Vestmark CEO Q’s – Next Steps for Wealth Management Technology

By Bill Hortz, Founder of the Institute for Innovation Development

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The inexorable march of financial technology is providing competitive new services, capabilities, and delivery systems for wealth management platform sponsors, asset managers, and financial advisors. In the process, it is also creating a wider range of clients and client expectations, and advisor business approaches to consider in their firm growth strategies.

To get a better understanding of how the landscape of technology and services supporting the wealth management market are evolving, we reached out to Institute member Karl Roessner, the CEO of Vestmark – a leading provider of portfolio management solutions and outsourced services for financial institutions and their advisors, enabling them to efficiently manage customized client portfolios through an innovative technology platform.

As you reflect on your first 18 months as CEO, where have you spent the majority of your time?

As you might imagine, I focused a great deal of time learning about our clients and getting to know the Vestmark team. I have also made a concerted effort to focus externally since I bring with me that perspective and many relationships across the industry. This external focus has been about re-engineering and re-igniting Vestmark’s engagement across the industry. Meeting with potential partnership prospects, peer firms, investment banks and private equity firms. I was able to get a pulse on the landscape and reconnect with a lot of different firms and individuals I know well from my prior roles at E*TRADE, and Lefteris Acquisition Corp. (A Special Purpose Acquisition Company (SPAC) focused on fintechs). My outreach efforts have been very much about listening and learning about how Vestmark is perceived in the industry and even more importantly about uncovering opportunities in the marketplace. This has enabled me to form the underpinnings of the longer-term strategy and vision for Vestmark.

Can you share with us some of the high-level insights you gained about common challenges that are informing your strategy and vision?

One significant recurring theme has been time. We need to find a way as an industry – whether through technology, service providers, or re-thinking business and service models – to allow advisors to spend more time with their clients, and to enable those advisors to work with more clients. There are three major factors coming together to create this inflection point.

First, surveys, data and trends repeatedly show that individual investors still want to interact with another human when it comes to managing their investments. Next, consider that clients’ expectations of personalized relationships and the number of services they get from their advisors continue to grow year after year. And then overlay the looming industry trend of the reduction in the overall number of advisors with impending retirement of tens of thousands of advisors in the next decade. Many of those advisors don’t have succession plans, so more and more are getting rolled up by larger institutions, but there are fewer and fewer hands to manage a growing number of accounts. This creates the need for institutions and advisor networks to have extremely scalable platforms to enable those remaining advisors to manage multiples of the accounts they used to manage. Instead of 100 it’s 1,000; instead of 1,000, it’s 5,000 and so on.

Those are the solutions we need to provide. This creates a tremendous growth opportunity for technology and service firms, and those who can create the right solutions will help those winning wealth management firms differentiate themselves.

How will this feedback inform your firm’s continuing development and innovation to support your clients?

Vestmark’s core rebalancing, trading, and portfolio accounting are viewed as among the best in the industry, and we are already keenly focused on helping to save advisors time. One of the key areas we continue to focus on that we think will bring differentiation to our client firms, tangible benefits to investors, and will create meaningful additional time savings for advisors is the overall advisor experience across proposals, reporting, billing and implementing advice at the client relationship (household) level.

In 2023 we introduced capabilities that allow advisors to view and take action at the household level and we intend to continue to build automation and more sophisticated tools from there.

Overall, our strategic approach to our product roadmap is to build on our core strengths of scale and efficiency and providing our clients with a seamless, frictionless solution to allow them to spend more time with their clients.

What are some of the other preliminary directions you see innovation taking your firm and how do you envision getting there?

The strategic vision includes an evolving view of the portfolio of the future – how can we build on our strength in UMAs, SMAs, and advisor directed strategies that Vestmark’s core technology supports well today, and present our clients the full view of the client relationship where they can manage their clients’ entire portfolio in one place? They should be able to view all of our managed account offerings together with alternative investments, tokenized assets and other held away assets. That is what we are building towards over the longer term.

Vestmark is innovating on several levels to help our clients realize this vision. We are constantly looking at our core technology to be sure we are always moving forward with the times, keeping pace with what customers need as their businesses evolve. We want to be sure we can address their needs in areas like multi-custody, integrations and making it even easier to plug and play. And where their businesses demand more flexibility, we need to enable that for them in the tech.

Can you provide an overview of how AI is being used within your organization?

As we continue to evaluate the role of AI within our business operations, we're focused on leveraging this technology to drive efficiency and innovation across various departments. Currently, we're in the process of reviewing and implementing Microsoft Co-Pilot, which we believe will streamline tasks and enhance productivity through AI-powered automation. Our aim is to identify areas within the organization where AI can make meaningful contributions, whether it's in optimizing processes, improving decision-making, or enhancing customer experiences.

You have described the scope of your role to include driving expansion into new and adjacent product lines and broadening Vestmark’s partnerships across the fintech ecosystem. Based on what you have learned, what are the broad outlines of how you are thinking about that for Vestmark going forward?

In 2023 we launched Vestmark VAST®. We believe this is a much more holistic, scalable and user-friendly solution than most of the single-strategy direct-indexing offerings out there in the marketplace now. VAST is an outsourced portfolio management solution that enables advisors to construct multi-asset, diversified personalized portfolios for their clients – across multiple asset classes – and then outsource the tax management and rebalancing to Vestmark. One of the keys to the offering is a tax-transition and tax overlay service that we believe is an elegant solution to help our clients as they recruit financial advisors who are bringing with them client portfolios with embedded taxable gains. And this is also very much in line with the idea of bringing tools and services to advisors that will save them time. This is the first major product launch in over a decade for Vestmark, one which has enabled us to expand into new markets.

We are leaning into investment services for the first time through VAST, with our first index-based strategies, while also offering access to the 1,000+ actively managed strategies in our open-architecture manager supermarket. To expand our services, we are changing the way we think and some of the way we do things, for example we have our first portfolio managers on staff, and we are extremely excited about what this offering can provide to our clients.

Current and prospective clients that we have been speaking with about VAST are very excited about it. They see where we are headed with this and that it fills a need in the marketplace. Early entrants into the direct indexing marketplace have offered great solutions, but we feel that ours has a scalable and unique way to offer tax transition and management that sets it apart from the others. That’s our core competency, so we believe that plugging in direct indexing and offering tax overlay along with the other pieces we can layer onto it will put us in an industry-leading position.

Any advice or recommendations you can share with wealth managers as to how best to compete and position themselves as the wealth management industry continues to evolve?

Circling back to where we started, we believe the successful transition to the next generation of advisor will be about harnessing all the available technology to create advantages and opportunities. It’s about accelerating the business, but always keeping front and center the client’s need for that human-touch and customer care that’s so critical in building and maintaining the relationship and delivering the advice they want and need. In our view, the more effectively firms and advisors can leverage technology to improve scale and efficiency and create more personalized high-touch client experiences, that will always be a competitive differentiator and a growth driver in our industry.

Investment strategies that seek to enhance after-tax performance may be unable to fully realize strategic gains or harvest losses. There is no assurance that investment products based upon indices will accurately track index performance or provide positive investment returns. Inclusion of a security within an index is not a recommendation by VAS to buy, sell, or hold such security, nor is it considered to be investment advice.</small

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