RIA Channel and FTSE Russell conducted an advisor survey to learn more about their knowledge, interest and current usage of direct indexing. Rather than buying a single equity index fund, advisors may implement direct indexing by purchasing the individual stocks in the index according to their stated weights.
The survey found that 21% of surveyed advisors are currently using direct indexing, while an additional 48% plan to start in the next 1 to 5 years. Further education is needed, as just 34% of advisors state that they are very familiar or extremely familiar with the topic. A key part of the educational process is understanding the benefits of direct indexing and being able to discuss those benefits with clients. Advisors using the strategy state that key benefits include tax loss harvesting (64%), tax-efficient transitions (56%), and reducing concentration risk (40%).
While many client portfolios may hold stocks at the index weights, holdings can be customized to reduce the weights on the largest stocks or not to hold stocks that may conflict with a particular client’s values.
Surveyed advisors stated that barriers to the use of direct indexing may include a lack of demand from clients and a need for advisors to have more knowledge of a particular investment strategy.
For more information about the survey, please contact RIA Channel.
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