Navigating Tax Strategies with Direct Indexing

In this episode of How I Invest, I spoke with Thomas Lee, Co-President and CIO of Parametric, a $600 billion asset manager within Morgan Stanley Investment Management. Tom walks us through how Parametric helps high-net-worth individuals access institutional-quality investment strategies, why customization is the future of asset management, and how their technology powers nearly a quarter million highly personalized accounts. We talk about inflation myths, the credibility of the Fed, and whether the U.S. will eventually inflate its way out of debt. Tom also shares how Parametric brings tax-efficient investing and direct indexing to portfolios as small as $25,000, explains why "investments as a service" is not just a tagline, and offers valuable insights on long-term leadership, scale, and innovation. Whether you're an institutional allocator, wealth manager, or an individual trying to understand the future of investing, this episode is packed with takeaways.

Highlights:

• Parametric manages $600B AUM, accounting for ~37% of Morgan Stanley Investment Management
• Inflation discussion: CPI vs PCE, and why inflation "feels" higher than reported
• The myth of hidden inflation and how CPI is calculated
• Explanation of the Five-Year, Five-Year Forward Rate as a proxy for Fed credibility
• Why Parametric doesn’t try to predict markets—and what they focus on instead
• Delivering customized SMAs down to $25K accounts
• Use cases for tax-loss harvesting, completion portfolios, and values-based overlays
• The evolution of pooled funds to the current era of hyper-customized investing
• Behind-the-scenes on how Parametric runs technology at scale
• Thoughts on active vs passive investing and market efficiency
• The challenge of integrating private alternatives into public portfolios
• Tom’s leadership philosophy: resource allocation, storytelling, and resilient growth

-- Guest Bio: Thomas Lee, CFA is Co‑President and Chief Investment Officer at Parametric, part of Morgan Stanley Investment Management. He joined Parametric in 1994, brings over 30 years of experience, and previously spent two years at the Board of Governors of the Federal Reserve.

As Co‑President & CIO, Tom leads investment teams responsible for research, strategy, portfolio management, and trading, and serves as a voting member on all investment committees. He holds a BS in Economics and MBA in Finance from the University of Minnesota, is a CFA charterholder, and actively engages with the CFA Society of Minnesota.

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LinkedIn: David Weisburd: https://www.linkedin.com/in/dweisburd/ Thomas Lee: https://www.linkedin.com/in/thomas-lee-97a8826/

Links Parametric: https://www.parametricportfolio.com/

-- Questions or topics you want us to discuss on How I Invest? Email us at david@weisburdcapital.com.

(0:00) Episode preview (1:06) Understanding Inflation: CPI and PCE Differences (3:25) Personal and Conspiracy Views on Inflation (6:21) Inflation Coordination and the Five Year Forward Rate (11:39) Tools for High Net Worth Clients in Institutional Finance (14:52) The Rise of Direct Indexing and Its Tax Advantages (17:09) The Shift to Hyper Customization in Finance (23:33) Managing Complexity in Fractional Shares and SMAs (24:51) Customization Strategies for Enhancing Returns (26:25) Debating the Efficient Market Hypothesis (28:16) The Integral Role of a Chief Investment Officer (CIO) (30:38) Communication Challenges within Large Organizations (34:34) Balancing Customer Feedback with Internal Innovation (36:03) Analyzing the Growth of Alternative Investments (41:39) Market Dynamics: Private vs. Public Asset Convergence (42:21) The Relevance of Active Investing in Efficient Markets (44:12) Investment Wisdom: Advice to a Younger Self (47:59) Investment Decision-Making and Contrarian Thinking (51:04) Parametric's Investment Philosophy and Future Plans (52:22) Closing remarks