Divya Krishnan, Director of Personalized Investing Solutions for Charles Schwab, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the democratization of direct index investing.
Direct indexing is when a client invests in a few hundred stocks that track a market index within a separately managed account (SMA). The portfolio managers deploy an algorithm to harvest tax losses. The account can be personalized for each client, allowing for the selection of one or more indices, with the option to exclude specific stocks or industries from the portfolio. The popularity of direct indexing has surged in recent years, largely driven by technological advancements, zero-dollar trading commissions, and the ability to trade in fractional shares.
Schwab believes in democratizing investments. While the minimum investment size on direct indexing was previously as high as $1 million, Schwab now offers the program to investors with as little as $100,000. Direct indexing fees for RIAs are as low as 25 basis points.
Investors with an SMA at Schwab have access to direct indexing, as well as third-party and proprietary solutions in both growth and income. Schwab can work with RIAs and their clients on transitioning into direct indexing in a tax-efficient manner. Schwab currently offers direct indexing on six indices, including four domestic equity indices, one international equity index, and an index that excludes companies with negative social or environmental impacts.
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