Determining when to opt for direct indexing over ETFs depends on specific client situations, as outlined in Dr. Stephanie Lo's recent research for NDVR. She suggests that direct indexing may offer advantages only under certain conditions, particularly when considering after-tax returns over the long term. 

The key factors involve embedded capital gains in an existing ETF portfolio; transitioning to direct indexing may trigger immediate tax liabilities that could outweigh the benefits of tax-loss harvesting. However, for new investors starting from cash, direct indexing might be more advantageous, assuming the fees are competitive and the investment horizon is long enough. 

The decision also hinges on the investor's tax profile, inheritance plans, and desire for portfolio customization or specific exposures, such as building around a concentrated position. Advisors should assess each client's goals, costs, and preferences to determine if direct indexing aligns better with their investment strategy than traditional ETFs.

Finsum: As with all strategies you need determine if the tax alpha is really the advantage promised but in some cases the returns can be great.