Direct Indexing Reaches Mainstream, but Tech Friction and Cost Threats Persist
Direct indexing is moving from a specialized tax-management strategy toward a core wealth-management capability, although technology integration and adviser education have not kept pace with adoption, according to new research from FTSE Russell.
Adoption Accelerates
The index provider’s third annual Direct Indexing Survey found that 41% of surveyed U.S. financial advisers use direct indexing, up from 33% in 2025. The average allocation increased to 17% of adviser assets under management from 13%, while the share of clients using the strategy rose to 20% from 16%.
Unlike an index mutual fund or exchange-traded fund, direct indexing allows an investor to own some or all of the individual securities in an index through a separately managed account. That structure can enable customized exclusions, factor tilts and tax-loss harvesting at the security level.
Tax management remains the primary attraction. Among current users expecting to increase allocations during the next year, 42% cited tax efficiency or tax-loss harvesting. In addition, 87% of advisers said direct indexing is valuable for coordinating investment and tax decisions across multiple accounts within a household.
The potential value depends on the investor’s circumstances. Tax-loss harvesting generally offers greater opportunities in taxable accounts containing appreciated assets, while benefits may be less meaningful in retirement accounts. Trading requirements, tracking error, minimum account sizes and wash-sale coordination can also affect results.
RIAs and Wirehouses Increase Usage
Overall, 83% of advisers said they currently use direct indexing or expect to adopt it within 12 months, up from 76% last year. Current and planned use at wirehouses and traditional firms climbed to 63% from 47%, while adoption in the registered investment adviser channel doubled to 30% from 15%.
“Future growth depends less on the benefits of direct indexing and more on solving educational and technology challenges,” said Adam Gebler, FTSE Russell’s head of wealth for the Americas.
Technology Integration Remains Difficult
Those challenges remain substantial. Seventy-eight percent of advisers reported some implementation friction, while 59% said integrating direct indexing into existing technology systems is difficult, up from 52%. Independent broker-dealers reported the greatest difficulty, with 65% citing integration challenges compared with 51% of wirehouse and traditional-firm advisers.
Only 15% of respondents described implementation as very easy. Experience made a significant difference: Among advisers who considered themselves extremely familiar with direct indexing, 45% said implementation was very easy.
Cost is also becoming a more prominent obstacle. Twenty-nine percent cited it as a barrier, up from 19% in 2025. Meanwhile, the share identifying insufficient client demand fell to 35% from 45%, suggesting that operational issues are replacing basic awareness as the industry’s principal constraint.
Competition for Wealthy Clients Intensifies
The competitive stakes are rising. Fifty-seven percent of advisers said direct indexing is essential to remaining competitive, up from 52%. The figure reached 69% among wirehouse and traditional-firm advisers. Eighty-three percent said the strategy has helped them strengthen and expand relationships with high-net-worth clients.
Younger advisers and larger practices are leading adoption. Seventy-seven percent of advisers younger than 45 described themselves as very or extremely familiar with direct indexing, compared with 49% of those 55 or older. Among practices managing at least $500 million, 68% reported high familiarity, versus 53% at smaller firms.
AI Could Lower Implementation Barriers
Artificial intelligence could further lower implementation costs by automating portfolio construction, tax-lot monitoring and rebalancing. Eighty-three percent of respondents expect AI advances to accelerate direct-indexing growth.
Cerulli Associates has projected that direct-indexing separately managed accounts will expand at an annual rate exceeding 12% over five years, faster than many traditional investment products.
Education remains the immediate opportunity. Eighty-six percent of advisers expressed interest in learning more, yet only 68% were at least somewhat confident discussing the strategy with clients.
The findings are based on an online survey of 400 U.S. advisers conducted from May 19 through June 9 by 8 Acre Perspective. All respondents had some familiarity with direct indexing and managed at least $20 million, meaning the results may indicate adoption among engaged advisers rather than the entire industry. Their average practice managed $578 million.