Host Ryan Nauman interviews Rob Battista, EVP of Advisory Solutions at Vestmark, about the evolution from traditional one-size-fits-all model portfolios to more personalized custom model investment solutions. Battista explains how models grew from manager-traded SMAs to scalable, lower-cost model delivery, fueled by greater accessibility through marketplaces and asset managers selling total portfolio solutions. He highlights key limitations of traditional models—especially inadequate customization and the tax impact of rebalancing in taxable accounts—and argues tax transition and ongoing tax overlay are now table stakes. The discussion covers how custom models can reflect advisor preferences, support multi-manager open architecture, and incorporate multiple vehicles (ETFs, mutual funds, SMAs, direct indexing, bonds, alternatives) within a UMA. Battista outlines benefits for advisors (scale, time savings, outsourcing, recurring revenue) and asset managers (stickier relationships, greater wallet share), and emphasizes implementation partners can reduce operational burden, often subsidized by asset managers.

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00:00 Welcome and Agenda

01:20 Meet Rob Battista

01:51 Vestmark Overview

03:45 How Models Evolved

06:07 What Drove Model Growth

08:06 Limits of Traditional Models

09:42 Personalization and Tax Overlay

12:24 How Custom Models Work

15:18 Multi Manager and UMA Flexibility

18:10 Advisor Benefits and Scale

20:25 Asset Manager Incentives

21:57 Operational Challenges Solved

23:36 Implementing Custom Models

26:25 Wrap Up and Resources

Ryan Nauman Host Views from 6,230:

Hey, everyone, I am Ryan Nauman,

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market strategist and your host.

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Over the past several years, model

portfolios have become an increasingly

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important part of how financial

advisors build and manage portfolios.

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But the industry is now moving beyond

the traditional one-size-fits-all model

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towards something much more personalized:

custom model investment solutions.

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So what's driving the evolution?

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What are some of the limitations

of traditional models?

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And how are custom solutions helping

advisors better align portfolios

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with their clients' unique needs?

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And perhaps, maybe most important,

can advisors actually implement and

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manage custom models at scale without

creating a massive operational burden?

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Well, I have on an industry expert to

discuss all things model solutions and

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what it means for financial advisors.

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So all right, enough from me.

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I've already talked enough.

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Let's go ahead and move on

to the star of the show.

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I'd like to give a very

warm welcome to Rob Batista.

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Rob is the Executive Vice President

of Advisory Solutions at Vestmark.

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Rob, thank you so much

for coming on the show.

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It's an honor to have you.

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I'm really excited

about this conversation.

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It's an important one, important

topic, very popular topic.

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So can you please tell us a little

bit more about yourself and Vestmark?

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Rob Battista EVP, Advisory Solutions Vestmark:

Sure, Ryan.

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Thank you for having me on.

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Also excited about this topic.

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It's something we're

very deep into right now.

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Just very quick background I am as you

said the executive in charge of the

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investment advisory business at Vestmark.

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I've been here for about four years.

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But overall I've had, a, a plus

career supporting the financial

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advisor in, in, in some capacity.

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Prior to Vestmark, I was actually a

client of Vestmark's at a firm called

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Janney Montgomery Scott for several

years managing their advisory platform.

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And prior to that I've had roles

at, Lockwood Purdy serving the

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independent advisor, Citi Private Bank

serving the more ultra-high net worth

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advisor, and I started my career as

an advisor myself at Morgan Stanley.

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So a lot of time with and around

advisors and building solutions for them.

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So you know but Vestmark as a

whole has been around for 25 years.

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And, we're most known for being a

software provider to some of the

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largest firms in the industry.

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Firms…

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Six of the top 10 managed

account platforms use our

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technology in some capacity.

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But up until about, seven to 10 years

ago, we were a one product company,

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our Vestmark One core trading software.

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And we've really evolved to offer more

in terms of suites of services for back

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office outsourcing, investment advisory,

as our client, profile has changed.

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These larger clients, like

I've just described, have, a

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lot of that in-house, right?

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They don't need somebody to do their

daily recon and do the trading for them.

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But as we move more into the RIA space,

there's certainly a greater demand for

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these types of services, for sourcing

model portfolios, for having us do the

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trading and most recently for us to do

a, a more sophisticated, UMA tax overlay

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on the- on these types of solutions.

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So two trillion plus on the

plat- platform today overall.

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And a lot of the growth has been in the

in the RIA space in the last few years

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Ryan: Yeah, Rob, that's fantastic.

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I love your background.

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You've got the experience there,

so you know the industry well.

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You know what financial advisors,

RI- RIAs and these firms need in

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solutions, so that's fantastic.

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And I love the evolution of this.

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You talked about, you know,

when I started, Rob, I'm

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gonna age myself here again.

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When I started over 20 years ago,

it was stockbrokers, stock pickers,

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some might have used mutual funds.

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ETFs really weren't a thing then.

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Now all of a sudden, you know,

then we have model portfolios and

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now we have more custom solution.

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Can you talk a little bit

about this evolution of models?

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I think it's fascinating and just

how quickly really it's evolved

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Rob Battista: Sure.

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I can date myself as well, but you-

you're absolutely right in terms of what

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the advisor looked like, 20 years ago.

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And that was the very early days

of separately managed accounts.

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And for those that were around back

then you'll remember that all separately

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managed accounts while growing in

popularity were manager traded, right?

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So the manager actually had to get

their hands on the account and be

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the discretionary manager over that.

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That prevented a lot of operational

scalability or the ability to manage in

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a centralized, managed account framework,

where you could have multiple models

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being provided into a single account.

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And so over the years, that manager

traded SMA evolved into models,

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where instead of trading, the

manager could simply deliver a model.

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And for them, that was a lot

more operationally scalable.

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So that really brought the

cost down significantly.

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Instead of charging maybe 50 basis

points for actively managing a large

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cap equity strategy, we went down

to 25 to 30 over the years, really

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lowering the barriers to entry.

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And then, once you saw growth in

adoption there, what we also saw

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was evolution in the model space.

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So a lot of these asset managers weren't

just, the my large cap value portfolio.

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It became portfolios of ETFs and other

vehicles that, in some cases, carried no

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fee because the underlying expense ratio

is how these managers were compensated.

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And so that, the adoption then

exploded because one of the biggest

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barriers was the financial advisor

may have been managing themself

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with no third-party manager fee.

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If I introduce this third-party

manager, all of a sudden I'm raising

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the fee on my client 30 basis points.

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But now for these no-fee models

I can keep the cost neutral to my

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client, and I can completely outsource

this component of my practice.

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And so we've seen the evolution

of models really take off,

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the assets really take off.

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And I think now what we're seeing

is starting to challenge of the

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limitations of the model delivery

framework, and which I think is a lot

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of what we're here to talk about today.

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Ryan: Yeah, that's fantastic.

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And yeah, great way of setting

up this conversation, Rob.

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So let's just talk about the growth.

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You, you know, it's really taken off.

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You just talked about the enormous

growth here in custom models.

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You mentioned just fees,

the fees coming down.

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For years, separately managed

accounts were earmarked

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for, you know, institutions,

ultra-high net worth individuals.

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Custom models brought that down.

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Now technol- What do you think has

been the primary driver of this

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growth that you've talked about?

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Rob Battista: Yeah, so it's those

things you just mentioned, of

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course, cost being a major component.

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But it's accessibility as well, right?

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The ability to go grab

these models, right?

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If you were an advisor at a, a Merrill

Lynch or a Morgan Stanley you had this

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great big platform and all these choices,

open architecture available to you.

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But now with the evolution of various

model marketplaces, even in the

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independent channel, VetSmart, for

example, has access to 300-plus managers,

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2,000-plus models for anybody that's

looking to plug into our ecosystem.

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That's certainly been a big reason.

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The open architecture nature, a

lot of new players offering models.

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And I'll also say the growth

has been driven by the asset

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management community models, right?

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They've evolved their sales teams

from selling a fund, an ETF or a

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mutual fund or an SMA to selling a,

a total portfolio solution, right?

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And that's where they're coming

in with a whole different value

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proposition to a financial advisor.

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And, ultimately you can follow the buck

by following what's out there being sold.

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Ryan: Yeah, yeah.

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We see that a lot in this industry,

Rob, is following the buck, especially

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on that asset management side and

the, the new all the new innovation

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and, you know, exotic products.

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Mostly in the ETF space,

but it's, it's fascinating.

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So do you think this growth is

sustainable, or are we kinda…

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Do you think we're gonna continue?

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We- You know, one thing that's kinda

part of this ecosystem or model, so

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your direct indexing, very popular.

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Do you think we're gonna

continue to see th- this growth?

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Rob Battista: I think we will.

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I think, frankly, I think we're in

the first inning of custom model

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solutions being that next wave.

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Model growth continues to move

along but there are limitations to

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traditional model delivery that I

think left some assets off the table.

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Most notably the inability

to customize, right?

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So yes, you could put some restrictions

on and say, "I don't wanna own

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this," or, "I don't wanna own

that," or, "Please don't sell this."

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But that's not true customization, right?

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From a tax perspective.

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It's very easy to think of an example

of a, an IRA where the client says,

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"Sure, put me in this model portfolio."

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Day two, the advisor hits rebalance.

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You're in the new model portfolio,

no, no tax implications.

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in a taxable account that's been invested

with an advisor for years or more, just

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given where markets are go, there's

sure to be a tax burden in that account.

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And if we hit rebalance the model, that

all that capital gains tax comes due.

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so what we're seeing now is, that the

availability of tax transition and

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ongoing tax overlay is really unlocking

those assets that were held behind.

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Tax transition was I think, even a couple

years ago, like a nice-to-have feature,

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but it's quickly becoming, table stakes

for model portfolio implementation

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Ryan: Yeah, that's one topic I hear a

lot and we have a lot of conversations

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with whether they're asset managers

or on the RI space or providers

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is tax alpha and how important tax

alpha, and like you said, now it's,

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you know, table stakes at this point.

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So are those the primary issues with

those original models that, you know,

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we've kinda grown past for the most part?

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Rob Battista Vestmark:

I think so.

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I think, to be honest, clients

and advisors are getting used

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to highly tailor-i- ta- tailored

shopping experiences in all

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parts of their life, right?

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Whether you're buying

clothes or buying a car.

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And so why should, my investment,

process be any different?

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Both as an advisor building solutions

for their clients and at the end

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client, potentially feeling like

something you're giving me feels

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a little bit off the shelf, right?

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Is we have this great elaborate financial

plan that talks about my cash flows and

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all these years and all my different

goals, and then it just feels like

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you're plugging me into a solution that

is the same that everybody gets, right?

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So how do you make it feel

more tailored to them?

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And you can connect a lot of those

components of, "Let's talk about

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your tax situation," and we'll make

sure that's, those implications are

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understood and those preferences are

understood within your portfolio.

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Rob Battista: And also that we can report

it back to them that way, at the end for

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the ongoing evaluation of how we're doing.

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So think the evolution of custom is just

what we're seeing in many industries,

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and it's creeping its way into this

space, and you see a lot of asset

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managers really grafting onto that as an

opportunity to grab more market share by

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working with advisors in a different way.

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And advisors love the concept,

most notably because in a

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lot of scenarios, there's no

additional fee for these services.

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The, the asset manager is saying

why don't we work with you to build

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custom models for your practice?

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What preferences do you have?

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Do you prefer mutual funds over ETFs?

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Do you have any biases in your asset

allocation you want us to incorporate?"

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And what we're seeing is that asset

managers are very willing to do this.

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more they're willing to partner with

implementation partners like InvestMark

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to get these custom solutions built

for that practice implemented at no

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cost because the asset manager is

actually willing to subsidize our fee.

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And we have 13 such partnerships

like that and growing.

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So certainly the appetite is there

for this sort of relationship.

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Ryan: Yeah.

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I'm glad you brought up that, y- y- how

important we've ta- you know, we've taken

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that transparency, that personalization

from Main Street into Wall Street.

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You're exactly right.

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Your shopping experiences, your online

experience, it's all personalized

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to you and your, you know, unique

demands, and now we're starting to

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see that finally in- taking place in,

in Wall Street, and this is a perfect

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example of, of how it's happening.

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So it's fascinating to watch, and like you

said, it's probably well overdue, right?

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'Cause our investors are

gonna be demanding it, so

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Rob Battista: Financial services is

always a little bit late to react to

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some of these things, whether it's

trends in AI or c- or personalization.

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But we're coming around and I know

it's certainly getting to feel more

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like a tailored experience for these

clients than it has in the past

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Ryan: Yeah, exactly.

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You mentioned it briefly, but how do

custom solutions address those issues

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that, you know, the one-size-fits-all

old school model portfolios that,

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you know, kind of started years ago?

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How do the custom solutions

address those issues?

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Rob Battista: Yeah, so I think part

of it is, again, back to the rigid

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nature of a off-the-shelf model

is it's the same for everybody.

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And in all likelihood, an advisor they

own the relationship with the client.

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And in most cases, they've probably

communicated preferences over the years

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for how they like to manage portfolios.

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And so if they were to move to a

model portfolio and all of a sudden

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contradict everything they've said to

that client over the years, or, "This

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doesn't look like what you've given

to me in the past," "why the change?"

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And so the ability for the advisor

to partner with the asset manager

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and go through that exercise of

building a solution that feels like

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my solution, allowing them to co-brand

it and really put their thumbprint

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on the offering can feel like that's

something exclusive to that advisor.

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And then it's the advisor's role

to use illustrations, the shopping

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experience, the overall, "Here's what

I like to do, but here's how I'm gonna

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craft that for you individually."

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And, it can be things like, you know,

social screening and things like that,

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but it can also be, of course, these,

these tax preferences that we're talking

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about, and showing how it ultimately leads

them to, keep more of what they earn.

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Understanding what state they live

in, their income, these types of

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things, they feel a lot like the

planning process and less like the

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traditional grab-a-model-off-the-shelf.

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Ryan: Yeah, Rob, that's fantastic.

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And those day and age, just

grabbing a product off the shelf,

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not gonna work, I mean, with the

evolving demands of investors and

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how they want transparency and

customization, personalized experience.

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What do you think?

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You've talked a lot about this growth.

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What do you think has been the most

interesting aspect of the growth

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in custom model solutions so far?

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Is there a piece of this that's

like, wow, that's fascinating?

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Like I mentioned, direct indexing

or just maybe more of your

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separately managed accounts.

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Is there something that

really jumps out at you?

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Rob Battista: Yeah, I

guess there's a few things.

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I think there's definitely still

some education in the marketplace

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for advisors to understand this

type of solution is available.

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Completely outsource OCIO services,

at no additional cost to my practice.

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And what we see is that the adoption

becomes very rapid once an advisor learns

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the efficiencies of a fully outsourced

model that still feels tailored and custom

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that I don't have to add incremental

cost to my clients or my practice.

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It adds scale, it accelerates

growth for them and it improves

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the valuation of their firm, right?

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From any potential buyer down the road.

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And so that's really driving.

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Once an advisor gets a taste of it,

it accelerates, I think, more, more

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quickly, the repeat customer, if you will.

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They might start with

"I'm a billion-dollar RIA.

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Sure, I'll put 200 million

in your custom models."

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But we quickly see additional

uptake after that f- for sure.

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I think one interesting thing that

we're seeing that's driving growth

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as well is that and back to the it

doesn't feel off the shelf, is that

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we're seeing asset managers willing

to collaborate with each other.

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Even though they're competing for the

same dollar, we are often seeing that I

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may be asset manager A, and the advisor's

saying, "Listen I don't want 100% of

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my portfolio to have your funds in it.

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I really like this fund company's

fund," or, "Do you work with any other

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providers in this particular asset class?"

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And we're definitely seeing a

willingness for these managers to

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incorporate other third-party solutions

into their recommended models.

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And so it does look and

feel more open architecture.

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It's got the advisor's thumbprint on it.

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It's multi-manager.

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And the adv- the asset manager is still

very much in favor because they're

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still likely getting an outsized

share of the overall allocation.

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Maybe it's not 100%, but, when you get

two or three of them working together,

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they're all getting a fair share, so

they're getting sticky business that

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is a larger percentage than normal.

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The advisor's getting a

fully outsourced solution.

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And firms like us are able to do what

we do well and come in and scale the

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and scale the stick, the tricky part.

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Ryan: Yeah.

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Rob, I'm really glad you brought

that up because when I think

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of these custom solutions, I

think of an open architecture.

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But if you're going to, let's say, a big

asset management firm, I'm not gonna name

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names, and all they do within this model

portfolio is offer their own products,

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is that really a personalized, customized

investment product if you're just getting

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all their in-house made solutions?

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So glad you brought that up

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Rob Battista: and some of the

customization is just what

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vehicle type do you like?

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You mentioned direct indexing, the ability

to incorporate all the different vehicle

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types in a single custodial account.

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BestMark's UMA tech is industry-leading,

and we can put direct indexing, equity

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SMAs, fixed income, ETFs, mutual funds,

all in that single custodial account,

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in addition to alternatives through

interval funds and other vehicles.

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And so part of it is, even if it

is only one fund company, which,

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which vehicle types do you like?

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Do you wanna see the individual

securities in your US equities?

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Do you wanna see the

individual bonds, right?

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How high of a minimum?

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What does your practice look like in

terms of your average account size?

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How high of a minimum can you have?

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And so we see some that'll incorporate

these more sophisticated portfolios

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for their higher net worth, but then

maybe have a, an ETF mutual fund

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model for a much smaller minimum.

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And so it's that level of customization,

but then it's also can we incorporate

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other third parties in here?

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And that really makes it,

unlock that custom feel

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Ryan: I'm really glad you brought

that up because that's another point

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of just the evolution here as a UMA.

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In separately managed accounts, you're

getting all these different statements

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from all these different firms.

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UMAs, it's all wrapped up into one.

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Like you said, you can have alternatives.

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Very hot topic right now, and that's

a whole nother conversation, Rob.

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A whole nother con-

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Rob Battista: Yeah.

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Ryan: Exactly.

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Exactly.

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So you mentioned that…

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Let's talk about what's in it

for financial advisors to offer

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these custom solutions in their

businesses and to their clients.

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You mentioned lower fees, you know,

scalability, maybe outsourcing,

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remove that, you know, regulatory

burden, and just the burden that

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comes to investment management.

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W- Are there other benefits to

financial advisors for adopting

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and incorporating custom solutions?

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Rob Battista: Yeah, first and foremost,

like we said before, I think it unlocks

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assets that maybe you weren't able to get

into a, a fee-based advisory solution.

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That's number one, right?

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Getting a more of a share if not all

of my book of business into a recurring

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revenue model targeting that advisory fee.

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So that's first and foremost.

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But, what I would also say is,

and I mentioned it briefly, but

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introducing scale to, through,

through the outsourced approach.

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You can match your client's preferences

and, but have it all be turnkey

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and managed on your behalf at,

at, at no additional cost, right?

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So not only working with the asset

manager to help for- formulate and update

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the asset allocation ongoing, paying

attention to markets, but downstream,

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client needs a $50,000 withdrawal.

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Where am I taking the funds from?

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Having a firm like Vestmark step in

as an implementation partner enables

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us to manage to those targets within

the preferences of the client, and the

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advisor can be completely hands-free.

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And so that's where the, the

growth element is because their

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number one value is their time.

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We all know that.

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that time away from operational admin

aspects and applying it towards financial

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planning, prospecting, and spending

more time in front of your clients.

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And so where you're seeing the real,

I think, boost for the advisors

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Ryan: And some may argue this, but

that's the most valuable time spent

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for a financial advisor is the

relationship management, you know,

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financial planning, because now

with the fee pressures on investment

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management, you're adding more value.

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You're gonna get more value out of meeting

those clients and building relationships

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than you are just picking mutual funds.

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So what-- So we talked about the

benefits to financial advisors.

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There's a lot of them.

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You've done a great job

there laying them out.

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But what are some benefits to the asset

managers who offer these solutions?

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Rob Battista: Yeah.

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So we did touch on this briefly, but

just to reiterate, I think for one, they

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view it as much stickier business, right?

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Instead of having a, a distribution

professional de- developing a relationship

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with an advisor to get them to use a

product like an ETF or a fund, talking

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about a total portfolio solution.

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And so one, it's more stickier because

it's a holistic solution and much harder

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to replace than this mid-cap ETF that

I no longer that's an easier flip.

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to turn upside down my whole suite

of portfolios I'm using across my

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practice, that's very difficult.

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So if you get entrenched, makes it a

lot stickier for the asset manager.

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And also I think it's getting a larger

share, wallet share, larger share of

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total portfolio because maybe it's

not 100%, but if they can get 30%

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or 40% of the allocation, that's a

big part of the overall allocation.

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And so I think asset managers have

seen some success with a couple

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of the leaders in this space and

frankly, there are a lot chasing that

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model because it seems to be working

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Ryan: Yeah.

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And, you know, if you-- these

financial buy- if they just offer an

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ETF or these asset managers offering

a basic ETF, that sleeve might just

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be 5 or 10%, so, of the wallet share

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Rob Battista: And it's, trying to

win three or four sleeves is three or

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four separate conversations, right?

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This is one holistic conversation

that might take a little bit longer,

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but once you get it, it's a much

more valuable piece of business

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Ryan: Exactly.

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During a lot of my conversations with

financial advisors, whether it's on

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the podcast or just at conferences, one

thing I hear a lot about, whether it's

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separately managed accounts or just

these more custom solutions, is the

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operational side of implementing these

solutions, and that's one challenge they

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keep coming up with is operational side.

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How does it work?

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Are these warranted, these issues or

challenges, or is it just misconceptions?

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Rob Battista: I think they absolutely

are warranted if the advisors are

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trying to manage this themselves.

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Even with the technology that's out

there it's a heavy lift to manage custom.

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We know it firsthand, and what we're

hearing from, our asset manager

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partnerships is that 40% of their

custom model partners on average are

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self-implemented, meaning they're

getting they're getting these models

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delivered in a PDF of some kind or an

Excel sheet, and then they're going…

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having to go and implement themselves.

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So they're not only burden- burdened

with, the account assignments and

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keeping them traded within, target

bands, but managing to the capital gains

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budget, ongoing tax loss harvesting

throughout the years it's just…

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it's a heavy lift, right?

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And so what I would say is that

this can become a lot easier

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working with an implementation

partner like InvestMark which is

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increasingly being done at no cost.

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And so we're seeing that the majority

of our 13 partners we have in

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this space that are doing custom,

they're willing to cover our fee.

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that, that is just a heavy lift.

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In the past, it was not

necessarily the case.

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You would have an advisor have

to make that decision on or cost,

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and now those are one and the same

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Ryan: Real quickly, Rob,

fantastic conversation.

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Finish it up here.

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You just mentioned at scale.

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We've talked a lot about it

during this conversation.

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It's arguably the most important part.

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Like you said, financial advisors,

they're pulled in many different ways.

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Their most valuable asset really is

time, and they're limited in the time and

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all the different things that they have

to do to build a successful business.

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So how can advisors implement

custom solutions at scale?

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Can you give an example or, or

how you guys play in that role?

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Rob Battista: Sure.

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Yeah, we've seen a lot of success from

advisors and some that struggle as well.

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I can say is that don't look at the

whole project as one very large problem.

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You can break it into smaller

bite-sized pieces in terms of how do

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I get started, and then how do I…

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you shouldn't expect that they're

gonna flip a switch and your whole

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book is outsourced that then cover…

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and the costs are covered, right?

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For one it's find that partner, find

that asset manager that you really

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and that you think does a great job

from an asset allocation standpoint

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that has best in breed product.

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Find multiple asset managers that

may be willing to work together.

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We even have the ability to offer

multiple flavors on one platform.

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You can have open architecture,

you can have BlackRock, you can

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have Vanguard side by side, right?

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And let your advisors choose

what they'd like to have.

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And so build out the platform first and

find who that implementation partner is

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so that you know that once you get the

adoption and the uptake, that you're not

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gonna own the operational burdens of that.

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then also think logically about, the

right way to cut up your book of business

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and see who's ripe, to start here.

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Should it be I do my retirement

assets first 'cause I can just

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flip those and I don't have to

worry about the tax preferences?

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I think through the different advisors

in my practice and have them think

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about how they wanna cut up their book?

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And yes, we can do bulk conversions.

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That, that works well.

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There's a lot of legwork there.

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But also think about just introducing

this in the scope of your normal

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check-in conversations with your clients.

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It does not have to be a

frantic quarter where you speak

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to every client about this.

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It can be when's my next check-in

with, the Batista household?

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Let's, let me bring up this idea of a

new custom solution and incorporating a

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greater degree of tax overlay and explain

the benefits to them, and that frankly

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it won't come at any additional cost.

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And so we've seen a lot of success

thinking through the steps and just going

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through a process as opposed to trying to

bite off the whole thing in one big shot

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Ryan: That's great, great

tip, great insight there, Rob.

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Like a lot of things in

investing, you don't need to

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jump in both feet head first in.

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It, it's kind of like dollar cost

averaging into investments where, you

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know, a little bit at a time works

really well, e- especially in this case.

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So fantastic insight, Rob.

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Thank you so much.

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Really great conversation.

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I enjoyed it, and very important

topic, one that is gaining a lot

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of steam and traction right now.

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So fantastic.

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Thank you so much for coming on.

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Where can our audience get more

information about Vestment?

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Rob Battista: Well, certainly there's

a lot publicly out there, so feel free

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to ask your favorite AI chat engine.

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I'm sure you'll find a lot.

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But secondarily, you can

simply go to vestmark.com.

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We have a resource center at

the top of the page, and you can

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just search for custom models

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Ryan: Yeah, it's fantastic.

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Awesome, Rob.

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Thank you so much, and thank you

everyone for listening to this episode.

503

You can watch all of our other episodes on

YouTube and all of the other platforms you

504

listen and watch your favorite podcasts.

505

Please be sure to like and

subscribe to those channels and

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give us a follow on LinkedIn.

507

Thank you very much and have

a great rest of your week