Ken Lassner, CFA, Direct Indexing Lead Product Strategist for Northern Trust Asset Management, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the growing demand for direct indexing and how advisors are using the strategy to address tax management and portfolio customization.
As the direct indexing industry reaches about $1 trillion in assets, with expectations to grow by another $1 trillion over the next three years, Lassner highlights the strategy’s growing demand and accessibility. As the third-largest direct indexing manager in the industry, Northern Trust has seen particularly strong demand among high-net-worth investors, who often face complex tax situations across their portfolios. Lassner explains that direct indexing can help advisors manage taxes while providing greater customization, potentially allowing clients to retain a larger share of their wealth over time.
Lassner also highlights Northern Trust’s ability to incorporate existing ETFs into a custom index within a single account. This can be especially valuable for investors with appreciated ETFs that could generate a taxable event if sold. By looking through to the ETFs’ underlying holdings, Northern Trust can account for their risk and build the rest of the portfolio around them, allowing investors to incorporate existing ETFs into a direct indexing portfolio rather than sell them. He also adds that as adoption and accessibility continue to expand, education remains an important factor, noting that Northern Trust surveys have found some advisors wish they had adopted direct indexing sooner.
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