Tax-Smart Investment Strategies with Paul Gamble

Jack Sharry: Hello, everyone. Welcome to WealthTech on Deck. Thanks for joining us. Once again on our podcast. We are speaking with an industry leader. And we’ll explore how he and his firm are doing what they’re doing around the confluence of digital and human advice. Today we’re speaking with Paul Gamble, Paul’s the CEO of 55IP. 55IP has developed a tech smart investment management capability, and then some that helps advisors improve efficiency and effectiveness. Paul, welcome. Good to have you on WealthTech on Deck.

Paul Gamble: Hey, thanks a lot, Jack. It’s great to be here.

Jack Sharry: So let’s start. Why don’t you for those that may not be familiar, we follow you closely because we kind of overlap in some ways. Let’s start with talking about what 55 P is about. Maybe you share a little bit about what you offer your client base, how it all got started. So maybe give us a high-level view on 55IP and what you do there?

Paul Gamble: Sure. So 55IP is what we call a tax smart investment strategy engine. And essentially, we’re a FinTech company that empowers financial advisors to deliver customization at scale. I think unlike other FinTech companies, 55IP offers a combination of an advisor led user experience that we think is very intuitive investment, intelligence sitting at the middle, and then automation on the back end in terms of trade generation and execution. So what we try to do with our platform is make it very easy for financial advisors to incorporate their own investment views, reflect and client needs and values and deliver a personalized tax management through what we call our active tax technology. Our mission and 55IP is to be the industry standard by offering this across all asset and client types, to all Wealth Management channels, and doing that through deep integrations to enhance an advisors’ experience, as opposed to make them rip and replace what they do. And then in terms of our client base today, our clients are primarily financial advisors, RAS and otherwise, today, we work with about 200 firms that oversee approximately $100 billion in discretionary assets for their clients. And then we typically reach these advisors through key partnerships. So we’ve got partnerships with asset manager model portfolio providers like BlackRock, JP Morgan, fidelity, WisdomTree, river front, for example. We enhance their practice management through deep integrations with RIA custodians such as Fidelity, Schwab and TD, and a growing list of broker dealer platforms like Janee, and Baird. So that’s sort of an overview of what we do and how we interact with advisors.

Jack Sharry: That’s great. Thanks for that overview. So the big news, I’m sure for you and as an observer, what goes on in our industry, was JP Morgan’s investment, or is it purchase? You’ll have to fill me in on that. In 55IP my understanding is purchase. But what does that mean? What does that look like I mentioned if it’s JP Morgan, it’s one of the biggest banks in the world have felt the biggest. Where does that all lead? Where are you going with JP Morgan?

Paul Gamble: Yeah, no, it’s definitely interesting running lean FinTech within the largest bank in the world. And that’s essentially what we’re doing here at 55IP. So we actually just had our one year anniversary, and then the JPMorgan family, which was pretty exciting. So we were acquired at the end of 2020. And we’ve been working, but it’s a very interesting setup. So we are independent branded subsidiary of JP Morgan. So I continue to run the company as an independent entity with support of JP Morgan, which has been great. And for me what it does, it sort of illustrates a key trend of asset managers partnering with technology companies to connect with wealth management enterprises and advisors to add value, not just sell product. So you know, JPMorgan and 55IP align that they think there’s some pretty major trends happening in the wealth management industry, and which I’ll talk about in a little bit. And technology can really help Wealth Management enterprises and financial advisors take advantage of those trends, and in different way and, you know, build lasting relationships with our clients. So it’s been a great marriage so far.

Jack Sharry: I gather you’re part of JP Morgan asset management, they also have a robust and from what I read in the press, their intention is to grow this rapidly. That’s the wealth management business. How does that play out to serve both sides or explain how that plays out in terms of the asset management side and the wealth management side?

Paul Gamble: Sure. So I can talk about a generally with 55IP on how we approach things and then it actually fits nicely and how we work within the walls of JP Morgan as well. So 55IP, our aim is to be the industry standard for tax smart investment management, by serving asset managers as partners, and then reaching financial advisors where they do business. And so we’ve created technology that can allow asset managers to deliver model portfolios, so maize and other things and as tax smart way for enterprises to help their advisors manage their client portfolios in a tax smart way. And so we do that both within and outside of the walls of JP Morgan, I talked about some of the partnerships that we had a little bit earlier. But that’s essentially how we’re set up. So we were acquired by the asset management side of the business. So we can help them deliver more tax efficient products, in addition to that use our technology to deliver value to external enterprises, broker dealers, RIA platforms, etc, as well as internal JP Morgan, wealth management programs within the private bank, broader Chase wealth management. So that’s how we operate both internally and externally. 

Jack Sharry: So you used the term tech smart. And we do as well define that, what does that mean? What’s tech smart in your definition?

Paul Gamble: Sure. So we really focus on a few things. There are three main components for what we do. And maybe I’ll just go back up for a second and talk about some of the key industry trends that we see. So we see obviously, the trend from moving from for advisors, moving from commission to fee based practices, the growth of model portfolios, and direct indexing, and some big demographic trends from savings to spending, and things like that. And we think those are great things. They’re putting what we call money in motion, allowing advisors to put better solutions in the in the hands of their clients. But some obstacles, frictions get in the way of getting those better solutions in the hands of the clients. And we think taxes are maybe the biggest ones or enterprise’s financial advisors, and of course, the end client. So when we think about tax management, it’s really three things. It’s how do you get a portfolio from one place to another, so the clients in a better position in a tax smart way. So we’ve created technology, algorithms and an experience in order to transition a portfolio, matching up clients tax preferences, and tax budget preferences, basically, and trying to match that up to the portfolio that’s right for them. And then once in the portfolio, we automatically monitor that portfolio for changes and do ongoing tax management in the form of tax loss harvesting, for example, in order to mitigate the tax bill that may come with those rebalances. And then when it’s time to get money out of a portfolio, we help advisors figure out how to do that in a tax smart way. So they don’t have to keep a big cash balance, or have to cause unintended tax consequences. By removing money, you have pro rata across a portfolio. So that’s essentially what we do. So tax smart basically means how do we incorporate ourselves into an advisors practice so they can demonstrate value in terms of transition management and withdrawals?

Jack Sharry: Gotcha. So as things unfold, and I happen to agree with you, as to my colleagues at LifeYield, that, as seems like the industry is catching on the whole notion of taxes being the biggest issue at hand. And the announcement on inflation today only makes it worse, because inflation, higher inflation, of course, translates into higher taxes, ultimately. So people catch on to that, and you do some great things around the things you just described. So Paul, talk a little bit about who and how you work with you, you mentioned that you do a lot of model portfolio work a lot of asset management work. And it sounds like you’re also working with wealth managers, how does that play out because clearly, like we do it, we work with Morgan Stanley as an example. And they have a obvious preference for their friends at Eaton Vance and parametric, which they just purchased. But they also work with BlackRock and all the rest. So there’s the external asset manager, and then these the internal imperative to manage at the household level, that’s where they’re headed. How do you play in that regard in terms of your role with asset managers? And then how does that play into what you do with wealth managers?

Paul Gamble: Sure, absolutely. So. So I grew up in the defined contribution, or 401k world. And it’s interesting, at least to me, I see the trends towards model portfolios and direct indexing within the wealth management space, being very similar to the growth of target date funds and managed accounts in the 401k world. And maybe we’re an inning two or three of that major trend that’s happening. And so, when we think about the ecosystem of model portfolios, for example, we work with key model portfolio providers on the asset management side like the ones that I named earlier, in order to help them drive broader usage of model portfolios and specifically usage for taxable accounts, which are typically larger. And then if you look at a wealth management home office, they typically will have their own home office portfolios, and a selection of third-party model portfolios and SMAs. And oftentimes, their goal is to move more advisor practices from commission to fee based and using model portfolios as a way to do that. And so our goal is to partner with that home office to draw help drive those assets into those model portfolios but giving advisors the customization they need to serve their clients. And so that’s really where we fit in the world that I see it evolving, where more and more assets are going to be delivered through these programs that are curated by the home office with home office models, third party models and SMAs and providing customization for advisors at scale. And that’s really where we want to fit.

Jack Sharry: Gotcha. So your point of entry, just to be clear, is really, you’re coming in through the door of the asset managers, they’re offered on a platform at any of the wire houses or large independent broker dealers or at an RIA for that matter.

Paul Gamble: Well, it actually can be both ways. So we do partner with asset managers and help them to drive that broader usage of portfolios, as I described earlier, but we also partner directly with enterprises, broker dealers, etc. Like Janney, Montgomery, Scott’s a good example, where we’re embedding our technology into their advisor workflow, to allow them to do a scale across multiple providers within their programs.

Jack Sharry: Gotcha. So that leads to my next question, Where’s all this lead? I assume that the enterprise is going to be in your, in your sights. But when he talked a little bit about where you see all this going, you liken this to target date funds and some of the emerging product capabilities of from days of your I have to agree with you that models, direct indexing seems to be kind of the latest thing to be done. But where do you see all this going? Where does all this lead?

Paul Gamble: Sure. So let’s talk about model portfolios and direct indexing for a second, if you think about a lot of the presses around direct indexing, which is a major trend, and if you depending on the study, you look at, it’s about a $400 billion market moving to, you know, maybe a $800 billion, a trillion dollar market. And by 2025-26, which is obviously a lot of growth and expected growth faster than mutual funds and ETFs. If you look at model portfolios, it’s even a bigger scale. So right now, it’s roughly a $4 trillion market moving to an 11 trillion plus market over that same time period. But I sort of view that as one trend, right. And it’s the trend of wealth managers and financial advisors, leveraging the capabilities from asset managers, but then also using technology to provide personalization that they want and their client needs at scale. So I really view the push for customization as really powerful because advisors want customization that keeps them in control related to the things they think are important to them from an investment standpoint, like asset allocation, manager, diversity and other areas. And from a client perspective, taxes may be the most personal thing that they have, from tax rates to the tax budget investors are willing to pay. So a cookie cutter approach doesn’t work. And so that’s where I see the industry going is like not this binary decision between managing assets in house versus outsourcing. There’s a middle ground where you can take advantage of the capabilities asset managers and home offices provide, but then use technology to meet client needs and to deliver your investment views.

Jack Sharry: Gotcha. So you mentioned there’s three things that fishy 55IP Does around taxes. There’s probably two more you didn’t mention. I imagine they’re in your pipeline in terms of what you want to be working on or primary rd are working on around and one is around asset location. I haven’t heard that yet. And perhaps you already do it. And the other is income sourcing or textbook withdrawals. Is that part of your future in terms of where your roadmap where you hadn’t done to go?

Paul Gamble: Absolutely. So obviously, there are many different layers of tax management and as a smaller FinTech company, really choosing how you build out your product roadmap, and what sequence is extremely important. Because our partnerships have been primarily with model portfolios. Initially, we were really focused on solving that transition problem, and then solving the ongoing tax management and tax loss harvesting problem. And today, most model portfolios and direct index and SMA solutions are actually delivered single account term, but we the trend towards UMA and householding is unmistakable. And so those are all things that we are developing and have different stages of implementations matter of fact, but really, it’s the question of how do you connect that into where the advisor does business that makes it easier for the advisor to implement, as opposed to an offline process they need to do so for us. It’s always the mix of simplicity and robustness as we think about building our product roadmap. But location is definitely in play and part of that. And then I have a huge passion personally related to retirement income. But we’ve really been focused today on the accumulation phase. But we do expect that as more and more advisors use our services, if you think taxes are a problem and accumulation. Think about how you have to deal with those in the accumulation. And that’s something where we’re definitely going to go in future.

Jack Sharry: Gotcha. We recently had been hunky who’s a senior exec at Morgan Stanley. I’d like to get your views his view and Morgan Stanley as a firm. We’ll hear more when James Gorman does his earnings report which is coming next week. We’re recording this earlier than this podcast will appear. So his James’s views will be out there, but I hear tell that he’ll be talking a lot about taxes and how important taxes are. I also imagine and we’ll see if my prognostication is accurate when it comes out. Also that as more people aged out of the business and fewer are coming in that not only will there be fewer advisors, but they’ll be managing bigger books of business. And frankly, technology will be vital. That seems to be a key tenant of, of Morgan Stanley’s view and strategy as and Ben, as he, as has said, publicly, they’re talking about, like a 10x increase in the kind of assets they have to manage. And as you well know, Paul, given what you all do, and what we do, we know you can’t do that with yourself and an assistant, it just doesn’t work that way anymore. So talk a little bit about your view on where this is all headed, it seems inevitable that taxes will be primary in terms of a concern for the coming years, seems that you’ll be the advisor will be managing much bigger books of business, and we’ll need technology, we’ve had a demographic shift that you will know that people are retiring at a record pace, and that’s expected to continue. Baby boomers are retiring, and many of them are retiring earlier. So that much more of an importance to make sure that they won, they have a longer span in retirement and their earning peak earning years have been clipped because they left early. All that’s adding up to a real drive toward retirement income around tax management around bigger books. So love to hear your thoughts on all the above. I have a hunch we’re probably singing from the same hymnal?

Paul Gamble: Yeah, I think so I think there are other factors, you know, even in addition to the ones that you mentioned, so if you think about expected returns over the next, you know, 1015 years. So if you take a look at the average 60-40 portfolio, or typical 60-40 portfolio in the previous 10 years average, I think roughly eight and a half percent annually. And a lot of experts, including JP Morgan expect that to be potentially about half for the next 10 to 15 years. So it’s increasing the need for financial advisors to find ways to deliver value in that environment. And there are certain ways you can do that. But taxes are obviously a big way to add value. And if you think about I mentioned earlier, I think we’re in early stages of some of these trends. And one of the main reasons that advisors want to use SMAs. And direct indexing for clients is tax management and among other customizations, but today, less than 20% of advisors are using systematic tax management for the resumes. So there’s a big gap there. And then if you look at model portfolios, which I said, I think is a huge trend that’s happening across most platforms, only 30% of model portfolio assets are in non qualified or taxable accounts. And typically, advisors are using it primarily for their smaller IRA accounts. And so there’s a lot of opportunity to increase the usage of model portfolios across taxable accounts. And in fact, when advisors use our platform, we typically see that they can double the amount of assets used in taxable accounts, and increase their average account size by about 6x, because of being able to move the money from the current portfolio into the portfolio of choice. So those are some of the big things that are going on. But at the end of the day, you’re absolutely right, these are all additional ways that advisors can add value. But at the same time, advisors are being asked to do many more things such as financial planning, and life coaching, and all these things. So the key is figuring out a way to deliver this customization, but with less work and less time for the advisor than they currently spend doing it. And that’s where firms like 55IP and I know LifeYield are really focused.

Jack Sharry: Yeah, of course, we all have the same mantra, and I’ve seen it on your website about making the complex, simple. I got to kind of important, but kind of a dumb question. How do you do that? Well, I know we work at it, and it’s hard. So I think you guys have done a great job with that. So how do you pull that off? Obviously, it’s all about making the complex simple, producing better outcomes, all the stuff we’ve talked about, but how do you go about that? How do you how do you make that happen? How do you make that real?

Paul Gamble: Sure, I’d say the folks that I work with a laugh when I say this, but one of the key mantras I have is let’s not get stuck in the faculty lounge, arguing over who’s got the best optimizers this algo How does it do and going to the nth degree to work on things because there are a lot of really great solutions there from third party model portfolios to different ways that you can manage taxes and do customizations. And the key is finding that right balance between the robustness of what you’re providing, and it has to be at a fiduciary standard. But you can’t do that in a way that takes away from the ability for an advisor to use it. And most importantly, explain it and demonstrate their value to clients by using it. It’s an inexact science. And so running a FinTech company. The key is making sure that you’re constantly getting feedback from the key personas that you’re trying to deliver your product to make sure you’re doing user test. Testing qualitatively and quantitatively and getting that feedback if you’re hitting that balance between intuitiveness, simplicity and robustness, and we’ll never find Nirvana there. But we work towards it every day.

Jack Sharry: Yeah, completely relate. It’s interesting. You know, we do a lot of these podcasts, as you know, Paul, over 40, so far over the past year. And I have to say you’re, you have actually one of the more articulate explanations of what the heck you do. So kudos to you. I’ve sort of run out of questions other than to say, well, have we covered what else is on your mind that you’d love to share with our audience, you clearly get the issues at hand, you get the trends, you’ve building the technology, you’re doing a great job as a company, and personally, what haven’t I covered that you might want to share with our audience?

Paul Gamble: So I think that for me, it’s this sort of continue on the conversation we were having around simplicity and robustness. I take that also to this growing trend towards customization. So lots of articles about customization, hyper customization, how can you provide better solutions to clients. And at the end of the day, what I really think it is, is that advisors need to feel that the portfolios they’re delivering are theirs, whether they’re leveraging a third party asset manager or a home office, that they have a say they can put their thumbprint on it, that they can explain them. And most importantly, they can demonstrate their value in terms of outcomes. And then clients need to feel that a portfolios are tailored to them. Now, I’m not talking about hyper personalization, because I don’t think most clients want to have complete control. But there’s typically a few things that are important to them, taxes, certain holdings, they want to keep increasingly social impact. And so tailoring not necessarily customizing but tailoring the solutions in a scalable way to make those solutions feel personal without sacrificing the scale for advisors. That’s the key.

Jack Sharry: Yeah, I couldn’t agree more. One of the things that’s interesting to note about what we’re talking about here is that what’s central is, and we just, we just submitted a paper to a to a group on this topic of hyper personalization, or customization. And I think a lot of people sort of get caught up in the buzz of that, but really comes down to, I think what you pointed out is that people want to have advisors in particular, they want to have their thumbprint on it. And while they so many of the advisors, we know love to play Portfolio Manager and do a good job of that. At the end of the day, it’s less about how you manage the money, but what you get as an outcome and taxes have the biggest impact on that. And clearly, that’s where you guys are focused, you’ve done a great job of that. It seems to me, I’d love to get your thoughts on this, it seems to be that advisors are sort of coming around to the fact that taxes are kind of like the key. It’s not they’ve always loved to manage portfolios. That’s probably why they got in the business. But at the end of the day, it’s really about tax after tax outcome.

Paul Gamble: Yeah, I think that’s right. And if you think about, you know, what’s really changing in the marketplace, why is why wasn’t tax management used as frequently? And why is it really becoming more important in growing so there are the things that are happening in the marketplace, like the potential for increased taxes, lower expected, returns, all the things that we discussed. But if you think about tax management, advisors haven’t done it, largely because it’s hard to show the potential benefit of doing it. It’s hard to do at scale historically. And then once you’ve done it, it’s difficult to show the value of what you just did. And I think firms like 55IP, and LifeYield, were really trying to close that loop. So providing an estimate for the benefits of tax management, doing it in a systematic way, and then allowing the advisor to demonstrate their value by showing the results that were provided. And I think that is a key reason it’s happening. And then I also add that the automated monitoring is key. So just to give you an example, in 2020, March of 2020, when the world was going crazy, and the markets were falling, since we were automatically monitoring portfolios, we were able to move close to 70% of all of the portfolios into their target in the month of March, without taking on any additional tax budget. So we’re using losses to get there. So we’re getting clients to the right portfolio and set up for when the portfolio would eventually increase, which obviously happens same year, and saving clients on their tax bill along the way. And so while advisors were trying to put out fires, talk to clients, this was happening behind the scenes and giving them a way to demonstrate value as opposed to having to go in during that time and figure out how are they going to provide value from a tax management perspective. The automation is key.

Jack Sharry: Gotcha. Yeah, one of the things that we’ve been talking about at LifeYield in explaining what we do, because you know, we work at the household level, and a lot of our RF is generated off of asset location and household rebalancing and income generation. And so we’re income sourcing, as we call it, which includes more than just the portfolio, Social Security and pension and whatever else they might have as an income source. But this way, we’ve been sort of boiling it down. You’re welcome to steal this if you’d like and that is that we don’t just integrate the cord need various capabilities, portfolios, so security, whatever it might be, we coordinate, we quantify the benefit of that through the various ways. So location, rebalancing, etc, income generation, and then we prioritize and create the next best action. That’s really the key is that, so what do I do about it? And as you’ve pointed out, and we know, well, is the stuffs really complicated? You get into a portfolio with 6, 7, 8, 10 accounts, whatever. They’re held all over the place, there’s zero coordination, they may have a portfolio they happen to really love. And that may be the core of the holdings for that particular household. But what about the rest of the stuff? But what about the stuff that’s not included? I think we’d agree that that’s seems to be where industry is headed is coordinating all the above.

Paul Gamble: So yeah, I would totally agree. And where we really focus at 55IP, in addition to the front end user experience to to show the potential value and help advisors create the right plan for their client, we spent a lot of time on the backend, how do you make the implementation as simple and seamless as possible. And that could go from having 55IP actually pushed the trades. And we built a lot of connectivity across the industry to do that, or serve up fully formed tax efficient trade lists for the advisors to review and scalability, present, go and implement. So because once you do all of the work, if it’s too hard to implement, that’s where you lose a lot of the throughput and value for the advisor and client.

Jack Sharry: That’s great. So this has been a great conversation, as we look to wrap up three key takeaways, but what would you like to share with our audience?

Paul Gamble: Sure. So I say there are three things, one, under one sort of overarching point, which is that for all of the things that you discussed, Jack, in terms of few advisors, more accounts, more assets, more solutions and offerings is that advisors need solutions that enable them to find and deliver more customization, but spend less time delivering it. And to do that, you need an advisor lead experience that doesn’t force them to go to email, phone spreadsheets in their workflow. And it has to be connected with how they do business today and not a rip and replace solution to you need the ability to customize from a tax management perspective. And in terms of unique investment, objectives, values, and ESG, depending on your views as an advisor and your clients need. And it has to provide a lift from a practice management perspective. And that goes back to the automation for monitoring and implementation that allows the advisor to have oversight and control, but make it really easily to put in practice.

Jack Sharry: That’s great. So my other favorite question, in addition to the quick summary, which you did so nicely, I’d like to ask our guests each week, what’s something they do outside of work that their colleagues might find interesting or surprising that you do when you’re not doing your day job. So what have you to share? 

Paul Gamble: Sadly, I don’t have the most interesting life, Jack. I can relate to a parent of two teenage kids, I spent a lot. But for years, I’ve coached youth lacrosse in the Boston area. And my favorite activity is cross country skiing, which is in I live in the city. So it’s not as easy to to, although one of the best days that I had this year was when we had a big snows fall. And I was able to get out on the streets before they were plowed. And so those are always good days for me.

Jack Sharry: That’s great. So for our listeners who would like to get in touch with you, what’s the best way to reach Paul gamble at 55IP?

Paul Gamble: Sure, you can reach us at 55-ip.com. And we’ve got our advisor success team that’s available to interact with you that way through chat through email, if you’re interested in learning more.

Jack Sharry: That’s great. Great. So Paul, thanks. This has been a real pleasure. I’ve really enjoyed getting to know you and 55IP you guys are on a tear, it seems to me so congratulations for that. For our listing, guys. Audience. If you’ve enjoyed our podcast, please rate review, subscribe or share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts again. Thanks, Paul. It’s been a real pleasure.

Paul Gamble: Thank you very much, Jack. It’s been great.