Financial advisors are embracing direct indexing at a growing pace, viewing it as an increasingly important tool for meeting the expectations of high-net-worth and ultra-high-net-worth clients, according to a new report from FTSE Russell.
The index provider’s second annual Direct Indexing Survey – which polled 402 advisors across channels including wirehouses, traditional firms, independent broker-dealers and RIAs, overseeing an average of $419 million in AUM – found a significant uptick in both adoption and interest.
Among those already offering direct indexing – about one-third of respondents – two-thirds said they plan to increase their usage over the next year. Another 43 percent indicated they expect to begin using it in that timeframe.
FTSE Russell's inaugural report last year found four-fifths of advisors did not use direct indexing, though 48 percent of all respondents said they planned to start using such strategies.
The sophomore survey report found wirehouse advisors are leading the charge, with 49 percent currently using direct indexing. They also showed the strongest momentum, with 82 percent of users in that group planning to expand their usage – well above the 60 percent average for traditional and independent broker-dealer advisors, and 53 percent among RIAs.
“Direct indexing providers need to identify the next wave of advisor use cases and make access to technology tools easier,” Ryan Sullivan, head of buy-side Americas at FTSE Russell, said in a statement announcing the results Monday. “Providers need to address the challenges of implementation and integration to stay competitive in the wealth market.”
Generational differences also emerged, with younger advisors showing a greater affinity for direct indexing. Among respondents under 45 – the survey threshold for next-gen advisors – 63 percent agreed it is becoming an essential service for remaining competitive, compared to 47 percent of advisors over 55. The view was strongest among wirehouse professionals, 69 percent of whom considered it essential, versus just 34 percent of RIAs.
Despite its appeal, some hurdles remain. While nearly three-quarters of respondents cited tax-loss harvesting as a key benefit, only 13 percent said implementation is “very easy.” In contrast, 79 percent anticipate some friction, and just over half described integration with existing tech stacks as a challenge.
Still, direct experience with the strategy appears to lessen concerns. Of those already using it, 89 percent found implementation to be either very or somewhat easy.
Advisors also identified a gap between client interest and actual adoption. The top barrier cited was a lack of perceived client demand, followed by the complexity of educating clients and gaps in advisor understanding. Yet many advisors reported frequent inquiries from clients about tax-efficient strategies, volatility, and risk management – areas where direct indexing may offer solutions.
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