Displaying items by tag: indexing

Be a pal, huh, and give it a little elbow room. Fueled by institutions and financial advisors intent on seeking to tailor traditional indexes to meet the preferences of beneficiaries, direct indexing’s growing – and quickly – according to al-cio.com.

While direct indexing isn’t exactly new to the rodeo, its use has been spurred by current day computing power, according to a report by Jason Kephart, Morningstar’s director of multi-asset ratings, and his team.

Now, keep in mind, it’s not only your clients with the greatest wealth and complex investment portfolios who should be riding the direct indexing bandwagon, according to Randy Bullard, global head of wealth at Charles River Development, reported investmentnews.com.

“I think every financial advisor should be accessing direct indexing for their taxable client accounts,” Bullard said at the recent ETF Exchange conference in Miami.

“A direct indexing solution is uniquely designed to catch money in transition, and it’s suitable for all types of investors,” he said. “That’s the transition the industry is starting to go through. Once you conquer the operational complexities of direct indexing, it becomes a broad market solution.”

Financial companies are rushing to deliver low initial investment direct indexing products to investors, but is DI here to stay? The benefits of custom indexing are obvious: It gives ESG investors an opportunity to punish the greenwashers of their own volition, and optimizers a chance to gain tax alpha easily. However, this isn’t free; investors usually pay much higher fees than traditional ESG funds and the minimum investments are usually high. For the few funds without high initial investments, investors get very little if any flexibility in dropping assets from their portfolio. Now they aren’t an ‘active- wolf’ in sheep's clothing, but those are real drawbacks investors should consider.  In the long run, we will see a combination of lower fees with more accessibility as competitors enter the market, and direct indexing could be here to stay.  

Finsum: Direct indexing isn’t for everyone…for now, but as fees shrink, and minimums drop more investors should consider adding them to their portfolio. 

The biggest hang up for most investors when it comes to direct indexing is the heavy minimum investment fees that usually accompany them. Fidelity shocked markets with their $5,000 minimum, but Altruist just lowballed them with a $2,000 product. This strategy used to be exclusively available to wealthy individuals but is now more accessible. Investors hold the underlying stocks that make up the indexing product which gives nice advantages when it comes to tax loss harvesting and green investing. The product will give investors exposure to global stock and bond markets as well as acap weighted 500 largest US stocks, and be available at a variety of risk levels.

Finsum: With the huge tax savings and lower investment minimums, direct indexing is more competitive with ETFs than it was even a year ago. 

Wealth technology is rapidly changing, and the landscape could be very different in the next 30 years. Princeton Economist Burton Malkiel said that a combination of the ‘democratization of investing’ and technology is pushing down fees and cutting costs. Overall he sees wealthfronts and betterments taking center stage, which include products like direct indexing. These practices not only help with tax management and rebalancing but they have lower costs than traditional active management. This sort of investment strategy will only grow as wealth management and financial management converge and FinTech companies change the way industry stalwarts operate.

FINSUM: Direct/custom indexing is one of the most interesting products because of the cheaper hybrid setup that really integrates technology to make management easier. 

(New York)

Vanguard appears to be taking action on one it its biggest weaknesses. Others in the industry, notably Fidelity, have been making moves to try to make their funds ever more accessible and cheaper. Vanguard has been the low cost leader for years, but some of their features now make them look slightly outdated. Perhaps no longer. For its Admiral Shares class, its cheaper option, Vanguard has lowered the minimum investment from $10,000 to $3,000, a significantly lower threshold for younger and less wealthy investors. The changes will apply to 38 of their index mutual funds.

FINSUM: This is a good move but we are surprised they didn’t just change it to no minimums.