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00:00You're a fixed income guy.
00:01Give us your reaction on what we heard from the Fed chair today.
00:04Yeah, I think it was the right decision, in my view.
00:07Let's start there.
00:08I think we needed the hike to be on pace with the market expectations, right?
00:13Is it just because the market expected it, or fundamentally we need to raise rates?
00:17Fundamentally we needed it.
00:18And it was also needed for making sure that the markets actually think that the Fed is doing what they're
00:22supposed to do, right?
00:24So I think it's on par with where the inflation is and where we need to go.
00:29You see that the curve has already flattened.
00:32The 530s has flattened.
00:33Actually, what's been concerning, as you know, right, the term premium of the tail end, the 10 years to 30
00:39-year term premium has been widening.
00:41And I think, you know, to kind of calm down the markets, this was the right move.
00:45Yeah, but at the same time, when he gave out his projections for core PCE, pushed out that projection, was
00:50it to 2030 in terms of pressure?
00:53So I'm trying to get – I think all of us are trying to get our heads around it about,
00:57okay, inflation is higher for longer still.
01:00It is going to be higher for longer.
01:01I mean, you know, if you look at the core inflation, where the target is for the Fed, we are
01:06way north of that, right?
01:08So we need to definitely tamper down the expectations and also really manage the curve on the front end because
01:14managing the curve at the tail end, that's a lose-lose proposition in my view.
01:18I want to talk a little bit about where there are alternatives now.
01:23I got this really interesting email, probably the first one I've gotten in years, from the – let's just say
01:32it's a publicly traded company that offers a high-yield savings account.
01:35Okay.
01:36And typically for the last years, I've been getting emails from them that's saying, your rate's going down, your rate's
01:40going down.
01:40But I just got one that said, your rate's going up.
01:45Yeah.
01:45So now we're actually seeing a little bit of an opportunity, maybe, for cash?
01:51I don't know.
01:52Are we?
01:53I think it's a great opportunity for cash, for fixed income in general.
01:57Yeah.
01:57You know, the threshold rate, just given the macroeconomic dynamics, will be higher.
02:02I think that, to me, it's given.
02:05The question is, how do you find the right place on the curve to position yourself, right?
02:10Yeah.
02:10So the intermediate part of the curve is really where I think there's a good mix of, like, duration risk
02:16and income profile.
02:17So five, three, five?
02:18Five to 15.
02:20Oh, five to 15.
02:21Okay.
02:22So I think really kind of positioning there to make sure that you're well positioned.
02:25You're kind of far away from the inflation dynamics.
02:29You know, you can actually capture, you know, income expectations in the right way.
02:33I do wonder how much, as we've seen rates head higher and, again, that 10% hitting, I mean, that
02:3910% hitting 5% again, you know, it becomes more competitive, potentially, with the equity universe.
02:44And are we getting to a point where investors are like, you know what, we've had some nice gains in
02:50equities.
02:50We're a little worried about the AI trade.
02:53Fixed income, it's kind of a sure thing.
02:55I can kind of start betting here.
02:56I think, to me, this opens the door for a more balanced approach.
03:00Okay.
03:01Because what has happened is, obviously, the equities have rallied.
03:05And the fixed income, the exposure to fixed income in profiles in different, like, you know, wealth portfolios, institutional portfolios,
03:13is definitely dampened down.
03:15And the exposure to privates, for example, right?
03:17If the threshold rate is where it is right now, it's going to be higher, you know, imagine what the
03:22privates have to do to beat that over a three-, five-year horizon.
03:26So, I think, to me, this actually calls for a more balanced approach from an asset allocation perspective, right?
03:31And really kind of measuring risk for what it is.
03:35Yeah.
03:36So, I think it's less about equities to me.
03:39It's about the entire portfolio and really positioning your fixed income profile in the right way.
03:44I want to talk taxes.
03:46Yes.
03:46With you.
03:47You love talking taxes.
03:48I love taxes.
03:48So do investors.
03:49Lower taxes.
03:50Rick Pitcairn from the Pitcairn family office yesterday stopped by.
03:54He said the huge theme this year is taxes.
03:58Yeah.
03:59And I'm curious about this because you argue that investors are frozen due to potential tax implications.
04:06Right.
04:07I'm wondering what you're quantifying and, like, how you see a solution to that.
04:11Yeah.
04:12So, let me kind of, like, specify what that is, right?
04:14So, if you look at the entire, like, wealth across the U.S. households, it's about $91 trillion.
04:19So, let's break that down to high net worth.
04:22Hold on.
04:22Hold on.
04:22Wealth across all U.S. households, $91 trillion?
04:24Yep.
04:25Okay.
04:25The financial wealth.
04:26Okay.
04:26So, and then if you break that down to high net worth.
04:29Wait, wait.
04:29Do you feel like that's a lot?
04:30No, I don't because I just recently read they've updated the idea of the great wealth transfer to over $120
04:38trillion.
04:39Yeah.
04:40You know, in a few decades from now.
04:42Okay.
04:42Right.
04:42So, that's all of that, you know, the equivalent of all the wealth that exists in the U.S. being
04:47passed to the next generation.
04:48Correct.
04:49Yeah.
04:49With, like, market expectations baked in.
04:51Yeah.
04:51Okay.
04:52So, if you think about the, just like, the investable wealth today, right, and then break down that into what's
04:57actually held by the high net worth investors, that's about 6% of the U.S. households.
05:02That's about $49 trillion.
05:036% of U.S. households are considered high net worth.
05:06Correct.
05:06Which is?
05:065 million or higher.
05:07Okay.
05:08In net worth, right.
05:09So, within that, there's about $5 to $11 trillion of what's kind of referred to as a concentrated equity exposure.
05:15So, that's really kind of like three buckets, right?
05:17So, it might be a legacy portfolio from your family that's actually concentrated in four or five stocks or, like,
05:23decades that's actually appreciated in value, right?
05:26It could be tech executives or executives in general who have accumulated exposure to certain, like, companies.
05:31Or it could be entrepreneurs, right, who's all their net wealth is in one business and it's kind of built
05:38over a period of time.
05:39So, that exposure, right, really drives the wealth of the entire book.
05:44And there's downside risk associated with that, right?
05:47And how do you actually diversify that without having to pay taxes?
05:52That's really the key, kind of, like, the solution.
05:54So, how do you do it?
05:55Yeah.
05:56I was waiting.
05:58So, the punchline is, so, it's a spectrum of solutions, right?
06:01So, the best exposure or the best option here is what's referred to as direct indexing.
06:06And what direct indexing is, as you know, it's an index replication strategy with tax efficiency baked in.
06:12So, you're essentially holding a basket of stocks that tracks an index.
06:16And because it's individual stocks, you can actually sell some of these securities when they have losses in them and
06:23book those losses against gains.
06:26And you essentially maximize your after-tax returns.
06:29But you have to get to that direct index portfolio.
06:32Correct.
06:32To get to there is a taxable event.
06:34So, what you do is you start, you definitely have to start with some exposure where you're diluting, let's say,
06:4010, 15, 20% of your concentrated stock.
06:42And you use that to build your direct indexing portfolio.
06:46And then over a period of time, as you accumulate more losses, you liquidate more of your concentrated stock, right?
06:51So, it's more of a transition.
06:53It's a gradual, multi-year kind of transition.
06:56But it's done in a much more tax-aware with guardrails.
07:00And that's the whole, that's kind of the holy grail of how do you diversify.
07:04You guys have a platform, Remy, right?
07:06We do, yes.
07:07And you designed it.
07:09So, I'm just curious, what can Remy do that maybe other companies can't do?
07:13So, we kind of differentiate in three areas, Carol.
07:16So, to do this right, right?
07:17So, you need to have what's called as a glide path, like a transition plan.
07:21So, every portfolio is different.
07:23Every portfolio is a snowflake, right?
07:25So, you have to design a transition plan in a custom way for that portfolio.
07:29And having that conversation with the advisor in terms of how do you actually balance your tracking area to the
07:34index versus the tax cost,
07:36that's really kind of where we actually work with the advisors one-on-one to understand what the profile of
07:42the client is, what their objectives are.
07:44And then using that glide path as a starting point, but dynamically adjusting it over a period of time, right?
07:51So, that's really kind of how we differentiate ourselves.
07:54And then once you have a portfolio in place, being able to optimize that on a daily basis, because the
07:59losses can occur any day, right?
08:01So, there are certain providers who actually think about rebalancing on a triggered way once a month, once in two
08:07months.
08:08But here, for us, we are able to look at all of our existing portfolios on a daily basis and
08:13see if it makes sense to rebalance those portfolios on that day.
08:16Right. So, when you put that in plan or in motion, right, then you get the most optimal tax outcome.
08:22Right.
08:23So, doing it in a consistent fashion across the different account sizes, because we have account sizes at $100,000
08:29and you have accounts multimillion.
08:32So, how do you apply that consistently and how do you bake in the flexibility, not just in equities, because
08:38we also do fixed income?
08:40That's the key, I think.
08:43Yeah, go ahead.
08:44AI is a big part of this?
08:45AI is a huge part of it.
08:47So, AI is a great place to automate your process.
08:50So, we've used AI to automate our client onboarding, client servicing, but the actual portfolio optimization, that's more analytical, right?
09:00But it does help you do things more efficiently, catch things more efficiently, process data more efficiently.
09:07Okay.
09:07Does Remy get better?
09:11Actually, we all get better.
09:13Our team gets better.
09:14Our team gets better.
09:15The platform gets better.
09:16But actually, it actually helps you break down fragmentation, right?
09:20So, if you think about this fragmentation of data, this fragmentation of systems, and then fragmentation across the different teams.
09:27So, what I really see AI helping us more efficiently is being the glue that helps you connect.
09:33So, when you have to pull the data from system one, pull the data from system two, and then process
09:38it, and then really come up with something more iteratively, that's really where we've seen the best use case for
09:44AI.
09:44When you figure out, or what's the time would you suggest to an individual?
09:49When is there enough wealth already to time to create a portfolio and create that specific blueprint?
09:54Wait, when is somebody rich enough?
09:56Is that what you're saying?
09:57I think the answer to your question, based on capitalism, is never.
10:03Okay.
10:03But you know what I'm saying.
10:05Yeah, yeah, yeah.
10:05Like, they're probably...
10:06Such an existential question.
10:08When is enough enough?
10:10All right.
10:11Sorry.
10:11Go ahead, Carol.
10:12No, but I mean, like, when do you...
10:14Like, when should someone come to you and create...
10:15Yeah, what's the right time?
10:16Yeah.
10:16Yeah.
10:16I would say, if you hold a concentrated stock exposure, right, you have to think about the way to diversify
10:23it, and direct indexing is a great place to start, Carol.
10:25Okay.
10:25But I would say, for custom SMAs in general, be it direct indexing, or munis, or fixed income, I think
10:32if you are a high net worth investor, you have to bake in custom SMAs, or SMAs in general, into
10:38your portfolios, because I think it helps you drive tax efficiency across the entire portfolio.
10:43So that's the key, right?
10:44It's not just customization, because, you know, that gets overblown.
10:48It's about tax efficiency, and you want to make that part of your entire asset allocation.
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