America's Best Direct Indexing Buyers Guide 2024 - 7

2024 DIRECT INDEXING BUYERS GUIDE
customizing solutions to meet your
clients' individual needs and not some
hypothetical " ideal investor, " you gain
a significant edge. With the right direct
indexing technology, no one is better
positioned to serve your clients than you.
Why Now?
While the concept of customizing
portfolios has existed for decades (see
page 15 for a time line from Celent),
it was typically a luxury for ultra-highnet-worth
individuals due to the costs
involved in creating and managing
personalized portfolios.
Today, direct indexing brings the benefits
of affordable, customized portfolios to
a wider range of clients, while for the
UHNW market, tax optimization and
portfolio customization are now delivered
with greater efficiency.
This renaissance is largely due to the
decrease in trading costs-many
brokerage firms now offer zerocommission
trades on stocks and
ETFs-and advancements in trading
technology. Investors can either
manage a direct indexing strategy
themselves or opt for a professionally
managed account.
In the past, direct indexing required a
substantial amount of capital to purchase
all the stocks needed to replicate an
index. The process of rebalancing to
match a model and reconstituting to
match the index was also expensive due
to trading commissions.
However, several factors have changed
this dynamic. The advent of fractional
shares trading allows investors to buy
portions of stocks in the proportions
needed to replicate an index, even with a
relatively smaller amount of money.
The growing availability of zerocommission
trades has also made
rebalancing and reconstituting more
affordable, encouraging more investors
to explore direct indexing.
Technology also plays a crucial role in
record keeping and oversight, especially
when it comes to harvesting tax alpha.
The burden of monitoring hundreds of
Why Will Wealth Advisors Use Direct Indexing?
21.28%
15.43%
Tailored Portfolios for Individual Goals
13.3%
Cost-Efficiency over Time
10.11%
Custom Diversification
7.98%
Unleash the Power of Customization
5.85%
Personalization for the Next Generation
5.32%
Gaining a Competitive Edge
4.79%
Aligning with Evolving Expectations
3.72
Estate Planning Reinvented
3.19
Empowerment Through Control
2.13
Navigating Life's Transitions
1.06
Wealth Advisor reader poll, 2024
positions and theoretically thousands
of lots has vanished, while automated
systems assist in identifying lots that
can be sold or replaced to generate
favorable tax outcomes.
Last and perhaps least, any stigma
about " churning " the account simply to
generate transaction fees evaporates
in a fee-based practice where
commissions are irrelevant.
In our view, this psychological hurdle is
real but does not bear rational scrutiny.
Many advisors who considered the
ETF revolution an advance over legacy
broker-oriented security selection could
benefit from a return to basics as long
as commission drag is mitigated and
accounts can scale down toward the
mass affluent market.
Mastering Tax Efficiency
Harvesting Losses, Harvesting Gains
7
America's Best Direct Indexing Buyers Guide 2024

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