Exchange 2025 is happening March 23 through 26. Ahead of the event, Evan Harp sat down with Joe Mallen to discuss his new firm, Modelist, the rise of direct indexing, and the challenges and joys of starting a business.
Evan Harp: Thanks for joining me today, Joe. I would like to start off by asking you to tell us about your new firm and what you do.
Joe Mallen: Awesome. Thanks for having me, good to see you again. We started Modelist late 2023 to serve as a custom model provider for financial advisors. Primarily, we work with RIAs and independent advisors that fall somewhere in the space between a desire to run their own investment models in-house or outsource a lot of that functionality to a third party.
We felt there was a massive gap in our industry. One that needed to address the benefits you get from doing it in-house, such as keeping your brand, your identity, and having a lot of control, and the benefits you get from outsourcing — professional expertise, compliance, documentation, content, and an experienced group doing investment work for you.
That’s Modelist in a nutshell. I’m sure we’ll probably dive in a little bit more, but we’re all about bringing industry-level expertise in building model portfolios and blending that with a high level of customization that the advisor has control over. So we’re calling it “Guided Rep is PM,” or “Guided Rep is Portfolio Manager.” That’s the business plan, and we’re off and running, and it’s been going great so far.
Getting the Pieces to Fit
Evan Harp: What made now an ideal time to make this move and fill this gap in service that you saw? Was there anything in particular, or was it just an opportunity for you where all the pieces fell into place?
Joe Mallen: The timing was ideal. The catalyst for me was seeing what direct indexing did for equity portfolios. The trend and term had worked its way into the advisor space, and now it has a definition. It involves using a third-party tool to craft and build your own equity SMA for your clients. The advisor uses third-party research, presses some buttons on the software, and builds a customized model portfolio of stocks for clients. This gives them a lot of brand benefits. It gives their business a lot of benefit, and they’re getting tax management and all these good things that come with it.
I bring that example up because nobody’s doing that in the asset allocation model space. There are massive trends surrounding customization and model portfolios. And you see BlackRock, JP Morgan, State Street, and other ETF providers getting in the model game. They realize that’s what people want to buy.
There are third-party strategist options, but none of them are transparent. They’re all “buy us, sell us to your clients.” And so I thought, “Wow, what if we took what we learned from direct indexing and applied that to model portfolios to give advisors a lightweight way of designing what really works for them.” We’ll bring all the IP to the table. They bring some opinion and ability to craft models for their clientele. And that was it.
We had to be the first people to do it. We thought long and hard on the name and Modelist just came up. It was not something used in the industry. It’s defined as “one who builds models,” which is exactly what we do. We hope to forge this industry that five years from now, advisors are all asking, “Hey, do you have direct modeling capabilities for me? Do you have the ability to help me build and run my own investment models?” We want that narrative to be interwoven into the industry.
The Challenges Facing Modelist
Evan Harp: That makes a ton of sense to me. You are about a year into this venture. What’s been the most challenging thing and how did you overcome it? Also, what surprised you?
Joe Mallen: The most challenging thing, I think — many people starting a business will tell you this — is dealing with the red tape of the government. We started full-time building Modelist in June of 2023, and it took us four or five months just to get approved as an RIA. That involves working with the state and paperwork, and you’re just like, “Wow, I’m ready to go but I can’t go! I can’t do anything yet.”
I really enjoy being an entrepreneur and doing every aspect of the business, but dealing with payroll taxes and setting up accounts at all the states… It’s a pain in the butt, so that’s most challenging.
The most surprising thing is just the relief of finally getting to be in control — it wasn’t stressful for me. This has all been very energizing and fulfilling. When I took that leap and started a new business, I thought there would be a lot of anxiety. But once you get a couple of wins, it’s energizing. It’s freeing. What I do on a day-to-day basis really matters, both good and bad.
How Modelist Solves a Problem for Advisors
Evan Harp: Have you met any skepticism from advisors when it comes to custom models or direct indexing? I know it’s a tool that is seeing rising interest, but what’s the number one point of reticence that you’ve heard? How do you respond to it?
Joe Mallen: Our clients typically come from one of two positions: Either they build their models in-house, or they currently use a third-party provider. We aim to present a more appealing value proposition to both groups.
The most challenging part is working with the do-it-yourself advisors and helping them understand the value proposition of outsourcing investment management. We keep our pricing low enough that they can do the math and conclude, “This makes sense,” as it costs less than hiring in-house staff while freeing up their time.
We’ve addressed this challenge by offering our services as an RIA that can directly trade client accounts across different platforms. We position ourselves as a third-party manager rather than an OCIO (Outsourced Chief Investment Officer). This means we’re not just providing information and data while they handle execution. That would simply be an expense to the firm. Instead, we partner closely with them and serve as an investment manager on the account. Our fees are among the lowest in the industry, or at least highly competitive with other options, while providing all the benefits we’ve discussed.
Starting a New Business
Evan Harp: That’s great. I have one more not-exactly-a-question for you: I’d love for you to share a story of a big win that Modelist has had, or the moment when you really knew that this was going to work.
Joe Mallen: You’re always nervous about how you’re going to get clients. That was going to be the most difficult part, for me, because I’ve never really been in a sales capacity. I’ve always been a research person, an investment person, or in the operations side of a business. I knew I could do everything I could control. What you can’t control is getting people to like what you have.
One of the most fulfilling experiences when I started the business was the positive reaction from people I’d known throughout my career. People I hadn’t worked with in 10, 15, or even 20 years were reaching out. They would say, “Joe, I hear you’re doing your own thing. I want to learn more.” That kind of response gave me confidence that I was making the right decision. When people contacted me proactively, offering support, referrals, or wanting to become clients themselves, it really helped us get the business off the ground.
Connect with Joe Mallen at Exchange. Register today.
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