the investment exposure that you're looking for for that client. Now again, I'm going to spend a lot more time talking about the tax transition. I'll loop in some of the EGFR and investment customization as they go through the demo. But before I jump into what that technology looks like that we're going to put in your fingertips, I want to take a little bit of a step back and also review that the way that we think about custom indexing should just be through the lens of an index only portfolio. Now this slide that we have, I hope will help you understand that there's a lot of different ways you could apply custom indexing to an investment strategy. If I go from left to right and walk you through a couple of options, I'm going to start on the far left because I think that's the most straightforward and it's what people think of today when they think about direct indexing. This would simply be taking an index like the S&P 500, Russell 2000, MSI all country world, whatever it may be, and then overlaying on top of that index to create a customized portfolio. So it's essentially like you're building an index for the client. And I think people generally get that and that's fairly easy to do and it's something that we offer also. Option two, we get into a little bit more customization with how we build that index. This would be not just let's say excluding companies that might violate tobacco concerns or or climate concerns, but this would be tilting towards a certain part of the market or parts of the market that the client may want to have more exposure to. So for example, they may want to tilt towards high dividend stocks or they may want to tilt towards quality stocks or low volatility stocks. So it's taking an index and then it's putting a factor tilt on top of that index. Again, I think people generally get that you can do that today with indirect indexing. When we get to option 3456, I think this is where it starts to get spawned in where we can really differentiate our offering. And that's because we have a lot of other ways that we can apply custom indexing to a portfolio. Option three would be ETF replication. You see, application would be using one of the ETF's out there today. Where there is publicly available information on the holdings. And replicating the ETF of your preference. I won't name names. For any particular provider. But we all know that there are a handful of really great ETF's out there that are not at index like pricing, they can be fairly expensive. But they may be good strategy. And So what we can do is we can point our software to that ETF. Look at the holdings. Replicate that ETF often for a lower price point, but also with the additional benefits of taxes harvesting, tax transitioning, E SG Sri investment customization. So again, it's not off forcing to take the strategy on you, it's you telling Orion what exposure are you trying to accomplish. We can then replicate that exposure. Moving on to option 4, this would be a separate account. Now this could be a third party separate account that you're like working with. It could also be a separate account that maybe you manage internally. So maybe you run a high dividend strategy or maybe run a large CAP portfolio? That portfolio is something that we can set on top of and we can implement on your behalf and create that customization. I can't. I can't tell you how many firms we have that have their own proprietary strategy. I know how difficult it is to get existing clients into that strategy because they may be saying a bunch of embedded capital gains and they may be coming from another broker where they have a bunch of mutual funds or ETF. The separate accounts be another way of another portfolio that we could set on top of moving on to option 5. This would be where we take any one of the prior 4. And we blend ETF's or even mutual funds into that allocation. So let me give you an example. Let's take a traditional index option one, we'll pick the Russell 3000 and then we're going to blend a, a emerging market ETF into it, a international ADR or an international ETF into it. Maybe we'll blend AG for some fixed income, maybe some J&K for high yield exposure. Maybe we want to bring in, maybe we want to bring some small cap, additional small CAP exposure. So we'll have a dedicated. Sure. Two out of UM. So it's creating this hybrid strategy where you're taking the core of direct indexing, you're unwrapping that traditional index, but then you would create satellite exposures to complement that portfolio. You could do that for tactical reasons because you want overweight or underweight particular part of the market. You could also look at it more as a robust turnkey asset allocation portfolio where maybe you want to create different risk profiles or different exposures to give access to clients. And then option six would be unlike Option 3 where you're unwrapping the ETF and you're pulling it apart and you're buying the underlying individual securities. Option six is instead saying that we have a portfolio, you have your portfolio that may have five ETS, ETS, PEN, ETS, whatever it may be, and that's the portfolio that we want to get to. So that now becomes the security list that we buy from and it now becomes the portfolio that we're ultimately getting to. So it's not about taking apart. An existing strategy, more so sitting on top of your existing portfolio. As you move from left to right, you do lose some functionality when you get to comingle products. For example, for buying ETF and mutual funds. Obviously we wouldn't be able to do individual security restrictions there and remove Apple or we wouldn't be able to put ESG on top of a a product like like SPY or MBTI or some other ETF's out there. But you still are able to remove the securities, customize the securities at the ETF level or even tax transition into those securities so long. The way of saying that we have a lot of different ways to think about what is that underlying index look like. It doesn't really have to be an index at all, but instead could be what is your portfolio? And then it now becomes on the Arian side, how do we replicate or get you exposure to that portfolio as closely as possible. So with that, I think that's a good transition and this will make a little bit more sense as I show you the technology, jump into that technology and run you through a transition example. OK, now jumping into the demo, this page should look familiar to most people. Here we have the main Orion page. When you log in, there's a couple of different ways we can access our new technology. I'm going to show it as if it were a prospect, meaning that the accounts weren't set up in the Orion system, or maybe they weren't at the custodian feeding over to us. But if this one existing account where we have the data, we'd be able to enter into it through portfolio viewer, through risk intelligence or through different areas and they are right ecosystem where that account would be available for today's. Example. I'm going to go to the left here. Choose portfolio audit. And then there's gonna be a new section here under prospects called custom indexing. And for here, we're going to launch into the new technology and before we actually even get into it, being that this is a prospect, we're going to want just some simple information such as what does the client name. And then ultimately what their holdings look like. So let's start off with putting in the name and then we'll get right into it. So the first thing that we see getting into this technology and which I hope is very apparent is that it's very easy to know where to start from here. We're not putting you into an experience where you don't know where to click, but really what we want to do is almost as if you were going into a financial plan where you're trying to achieve a goal. We're asking the question, what are you trying to accomplish? The nice thing about about coming to this screen is that it's easy and quick, but also it then helps us ask the right question to answer the problem that you're trying to solve. Now if you were just coming into front of portfolio with cash, you could put the cash amount here and start that process. If this one existing account and you want to see what it would look like to withdraw money from the portfolio, you could do that here. If you wanted to transition over multiple years, let's say that you want to do a three-year transition to go from the clients current assets to a target strategy, you could put that in here and get started as well. For today, I'm going to go through the one year transition. And I'm going to put in a capital gain target of 50,000. Now. You don't have to put in the capital gain target. What this will help us do though is come up with a recommendation of which portfolio the client may want to select. I'll give you this in a little bit more detail here in a second. But if they don't choose an option or if they put it 50,000 and determines that they don't want 50,000 as their capital gain target, that's totally OK. You don't have to start the process all over again. We've. Thought through this enough to help you with the very end, be able to choose different portfolios that you may want to you may want to increase or decrease that capital gain budget from. So let's go to the next step here. Now that we know what we're trying to do, we now have to collect what is the transition that we're trying to apply on top, on top of the portfolio too. So what I'm going to do is I'm going to take some holdings from Excel and I'm going to paste them in here. And a couple things I'll point out before we get to the next screen is that first of all I copied in ticker and chairs, but ideally what you'd be doing is you'd be pasting in ticker shares, cost and purchase type. The more accurate we have. The better we're going to be able to construct with that transition would look like. But we know from doing this a long time that not always are you going to have the cost basis is available, the cost basis data available to you. And so we've created a couple of helpful shortcuts to find that data or to at least estimate what that they would look like. One way would be if you come in to set them out, you could pick up a percentage of the market value, you could say the client. Thanks to portfolio is up 20%. So we use 80% of the current value or what I like to do is let's say the client, it's at 789,000. Now we know the client invested $600,000 at the inception. Let's use $600,000, prorate that across all the positions and we'll use that as the cost basis. Another shortcut is for the date you could go in. Here you could pick a date, let's say the client invested February 1st of 2021. We'll go use that date as the purchase price for that particular position. Neither one is going to be necessarily perfect. But what we hope to do is we hope to at least give an estimate so that when we do have that accurate information, we'll be able to facilitate that conversation and keep the progress going forward. So let's move on to the next step. Actually before I move on to the next step, let me just reemphasize here that if this running this thing client and something that was at the custodian feeding over to Ryan. This would data. That data would be in here and you can make changes or edits to the data before moving forward, but it would automatically be populated. Moving on to the next step. Here we're now giving you the ability to customize the portfolio. We have two ways of going through this experience. The one way is just doing it as quickly as possible to get to the next step. And not really getting into the weeds and the customization in too much detail. The other one is for when you really want to. Delve deep into customizing the portfolio would give you that functionality. And so the simple way of doing it is you come in and you say maybe the client wants to exclude General Motors and Ford from the portfolio and they're concerned about the climate, so they're going to pick a climate conscious risk or a climate conscious persona. But maybe you want to take a little bit more of a detailed view. Maybe you want to get a little bit more granular with how the decisions are made. So you could come in here and instead of just saying let's get rid of General Motors and Ford, maybe you want to. Put a restriction for Tesla where you're going to target A123 percent weight. Do you want to force Tesla into the portfolio or at least make sure that it's owned in the portfolio? So we'll do that and then also let's go in and say that the client. Doesn't want to have or just. We'll stick with the automotive team here. Let's say they want to remove automotive manufacturers. That will limit that to, let's say, we'll limit that to a 5% weight. Maybe they want to come down and in addition to being concerned with the climate, they're actually OK with nuclear. But they don't want to have tobacco in the portfolio. So we'll move on to the next step from there. So now we have, what are we trying to transition into? We have what we're trying to do. We're trying to do it on the customization. Now it's what are we trying to accomplish? What is the underlying investment mandate that we want to get that client invested towards or close to. Couple of things on this page. One is that going back to the idea of having different experiences, the first experience is 1 where you just want to get through it as quickly as possible. And So what we've done is we've surfaced to the front three options that are closest to what the client currently own. So take a look at the clients current holding. We've gone through all the different templates and models that are set up and we said here are the here are the three that are most similar to what they currently own. And then from here you can pick the first, second or third from the list and move on to the next step. My analogy would be if you've ever logged into Netflix before you watched a couple of shows, Netflix is going to say next time you log in, here's what I think you're going to watch next, very similar concept. For those of you though that want to get a little bit more into the weeds and you want to look at each of the strategies. And compare and contrast the clients current holdings versus what the target portfolio would look like, we'll give you that ability to do that here. And from here you can pick from any one of the strategies that you want to select from. One other point before moving on and that's that this list that we have available for you will include everything that we have off the shelf, so all our different indices and factor based portfolios and does anything that would be set up specific for your farm or for your database going back to that slide earlier or maybe you want to replicate an ETF. Maybe you want to put on top of your own portfolio that would be in this list as well and so that would be specific to to your firm. It would not be something that other firms would be able to access. I'm going to pick the large cap strategy. And then we're going to go on to the next step. Now this page just simply thumbs up everything. Let's go back and make any changes if you would like to. One more thing that you can do on this page though is you could also come in here and change the number of holdings or change the client tax rate. I would emphasize, just make sure you're reviewing the client tax rate for two reasons. One is that by knowing the client tax rates, we'll be able to make a better decision on what we buy and sell. And the other is that when we tie this back into the reporting, whether by showing them what the transition would look like and what the, what the liability of making transition would look like, but also. If when we when we view it from a taxes save number on the ongoing report. The more accurate we have on tax rate, tax rate data, the more accurate we'll be able to quantify the taxes save for that end client. To better decisions, but also better reporting. And now I'm going to finish this off. Now I over explained there, in reality this is 6 steps and probably about 3 minutes end to end. What's going to happen here is we're not going to build out a series of portfolios. We're not just going to build one recommendation, but rather we'll build a series of different recommendations. Going back to the idea that this is a transition where point A we want to get to point B. And what's important about point A to point B is that there's not just one right solution of portfolio, but there's many different paths or there's many different portfolios that you can create in between A&B. You could create a portfolio with a dollar capital gains or $5 or $15 or 20 or 50 or 500 or 5000 or 50,000. And even though that's not an infinite number of blows, there's a lot of different portfolio customizations that you can pick from. So what we're doing is we're going to build out a number of different portfolios and then we're going to let the, we're going to let you pick which one you think is best for that client. Once that finishes running, what we now have is a series of portfolios that you can choose from. Couple of things you're looking at here on this graph we have. You can see that there are different options. Each one of the bars. Would be what the capital gain would look like for that option. Separately, but related, you have each one of the different points on the line chart. Which would be the tracking difference or tracking error of what that portfolio would be. The way to think about tracking difference or tracking error is that the bigger the number, the less you are like that target portfolio. The smaller the number, the more similar you are to that target strategy. And so as expected as your capital gains go up? You become more and more like the target portfolio, meaning you have a lower and lower tracking error. The lower your capital gains, the less you're willing to realize. The less similar you are to that target portfolio so becomes a trade off. Now, if you were playing, if you were, if you were trying to do this outside of the Iran system, you're working with a third party firm. One of the things that you would do is you play this game of ping pong where you go back and forth, back and forth, trying to find the right answer. The nice thing about what we've built is you can come in here and let's say that you decide that portfolio 2 was not the right portfolio, but rather it's portfolio three. Well, you can come in here, you can pick that and that that now becomes the selected strategy. Or maybe you want to compare a couple of portfolios. Let's say that you want to compare two and one. So we can come in here, we can look at what the gains would look like. Here we have 46 versus 86. The tax liability with the client would be paying taxes to make that change based on the tax rate. Allocation. Style box. Sectors. Holding. Risk and then ultimately Woods bought and sold in the portfolio. It could be that you want to show one option to the client. Maybe you want to show two options to the client. Maybe you want to do something where you show the client too extreme. You show them one that's very low when it's very high, with the goal of guiding them towards the portfolio that you think is best. Now with Pete, about what we've built is whatever you pick here, whether it's one portfolio, 2 portfolios or three portfolios, that's what determines what is built into the output of the proposal. At the bottom we have download proposal. If this weren't existing account account, if this was something that you had launched from a current client, we would also be able to launch into the experience, launch into the tool where you're leaving out the account. And then this would automatically apply everything that we've built here. To the settings on the back end. They're not reapplying those a second time. If I click download proposal. We'll switch over the output here, and I'll walk you through what that looks like. South, switch over to the output here and here we have the PDF that we generated for that client. Couple things I'll point out is that first, this we've branded under your firm your firm's branding logo and colors. If you have that set up, that could be either at the representative level or at the overall firm level. Putting the client. We have a couple of slides which explain custom indexing, what it can do? How it works? This is particularly useful for when it comes to explaining taxes, harvesting for clients and how by owning the underlying constituents you now have more opportunities times harvesting portfolio. So I would encourage you to look at the slide, learn it, use it with your client it it plays very well when walking through the benefit. And then we get into. The strategies are the customization that we built for that client. So here we picked the large CAP strategy. We restricted Tesla, General Motors board. We put a climate. Restriction on the portfolio that's going to be brought in here. And then based on what we picked earlier, this will ultimately determine what's generated in the output. So here are those three options, option portfolio 2 which was recommended. So we can come in here and we can show what the characteristics of that portfolio would look like. This is a very slim down version of what we had shown in the on the prior page where we had the more detailed option. Really the intention here is for you to be able to sit down with the client given the high level overview of the recommendation and then ultimately where I think is probably for what is probably the most important page. Is then be able to quantify it for the client. So this last page we can go in and show its client where to liquidate everything. They're realizing, realizing close to $38,000 in taxes, but because we're taking this transition approach because we're able to take their existing positions and incorporate them into the portfolio, we're now realizing. More like $9000 in taxes. Well, 38,000 if they were to liquidate or if they were to go to an ETF or model based portfolio compared to 9 is a lot less. And so we can calculate that difference, that close to $29,000 of tax savings. So you're turning the narrative on its head, really, instead of talking about the gains to make the change, you're not talking about the savings by taking the more customized solution path. What's neat about this is that this number here, this tax savings number is also going to be something that we carry through to the end client report and incorporate that as part of the client's taxes saved number. So with that, why don't we jump into the report? So here's an example of an end client report that we've built. And before I jump into some of the highlights of the report, another thing that we emphasized is that this report now becomes your report. So we copy this over into your database. This becomes part of however you want to run your your performance, whether it's ad hoc, monthly, quarterly, annually. It also becomes a page which you can now customize brand as your own or even move things around or take out or add to the components so it becomes part of your reporting package. What are one of the things I want to point out? A couple things I want to point out on this presentation though, or this this report would be first one being at the top right where you have this cumulative tax saving number. Now this tends to sit really well within clients because it's a way of helping change the narrative around what is just the performance of the portfolio to what are we doing outside of just the day-to-day management and the ongoing replication of the strategy. And really it's focused on how can we measure that value add from a tax savings perspective. Now we look at that. We calculate this number with three to three different components. Those three different components are the three different categories that we're using to calculate that taxing the number are actually hear more detail in the middle of the report. And so the first one is tax loss harvesting. Tackles harvest saving. Is a product of us going in every day. Taking losses where we can. Keeping track of those losses and then aggregating up the amount of those losses over time times the tax rates for the client. And so by being very proactive and going in daily looking for those losses, what we're doing is really creating either a bank that they can use in future years. Or for clients who are transitioning a portfolio over multiple years or starting from a a spot where it may not be close to what they are trying to accomplish, we can use those losses to offset gains in a very tacked neutral way. So tax savings from taxes harvesting would be one of those points of the calculation. Another part of that calculation would be the tax transition savings. So when I showed you the proposal experience running through and creating that transition, at the very end we had that tax liability for the current portfolio compared to the tax liability if they had to put everything. Same concept here. We're capturing that number up front and we're able to measure the value. Of those of the client being able to take those positions in kind, incorporate into the portfolio and diversify around them or use them going forward. So that's another part of that cumulative tax savings. And then the third part of the tax savings, is this tax savings growth? And this is pretty unique and I think something that people are going to appreciate especially over a longer period of time, which is that we can now quantify the value of money is not paid to the IRS. And having those monies stay invested into the portfolio and compounding on their behalf or if I say that a little bit, a little bit more succinctly, what we're going to do is going to take everything from taxes harvesting, everything from tax transitioning. And when a compounded at the rate of return of the client's portfolio. To signify how having that money invested is working on their behalf. And so even though that may start off at a very low number, the beginning of the account, and it may at times be negative because the account goes down in value over a long period of time, we're going to find is that. That cumulative tax is going to compound and it's going to become a bigger and bigger component as that tax savings works on behalf of the client by staying invested. One more thing I'll point out before we wrap up on the reporting is the bottom right where we had talked about the tracking difference. One of the challenges of tracking difference is that very few clients really understand what it means. I think as an industry generally we get the idea that the lower the number, the better. But what is a 1.8 track near? Is that good or is that bad? Well, one of the things that we're doing is we're putting a lot of context around what does that number mean? And by putting some scale and graphics around it, we can help better help you have the conversation of are you where you need to be or do we need to think about really realizing some more gains ultimately get closer and closer to that target strategy that we're trying to achieve? By tying together the taxes save with the tracking difference and even if we go into the lower left and talking about the investor profile, whether the transition over multiple years or they have a capital gain budget. The reporting here is really meant to be a robust but fairly simple way for you for you to be able to have that narrative and conversation with the client and give them an update on what their portfolio looks like. So with that, I'm just going to wrap up with one additional thought here and that's that we've gone through a lot of content here, whether it's the functionality and what we can do within custom indexing, So what we can put it on top of. From different types of portfolios through the technology, all the way to the reporting. And if what you've seen isn't differentiated or enough to know how much effort and time we've put into our customer solution, I'll throw out one more thing for you, which is that this is all part of the the Orion technology stack in addition to building out all this functionality. What we've also done, and really try to think through, is how do we make it so that it's simple and easy for you to access. So by putting it as part of the Orion technology stack and being able to access it through portfolio audit or portfolio viewer or retail or risk intelligence, we really want to make this easy for you to access and not have to spend a lot of time thinking about how to allocate a portfolio or how to go into a different system or remember the login for a different system so that you can actually apply it to a client portfolio. So with that, I want to thank you for the time today. If there's one thing I want to leave you with, it's this, it's that you've seen the technology, you've seen the functionality. You've seen what we can apply custom indexing on top of, but I also want to emphasize that this is all part of the technology that you know and use today. And So what we've really tried to do is make this as simple and easy to get access to the solution and to be able to apply it to a client portfolio, whether that's accessing it through portfolio audit or portfolio viewer or through Redtail risk intelligence. The idea is that it's at your fingertips and it only takes a few clicks on the button to really help you set up that portfolio, customize it and then implement it on the client's. So hopefully you like what you've seen. And as far as next steps, what I encourage you to do is reach out to your contact at Orion if you'd like a personalized demo, if you'd like to move forward to the next steps, would be happy to have that conversation or to move that along. And we really appreciate the time you've taken today. So with that, I will leave you and thanks again. Have a great day. _1721018515174

Feel the Power: Orion’s New Custom Indexing Advisor Tool

To help you deliver a customized investing experience at scale, we are disrupting what you know about direct indexing and empowering you to provide clients with the personalization that they crave.

Join Andy Rosenberger, CFA, Head of Custom Indexing, to see how Orion's Custom Indexing can empower you to easily bring proactive tax management to every client through cost-effective and customized portfolios at the touch of a button. Armed with the right tech and outsourced support, you'll learn how you can: gain valuable time back in your day, deliver personalization at scale, and add new revenue to your repertoire.

0563-OAS-2/22/2023

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