Tax-Managed Portfolio Transitions in Direct Indexing

While the personalization benefits of direct indexing tend to center on tax management generally, tax managed portfolio transition strategies are particularly important for advisers. Transition strategies lend themselves to range of use cases and often form the centerpiece of new client onboarding, a process that presents the advisor with a honeymoon period and an opportunity to shape client thinking.

A key client selling point will be the capture of tax alpha. Clients expect to incur a financial hit in account transition. What could be more compelling than a lower tax bill? And while trade-offs around direct indexing can inhibit adoption, technology offers solutions. The good news from an industry standpoint is that portfolio transition as a strategy is self-reinforcing. Advisors getting started with direct indexing tend to apply it to new accounts, as they have little desire to jeopardize an existing relationship. The result is a virtuous cycle: If the experience is a good one, they will apply it to larger, existing relationships.

Key questions discussed in this report:

• What is the primary advisor use case for direct indexing?
• At what point does direct indexing typically enter the client conversation and who initiates it?
• How do tax-managed portfolio transition strategies support direct-indexing adoption?

Companies Mentioned:

55ip, Alphathena, Charles River Development, Cresset Capital, Fabric Risk, Ford Motor Company, Franklin Templeton, JPMorgan Asset Management, LifeYield, MSCI, Natixis Investments, Northfield, O'Shaughnessy Asset Management, Qontigo, Rowboat Advisors, State Street, Tesla, Vestmark