Direct Indexing Platform’s Ethics Says Assets Could Double Again to $4 Billion This Year

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In 2021, RIAs helped ESG-focused asset manager Ethic reach the significant milestone of $1 billion in assets under management. Now, Ethic expects to top the $2 billion mark in the coming weeks and says that number could double again before the end of the year.

The company said Intel RIA that it is on track to have more than $3.5 billion by 2023, the result of a strong pipeline of inbound customers drawn to the technology platform that meets the individual needs of RIAs and their customers.

Ethic, a separately managed account platform that was founded in 2015 and that wealth managers use to create bespoke stock portfolios for clients, now has over $1.9 billion in assets. managed on the platform from 90 wealth management firms, representing thousands of advisors, families, networks and institutions. Another 30 companies have signed deals with Ethic, and these will be onboarded within the next six weeks, pushing the company well past $2 billion in assets under management. Since January last year, the number of accounts on the platform has grown from 400 to over 1,200, a jump of 300%.

Ethic added 25 employees last year, and by the end of the first quarter of this year, the company had reached a total of 65 employees. Alex Laipple, Head of Business Development and Relationship Management at Ethic, said Intel RIA that the company plans to grow to 100 employees before 2023.

Just four years ago, Ethic managed around $20 million for a handful of businesses and families, a far cry from the nearly $2 billion currently on the platform.

“The first 100 million was the hardest because we weren’t in the arena yet. It’s only when you manage the money that you’re able to improve what you can deliver,” Laipple said.

Crossing the $1 billion mark in assets under management was another crucial milestone for the company, which boosted investor confidence in Ethic, Laipple said. He attributes the company’s accelerated growth over the past year to three factors.

First, due to industry consolidation and the acquisition of Ethic’s four main competitors – Aperio, which was acquired by Blackrock in November 2020; Parametric, which was acquired by Morgan Stanley in October 2020; Just Invest, which was acquired by Vanguard in October 2021; and OpenInvest, which was acquired by JP Morgan in June 2021 – Ethic is now one of the few majority employee-owned direct indexing providers in the industry.

“The ability to be an independent solution is really important when working with independent advisors with their own brand,” Laipple said.

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Second, Ethic’s technology was developed in-house by Ethic’s engineers, and it was designed specifically to help advisors connect with clients and build loyalty by translating client values ​​into investment opportunities. managed. It also quantifies the impact of each client’s portfolio. Laipple said the growth and development of Ethic’s technology is a particular priority for the company, and for this reason the majority of hires over the past year have been engineers and product designers.

The final growth driver, Laipple said, is Ethic’s focus on innovation through partnerships. In December 2021, Ethic partnered with Morningstar to provide its advisors with access to eight Morningstar indices, and over the next few weeks, Laipple said the company plans to announce expansions into new products, new clients and new geographies.

Laipple estimates the company will add an additional $2 billion to the platform by the end of 2022. It is currently in the process of onboarding around 30 companies, with another 30 currently going through the due diligence process. Most of them, Laipple said, will sign with the company this year.

“The best is yet to come [when it comes] to our growth,” Laipple said. “Our growth from zero to [$100 million came] of a handful of companies. Our growth from $100 [million] at one billion came from 20 or 30 companies, and now we are in a position where we work with more than 120 companies. So from a harvest perspective, we’re just getting started with a lot of our customers. »

In Q1 2022, Ethic had approximately $330 million in net flows, more than double the $150 million in net flows added in Q1 2021.”[It’s] the strongest quarter of net flows we’ve ever had,” Laipple said.

Holly Deaton (@HollyLDeaton) is a writer at RIA Intel and based in New York.

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