America's Best Direct Indexing Buyers Guide 2024 - 12

2024 DIRECT INDEXING BUYERS GUIDE
where both the advisor and the client
work together to create an investment
strategy that reflects their values and
goals.
5. Getting Ahead of a
Liquidity Event
When it comes to succession planning,
careful preparation can maximize the
value of a family-owned business,
whether the business is passed to a
family member or sold to an external
buyer. A solid succession plan should
align with the company's long-term
strategy.
Many high-net-worth individuals plan
to sell a business, property, or large
stock position, which typically results
in significant capital gains taxes.
Unfortunately, many advisors don't
anticipate these events far enough in
advance, leaving their clients without a
proper strategy.
This lack of planning opens an
opportunity to introduce direct
indexing. By selectively harvesting
losses, offsetting gains and
implementing tax-efficient trading
strategies, direct indexing can help
investors manage their portfolios and
reduce capital gains taxes.
Remember, direct indexing allows
investors to potentially match the
returns of a chosen benchmark while
building up losses that can offset
future gains. This proactive approach
enables clients to better manage
their tax obligations, especially when
large financial windfalls occur. Starting
early allows clients and their advisors
to adjust as market conditions and
personal circumstances evolve.
The first step is identifying the
potential for a client to realize a
financial windfall, whether tied to
retirement or another major life event.
Once you and your client determine
the source and timing of the windfall,
you can explain how direct indexing
can reduce tax liabilities over time or
manage them within a set budget.
And you've added value.
Who This Helps: Expanding the
Traditional Client Universe
Traditional wealth management
often divides into two segments:
personalized solutions for UHNW
clients, who are fewer in number
but hold significant assets, and
standardized portfolios for those with
lower levels of wealth. This creates
a clear opportunity for advisors who
want to serve clients in the lower end
of the HNW segment.
Direct indexing offers a middle-ground
solution, providing cost-effective,
personalized portfolios for clients who
aren't fully satisfied with standard
portfolios but may not have the
resources for completely customized
options.
While tax optimization is at the heart of
direct indexing, the technology behind
it also allows for greater customization
and tax benefits, meeting the needs
of a wide range of clients, including
UHNW individuals.
Keep in mind, this involves some level
of active management. It's not for
everyone, and some clients-especially
Scalability vs. Level of Customization
Level of Scalability
Customized High-Touch
" Bespoke "
Customized Automated
" Bespoke "
One strategy for one client
Fully bespoke service
offering to accommodate
needs and requirements of
each individual
More easily replicated than
high-touch bespoke
Implement overlay systems
= help reconcile goals of
customization
Model Portfolios
" Made to Measure "
Pre-defined and limited set
of custom 'toggles' in
addition standardised
model portfolio parameters
Automated customization
offering to provide bespoke
experience in more efficient
and lower cost way
UHNW (>$50MM)
Core HNW ($10-50MM)
Model Portfolios
" Ready to Wear "
Standardised model portfolios
to control costs and reduce
performance outcome
dispersion
Automated customization
offering to provide bespoke
experience in more efficient
and lower cost way
Entry-level HNW ($1-10MM) / Affluent (<$1MM)
Level of Customization
Courtesy of Celent, 2024
© CELENT
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America's Best Direct Indexing Buyers Guide 2024

Table of Contents for the Digital Edition of America's Best Direct Indexing Buyers Guide 2024
