Optimization and Personalization Using Algorithms with Dana D’Auria

Jack Sharry: Hello, and welcome to WealthTech on Deck. Thanks for joining us. The focus of our podcast is around the future of financial advice. We talk with industry leaders about their strategies to aid advisors and their clients in achieving improved financial outcomes. Each week, we explore a variety of topics around wealth management, and wealth, tech strategies and execution. Our guest today is Dana D’Auria, who is the Co-Chief Investment Officer at Envestment. Welcome Dana, good to have you on board. Thanks for having me. Good to be here. Great. So Dana, let’s start with a little bit of background, I know you’re at least technically new to invest in, although you’ve worked there for at least with them for a number of years, and reading up on your bio. But talk a little bit about your background, leading up to what you do today. We’ll talk more about what you do today. But tell us how you wound up doing what you’re doing?

Dana D’Auria: Yeah, so I joined Envestnet about 10 months ago, which was, you know, it’s been a blur, it feels like, you know, it could have been a couple of months ago. And prior to that I was at symmetry partners, which is a partner to Envestnet. it’s an asset manager boutique asset management firm. It was there for 14 and a half years. And we were one of the earliest onboarded asset managers on invest that, right. So back in 2006, it was actually one of the first things I worked on when I got to symmetry was onboarding us as an asset manager to Envestnet. So I got a chance to see firsthand, you know, the distribution capabilities that that being associated with the platform was able to provide, and then ultimately, symmetry also became a client of investments. So I really, you know, got a chance to see invest that from sort of the outside in from a couple of different vantage points got to meet a lot of the people over here. And you know, my trajectory at symmetry prepared me very well for the role I’m in now, because I kind of moved up the ranks and research from analysis and portfolio management to heading up the research effort ultimately became a managing director at symmetry. So it had, you know, a foot in each world in terms of the investment side, but also the business side of investments. And that’s very much what I’m doing here in this role. I’m the Co-Chief Investment Officer here at Envestnet. So it’s very similar role. So very nice path for me to go that way.

Jack Sharry: That’s great. So talk a little bit, if you’re worried about what you’re doing now, what’s the role? What is it the Chief Investment Officer do these days, and I know you’re part of a much larger strategy as a student of investment and well, that they’re doing around intelligent financial life and so many other things about connecting many dots. And I know you’re actively involved in much of that. So describe, if you would, what you do at Envestnet, and how that all, how all that comes together.

Dana D’Auria: Yeah, it’s a very nice place to be as an asset manager, because we’re an asset management arm attached to a FinTech attached to an integrated wealth platform. So we have access to data and technology that is really kind of differentiating for us in the asset management space. And certainly, my view is and has been that tech is going to, it’s transformed so many industries, right Jack and asset management is one of those. And so it was, you know, good for me to come into a position like this, where tech and data are very much the fuel that’s powering everything we do Asset Management among that. So I sort of get to be at the junction, Envestnet PMC is the asset management arm of Envestnet. So on the investment side, my role is to oversee a lot of the investment capabilities that we bring to bear. So what are those portfolios, model portfolios, due diligence, platform research and due diligence on all the asset managers that we have Overlay Services, which is, you know, tax or impact overlay that we do across managers on our platform, CIO support, where we’re helping home offices with investments, and you know, a variety of others. One of the big, like, maybe single biggest Initiative, or certainly one of the biggest is impact, and how we bring ESG and value and values-based investing to the platform, and also to our own investment management. So runs the gamut. And I get to sit at the junction of all these different pieces of the puzzle that investment has assembled, including exchanges, which bring in a bunch of non-traditional assets into the mix in terms of what you can offer the client insurance credit, you know, health care services, trust, et cetera.

Jack Sharry: Gotcha. So as a historic asset manager in terms of your background and what’s led up to today, you’ve looked at pretty much investments and how to make sure those investments go up right. And deal with it by simplifying I know and deal with issues of risk and all the normal things in a portfolio. And what it sounds like. And we’ve chatted a bit about this in the past, it’s a much broader portfolio from a business standpoint, strategy standpoint, where, as I understand and better for you to describe, you’ve been asked to kind of connect the dots across a lot of different parts of investing that I’m picking up the overlay capabilities that you’re working on. The credit exchange, the annuity exchange, the trust, exchange, all the different exchanges that have been announced over time. I’m assuming that’s an assumption on my part, some of the acquisitions are partnerships that I see that are being done a lot. It’s about connecting the dots. And I put this in the context of the intelligent financial life which Bill Krieger wrote. And I’ve read, it’s about sort of bringing it all together. So why don’t you describe your role in the midst of all that it sounds pretty interesting and exciting, actually.

Dana D’Auria: Yeah, the intelligent financial life, if you haven’t had a chance to read it, I invite anybody who’s listening to the podcast to do so it really is a nice framework for what we see as the future of not just asset management, but wealth management in general. And Bill did a really nice job of kind of getting people to that next step of any of your daily transactions are an on ramp to your finances, right, your longer-term finances. And if we’re all doing a good job, collectively, in this industry, we’re able to make those connections for you. So certainly invest that which has put together as to your point, Jack, a lot of different partnerships, acquisitions, things that we’ve built over the years, the goal really has been to create this holistic platform. And I would say that everybody’s mandate at some level, is to help to integrate that platform and connect the dots, as you’re saying, so that clients can get the benefit of that. Right. So maybe their first entry point to us is via money guide and financial planning. But then, you know, what other opportunity sets do we have available to them? Where can we make best of breed solutions available? So all of us are sort of looking at that question of, okay, how do we put these different pieces together? specific to your point on my role, where I see Asset Management coming into this is in terms of portfolio curation. So if I think about, you know, a standard portfolio in the industry is 60 40. Right. And it’s public equities, oftentimes, and public fixed income via mutual funds, maybe, or ETFs, or SMA is depending on the account size, what I think the future of asset management has to kind of be and portfolio management has to be, is solving the problem. So let’s say it’s decumulation, with all the different asset types that are relevant to that client, right, and trying to, as the advisor, figure out what set of solutions makes the most sense for the client. And of course, this is part of financial planning forever, right? Like, you know, the advisor will go out, and they’ll say, Okay, I’m gonna pair, you know, an annuity with an equity piece, I think, where we get to really leverage the power of all of the pieces that we’ve assembled is that we help the adviser along that path to the greatest degree that that’s possible. So if it’s a decumulation strategy, you probably have an equity sleeve, you know, for growth and fixed income for your cash management needs, and some sort of deferred annuity for longevity protection. So putting that together, putting those pieces together. Another example is a high net worth portfolio where you’re bringing in non-traditional private markets, for example, right? So a lot of advisors, I think, haven’t looked in this space as much it’s, it’s a little bit overwhelming or intimidating in terms of if you haven’t been in that space, can we make it more accessible, so that more clients who are eligible for those types of assets and products are able to access them and get the benefits of that, right, whether it’s income generation or downside protection, better diversification, whatever it may be. Another example would be, you know, we have a credit exchange. So if you have a client, which we see all the time, right clients with captive stock positions, and you know, the question is, how do I how do I manage that without creating a massive capital gain? Maybe the way you manage it is we create a custom indexing solution around it a completion portfolio, we put an overlay a tax overlay service on there, where we can help you slowly migrate the stock position over to a more diversified portfolio, and you use a securities backed loan to manage your cash flow needs in the interim, right? The idea really is just to help advisors increasingly bring these different instrument types to bear. I mean, if you’re the advisor, you’re obviously dealing with the need to bring scale to your operations. And so can we scale these more, you know, sophisticated ways of managing client assets.

Jack Sharry: So as I listen to this, and I’m familiar with it all I follow, invest that closely in the news and all the different pieces and parts. Pardon the expression but this stuff’s complicated. They say something else. But there’s a lot there. And so maybe if you could describe, what’s your role in that? In other words, your orientation is obviously on the portfolio and all the way things can work. I mean, that’s sort of central to do any, any household set of holdings that come together, maybe I know you’re doing some work. I know it was announced at the, at your recent investment day, you know, conference around some of the work you’re doing on tax overlays. How does that come together? How do you? How does that manifest? How does that play out in terms of connecting investments with, say tax management is an example.

Dana D’Auria: So a lot of times it’s a service, we have a tax overlay service at invest net, where and it’s unique and differentiated, I would say in the space because it truly is a separated tax overlay. And you can also use impact overlay service that can attach to any equity, money manager, equity SMA, money manager within a UI. So what you’re able to do is instead of you know, so most of say the direct Indexing Options that you see out there, Jack, you’re really they’re going to tax manage a piece for you. But they’re also have to be the asset manager to do that. Right. So whatever slug you’re giving them for CAP gains, realize aid or excuse me, Cap loss realization, or tax management, you know, it’s generally wedded, our solution comes together. And it’s the right way to ask it is how you asked it. Because it’s not necessarily the part of asset management that comes with a portfolio engineering or portfolio management, because you have the asset manager separately, right? Creating their buy range, sending the signals and say, Okay, this is what we’re buying this what we’re selling. And then if you put tax overlay on top of that, it’s a separate service, that’s basically going to optimize you to that allocation, that that asset manager on affiliated to us. I mean, certainly, we’d love for you to use ours, but you can pick an unaffiliated manager, we’re going to just use the algorithm to optimize to that strategy, but at the same time, meet tax mitigation goals. So it’s a balance, right, that the advisor working with our team is going to figure out how much do I want to balance, you know, tracking error with CAP gains realization, a lot of the times these services are picked up when a client is migrating assets from, say, a stock position, or an advisor had been managing with certain positions. And they’ve just decided for scale reasons. They, they want to move over to a managed account framework, but they can’t rip the band aid, right. So you put the tax overlay service on. And then you say, okay, tax sensitivity wise, tracking error versus cap gains, I’m going to, you know, slowly move this over, the algorithm is going to do that, as you know, a lot of advisors do that on their own right, it’s part of one of the things they sort of do as a value, add, I know many advisors who sort of spreadsheet that type of thing and say, Okay, I want to get you here, here’s where we are, I’m looking at a spreadsheet, and I’m kind of making decisions about okay, well sell some of this and move over to some of this. And it’s, you know, it’s very manual. And this is an algorithm that’s going to do that for the client, it’s going to continuously look for CAP loss opportunities. So it’s just, you know, it’s a very nice way for the adviser to automate something that, you know, they may have been doing manually and probably get a better outcome, because they’re able to, you know, it’s an algorithm that’s focusing on that.

Jack Sharry: Gotcha. So one of the challenges, I know you’re aware of, is you’ve got a lot of capabilities that investment, you’ve got Yoli for data, you’ve got word, I’m not sure you’re using those names anymore. But you’ve got data aggregation capability, you’ve got money guide pro with the with the planning tools, certainly, state of the art platform in terms of all the different holdings. You’ve got multiple exchanges, annuity, credit, trust, probably more coming. And so there’s a lot there. And one of the challenges, I suspect and observe is how do you connect all those dots? In other words, how do you bring that together? That’s got to be a big challenge. You’ve got Tamarac, and you’ve got, I can’t remember all the companies, but you’ve got a lot of different capabilities that have come together, how does that come together? And is that part of your role? Or is that for someone else to figure out?

Dana D’Auria: Well, so on the asset management side, it becomes part of my role because I have these great opportunity sets. How can we leverage so for example, you mentioned the overlay, right? We get great spending insights from usually it’s very interesting to get the insights from usually about and so what they’ll do is they’ll take the identified client data, they’ll say, Okay, well how is spending looking on different types of products, different industries, different sectors, and, and so you’re getting and you’re getting real time information, so you’re not waiting for earnings announcements to see how everything is panning out. You’re kind of getting an inside look, so it’s easy to see asset matter. Even opportunities with something like that, right? I mean, certainly, you know, we’re able at the least, even if we don’t directly impute that into one of our strategies, it’s great information for an asset manager to be able to kind of have a bird’s eye view of something like that, you know, that’s one example rate. There’s also study capabilities, I think over time that we’d be able to leverage. We have data analytics, which all of our asset managers actually, or I shouldn’t say all, but many of our asset managers on the platform are leveraging to great effect, right? And data analytics showing you things like, okay, a at the advisor level, what are my cap gains, realizations? Should I be doing this or that for the client? And then at the asset manager level? How are my flows? Looking? You know, how do I look relative to my peers, you know, where am I losing flows to etc. So, so it’s really great insights that you could see being used there. Another great piece is money guide, right, which is financial planning. And of course, financial planning will tend to lead you to the need to actually implement the plan. And, you know, then that leads you to asset management. So every acquisition or partnership, or building block that’s been created over the years, certainly can be used to work together for for asset management, or in turn, if my focus was planning for how do I then have something at the end of the, you know, the path that I’ve created for planning? I think it’s a matter of figuring out for each client, and each advisor, what is the right on ramp to those ecosystems do that ecosystem of solutions, and how many of those solutions make sense? So again, it’s, you know, I use the word curation a lot, because I think that’s where we’re at in this, I think, you know, when you have all these different solution sets, and you have client needs, the adviser has a great opportunity there to meet those different client needs, and has to figure out the right configuration of things. And that’s where we have to help. That’s where it really comes in to say, Okay, how do we help the advisor, you know, put clients into some sort of scalable set of buckets, if you will, right? Nobody’s it can’t completely bucket folks. There’s always customizations, but at the end of the day, help the client help the adviser look at these clients in a scalable way and say, okay, you know, for these types of needs, I think this solution, this solution, this solution makes some sense. That’s how I see from my perspective, connecting those dots. You know, if you talk to the folks in our data analytics team, or you talk to the folks over at Tamarac, who are, you know, obviously, there’s an RIA focus there, they might have a twist on that. But I think, you know, we’re all kind of revolving around or orbiting the same ideas.

Jack Sharry: Gotcha. So that leads us to where, where you see things going at the industry level at the investment level in terms of your own purview. And as I look at all the capabilities, quite familiar with pretty much all of it. Currently, it’s up to the adviser to access these capabilities. Where do you see things going in terms of the role of Envestnet? Because the complexity as we connect all these dots, as we’ve been saying, is enormous. I think we’d all agree and challenging to figure out the two key levers, I think always in terms of improved outcome beyond markets, or risk and tax. So how do you incorporate that I noticed there was a recent announcement around a risk partnership, I think, because I’m not sure if you’re involved with that or not. But I’m curious, how do you get it? Where do you see things going? What’s the role of risk and tax in that determination? What’s the role in literally optimizing all the potential or algorithmically addressing the issues at hand in terms of providing guidance? Because there’s always that push pull between what’s the advisor’s role? And what’s a role, like an investment platform? So if you could maybe expand on that? Where do you see things going?

Dana D’Auria: I actually think it’s going to improve, I think what’s happening is it’s just becoming more visible, what was always the case, right? We are an industry that’s always had innumerable solutions available, some of the solutions are, you know, easily, frankly, superseded by others. And that’s not always been able to be surfaced, because of the complication jack that I think that you’re referencing here, which is, you know, it’s just, it’s impossible for anybody to navigate the sea of solutions out there and figure out, you know, which is the absolute best for each client, right? It’s just, it’s an optimization problem, and there’s no optimize what they can do it. So advisors, I think, do a really good job of finding trusted partners and saying, Okay, I can put together a very good investment solution for my clients with these particular partners. What I think you’re seeing now is that so much is becoming available and so much it’s becoming digital highest, that the array of solutions is becoming more accessible, it’s becoming more clear and obvious. And therefore the expectation side of the client goes up that you’re going to integrate or utilize some of these types of solutions, right. And so it looks like a massive, you know, increase in complication. But these solutions, in large part were always there, they’re just more readily accessible now, because of technology, they’re more evident. And our job is to help the adviser navigate that ecosystem better. And, you know, it should lead to better outcomes for clients in the end, right, because clients who maybe we’re not ever going to be introduced to a solution that would be really good for them, are now potentially more likely to be introduced, because there’s, you know, some sort of an optimization engine or some sort of guidance available that’s helping the adviser, you know, put them toward that solution. I also think it helps people do better comparisons, frankly, of the solutions that are out there. Right. So there are more than one ways to skin a cat. You know, certain types of tax management strategies probably supersede other types of Strack tax management strategies. In most cases, I definitely think it brings tech and, you know, the application of data to these problems is absolutely going to improve customer experiences. But it feels a little uncomfortable. If you’re in a position where you’ve kind of built a business around more of a traditional way of just kind of, you know, relationships only, I will say this, I think it’s a relationship business. At the end of the day, still, I think you have to have trusted providers and comfortability and good relationships that that kind of back that up. But I do think that data and tech are going to improve outcomes.

Jack Sharry: So let’s, if you could wave a magic wand or looking your crystal ball, what does that look like? What does the intelligent financial life look like over time? Not to put you on the spot. But what how does that all come together? Because I think we would agree it sounds like we agree that the stuff is complex, there’s a lot to it. There’s lots of moving parts, so hard to keep track of lots of lots of smart companies are building algorithms to try to put all this stuff together. So what’s your take? what’s your what’s your view on where all this leads us? What does it look like? Year to five years down the road?

Dana D’Auria: Yeah, so there’s a few things, I think, one, you’re going to see many more on ramps to investment management. So we come out of COVID, there’s obviously been a massive increase in retail investor interest, and, you know, retail investors going to markets via, you know, brokerage accounts effectively, right. So, you know, where does that go? And how do we help manage that? And how do we help clients? To a large extent, a lot of that could be considered speculation, right, versus investing where, you know, the whole meme stock phenomenon, right, this is a speculation, but there’s an engagement level there that there wasn’t before. So advisors now are challenged to help investors figure out the best way to approach capital markets, and they have this interest level so that so it has really positive aspects to it. So what does it look like several years down the line? I think, I think the recognition of that means that many different avenues become an on ramp to true investment. advisory, right. So your credit card, your you know, some transaction you make at the at the Whole Foods or whatever it may be gets you into, you know, it becomes an on ramp to a portfolio of, you know, maybe stocks that are ESG solutions, or whatever it is, I think also customization is going to be a huge piece, I think it will be expected, you know, for a long time, or the NOC that you’ve been here now is like, well, do we really need customization, most people are kind of going to be satisfied with, you know, a package product. That may be true to a certain extent, but I think what it misses is people will expect that they can customize. So advisors will increasingly be expected to deliver options, right? Maybe you want a very low-cost ETF, you don’t have a lot to say about, you know, preferences for capital markets, or where what you want your dollars invested in, but other people will write. So a lot of the lot of the clients will expect and they won’t expect to pay more for it. And they won’t expect that it’s kind of a big deal, right? The advent of fractional shares, commission free trading advisors are just going to be expected to be able to bring solutions like that to market. So I think on ramps into investment advisory are going to increase dramatically. I think expectations for customization and personalization, you’re going to see more of that, especially to is as again, you know, fractional shares is it’s available, but it’s really not widespread. Give it a little bit and it becomes widespread. And it’s not a big deal to invest even small dollar amounts across wide swaths of the market. I think We’ll see increasing, you know, deliberation on the client parts about what they want to own, what they what they don’t want to own, and they can still have a diversified investment and do that. So I think that’s very nice. I also think, you know, another big piece of it from my perspective is digitization of the experience that the client is going to have with their investments and advisors bringing that to bear as well. Right? portals into seeing what, what is my net worth? What am I invested in, not invested in, you know, my credit, bring my credit cards and bring my home loans. And you know, if I have need for some other credit application, or my insurance, or whatever it is, I think we will be expected to deliver an experience that pretty holistic to the client, not only not the adviser swivel sharing to these different systems, but the client not doing so either. So that’s my take on where you can tell tech, it revolves a lot around tech, right. And I think that’s what transforms the industry. 

Jack Sharry: Yep, I would fully agree. So as we wind down and try to hit our 30 minute mark, for our conversation, what are three key takeaways, you’d like to leave with our audience on what we’ve covered or anything for that matter?

Dana D’Auria: I think one big takeaway is, I would encourage advisors to think about ways to scale, right, and to think about the expectation sets that clients are going to have going forward, which is going to be, again, greater, what can be digitized, they’re gonna expect to be right, and what can be automated, they’re gonna expect to be, and that’s not where the value add is going to be. The value add is going to remain in the relationship which it which it really has been, you know, every survey, see, it’s like what clients want more from their advisors, they want communication from their advisors, right, they want to talk to the adviser. So making sure that you’re, when you’re working with your client, you’re really stressing the area where they care most about, which is the relationship with you, bringing discipline to the process, et cetera, and outsourcing and scaling your business by outsourcing the stuff that is just increasingly commoditized. That that would be one major takeaway. I think a second takeaway is certainly around what we’ve just been discussing Jack, which is this idea of personalization, where, you know, clients are going to it’s, it’s going to be obligatory, right, that a client can say, not only what is my return, and my you know, maybe standard deviation, you know, some portion of the population understands that, but also what are my dollars supporting, right, when I come to you to invest my assets, I expect that you’re going to be able to talk to me about both my return on a financial basis, as well as my return on a impact basis, right social preference bases, where I’m able to say, these are the things I invest in, and these are the things I don’t invest in. And again, it’s just it’s going to be expected, it’s not, it’s not going to be unusual to have that kind of a conversation. But the good news for advisors is, it’s a real opportunity to engage, right, it’s a real opportunity to know your client, and have a relationship with your client that goes beyond where it could have been before, if you’re just talking about the dollars and cents of things. So I think, in terms of takeaways, that that would be my second big takeaway. And then, you know, I guess I would just leave the audience at a high level with that there are a lot of solutions out there. Those solutions may not in the past, always have been surfaced, but encourage folks to kind of look at the opportunity set and look at how different providers are able to bring those different solutions to bear in unique ways, in ways that speak to client needs. Right. So again, I’ll go back to this curated portfolios where the you know, it’s not necessarily a public equity, 60 40 public equity and fixed income 60 40 It’s a mix of different asset types that really, you know, kick it up a notch in terms of what the advisor can bring to bear with the client, and the overall portfolio that they’re now able to achieve.

Jack Sharry: That’s great. Thanks so much. This has been a great conversation. And actually, my favorite question is coming up. So what do you do outside of work? We ask our guests each week, what do you do outside of work that something is particularly interesting or unique? Or it’s just something you’re passionate about? What do you do and you’re not talking about investments and digitization?

Dana D’Auria: I got I have to answer it’s not unique, I’m sad to say but it would just be a false answer to say anything but I try to spend time with my family that is pretty much you know, I’ve got my family and I’ve got work kind of thing and i i try actually pretty hard Jack not to over commit myself on you know, a million other things because I really want to give my all to both of those. So I have two sons and we do a lot of outdoor activities and have a lot of fun together and with my husband obviously so yeah, that’s where I spend my free time. And how old are your boys? 

Jack Sharry: Well, that’s great. That’s great. I have four sons that a little bit older, but they’re the light of my life as I’m sure your kids are. So thanks for sharing that. That’s great. So this has been a lot of fun as always, to learn more about stuff that I kind of know but no a lot better as a result of our conversation. So as we thank Dana for our time here on WealthTech on Deck, I just would like to shout out to our audience if you’ve enjoyed our podcast, we’re now up over 1300 listeners which keeps amazing us it happens each week we keep growing by 100 or two, it seems If you’ve enjoyed the podcast, please rate review, and or subscribe or share what we’re doing here on Well, tech on deck, we’re available wherever you get your podcasts. So, Dana once again, great to catch up. Great to learn more. Thanks for the conversation. Really appreciate it.

Dana D’Auria: Thanks so much. Thanks for having me.