Most Advisors Still Don’t Understand Direct Indexing 

Many financial advisors regard direct indexing as an intriguing investment alternative, but a large percentage of advisors, including those who already use it, do not have the appropriate education, according to survey research from global index provider FTSE Russell. 

The survey, conducted by RIA Channel, asked 631 advisors, including independent RIAs, hybrid advisors, broker dealers, registered reps and other financial advisors on their knowledge, views and use of direct indexing. 

Although 79% of advisors do not use direct indexing, 48% said they intend to start during the next five years, and this figure jumps to 59% among advisors at firms with $50 million to $200 million in assets under management. 

Just 34% of advisors describe themselves as “very familiar” or extremely familiar” with direct indexing, and many advisors lack a clear understanding of the benefits of direct indexing. 

Even among those who already use direct indexing, just 66% agreed with the statement “I feel confident talking to my clients about it,” according to the survey. 

Meanwhile, 28% of all advisors agree with the statement: “I don’t understand the benefits over other investment options;” 27% think “it’s easier to achieve the same goals with a [exchange-traded fund] portfolio;” According to FTSE Russell, 20% believe it is “ultimately the same offering as Separately Managed Accounts”. 

“While larger advisors with access to tax optimization tools can articulate the benefits of direct indexing, many non-users are unsure how to communicate the value proposition to clients,” Ryan Sullivan, head of buy-side for Americas at FTSE Russell, said.