America's Best Direct Indexing Buyers Guide 2024 - 6

2024 DIRECT INDEXING BUYERS GUIDE
structure mitigate the complexity and
the pain, making those enhanced
outcomes available to a wider range of
investors without forcing the advisor to
make unreasonable sacrifices.
After all, your clients can buy that S&P
500 index fund by themselves and settle
for the random walk. They don't need you
for that. They don't pay you for that either.
They pay you for something better. If you
aren't willing to provide that, it will be hard
to keep them from seeking that enhanced
experience elsewhere. Competitors will
use your inertia against you.
Time to grow. While disruption is
hard, recent years of endless shocks
have hardened your practice. You're a
survivor. Use those skills to embrace
change and grab a competitive edge.
The Benefits: Differentiated
Outcomes Are Possible
Direct ownership of individual securities,
as opposed to a pooled structure, offers
additional intrinsic benefits.
One key advantage is the ability to
capture capital losses and use them
to offset taxable gains, which provides
substantial after-tax performance
benefits, known as " tax alpha. " This
advantage is not available in pooled
structures like mutual funds or ETFs.
Additionally, some investors may want
to reduce or eliminate exposure to
certain securities that do not align with
their ethical values or financial situation.
Direct indexing allows advisors to
incorporate ESG (environmental, social,
and governance) or values-based
factors, customizing the portfolio to
reflect predefined themes.
Recent failures of the traditional
" balanced " 60-40 multi-asset strategies
have also highlighted a shift in thinking.
Fixed-income instruments, once seen as
providing reliable income and principal
protection, can lose their appeal when
held in a pooled vehicle, like bond funds.
The true opportunity in direct indexing
lies in portfolio optimization, allowing
Who Uses Direct Indexing?
RIA
21.19%
Wirehouse, e.g., Morgan Stanley, Merrill Lynch
10.6%
Independent, e.g., Commonwealth, LPL
7.95%
Other, accounting firm, law office, IRA Custodian
4.64%
Bank or Trust Company
3.97%
Family Office
3.97%
Would like to use direct indexing and would like to learn more.
3.97%
IBD
3.31%
Don't use direct indexing and have no plan for it.
40.4%
Wealth Advisor reader poll, 2024
advisors to deviate from the index
mandate to create more personalized
and differentiated client experiences.
This level of customization was once
the realm of elite specialists, but
advancements in technology have
made it more accessible.
For a generation, most advisors and their
clients were limited to choosing from
mutual funds managed by someone
else. However, with direct indexing,
advisors take full control over the
portfolio, setting the investment criteria,
fine-tuning individual holdings, and
managing tax and risk considerations.
Modern tech supports the automation
of many complex direct indexing
tasks, particularly in tax management,
diversification, and value screening. This
makes direct indexing more accessible,
scalable, and cost-effective, allowing
advisors to compete with established
providers while maintaining high
standards of quality and functionality.
The construction of customized portfolios
requires a balance of control over the
process and a deep understanding of
the client's needs. To deliver effectively,
wealth managers need to be more
involved in product development, and
asset managers need to be more
connected to client distribution.
The key competitive advantage lies
in the advisor's unique and deep
understanding of their clients, which is
crucial not only for financial planning
and product selection but also for
building tailored portfolios.
When your core service revolves around
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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
