May 15, 2024

Direct Indexing poised for growth, yet barriers remain, finds FTSE Russell advisor survey

  • 79% of advisors* are not using direct indexing, but 48% plan to start in the next 1-5 years 
  • Educational gaps remain as less than half of respondents identified the potential client benefits of direct indexing
  • Barriers to entry proved to be operational as well as educational 

FTSE Russell, the global index provider, announced today the results from a recent survey of independent RIAs, hybrid advisors, broker dealers, registered reps and other financial advisors on their knowledge, views and use of direct indexing.

Advisors across most AUM segments indicated strong interest in using direct indexing in the future, but most (79%) are not current users*.  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. Yet, 48% plan to start using direct indexing in the next 1-5 years*, and future growth may come from smaller account sizes. More than half (59%) of firms with $50-200 million AUM plan to use direct indexing in the next 1-5 years.

Ryan Sullivan, head of buy side, Americas at FTSE Russell, said: “Direct Indexing has been touted as a sea change in the industry, but it’s important to understand we’re still very early in its wider adoption.  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.  Direct indexing providers should look at these advisor segments as an opportunity and align their strategy with a focus on reducing operational friction and enhancing their educational support. Firms that can effectively engage with these advisors will be well positioned to ride the next wave of growth for direct indexing.”

Advisors’ familiarity with direct indexing

Advisors’ perceptions of direct indexing and its benefits underscore the need for education. While current direct indexing users identified “tax loss harvesting” (64%), “tax efficient transitions” (56%) and “reducing concentration risk” (40%) as the top benefits for directing indexing, those not using direct indexing* were significantly less likely to identify these potential values.

In addition, 28% of total advisors* agreed with the statement, “I don’t understand the benefits over other investment options,” 27% indicated “it’s easier to achieve the same goals with an ETF portfolio,” and 20% felt “it’s ultimately the same offering as Separately Managed Accounts.” Among advisors who are currently using direct indexing, only 66% agreed with the statement, “I feel confident talking to my clients about it.”

Barriers to entry

Advisors noted several barriers reflecting a combination of educational and operational challenges. When asked about barriers to using with a client, “lack of client demand” was the top response (34%), followed by the advisor’s “understanding and knowledge of direct indexing” (29%), “lack of organizational focus” (23%) and “cost” (21%).*

Conducted by RIA Channel, the survey solicited input from 631 advisors between April 1 and May 1 2024. The advisors came from independent RIAs, broker dealers, hybrids and asset managers among other firm types. Over half of respondents’ firms had an AUM of over $1 Billion (51%) and most served clients with affluence of over $250,000 (83%).

FTSE Russell partners with 20 direct indexing platforms, representing approximately $50B in AUM. By providing a suite of robust, rules-based and transparent indexes and a team of leading research professionals and market experts, FTSE Russell enables wealth and asset managers to add value for their clients via direct indexing solutions that are carefully tailored to their specific needs and preferences.

Direct Indexing is an investment approach that allows the investor to replicate the performance of an index by purchasing the underlying shares or use an index as the starting universe for a portfolio that can be customized especially for tax optimization.

A detailed report on all of the findings will be published soon.

*Advisors with at least some familiarity with direct indexing


LSEG Press Office

Simon Henrick/Gexler Dias
+44 (0) 20 7797 1222

About FTSE Russell, an LSEG business

FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 70 countries, covering 98% of the investable market globally. 

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Approximately $15.9 trillion is benchmarked to FTSE Russell indexes. Leading asset owners, asset managers, ETF providers and investment banks choose FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance and embraces the IOSCO Principles. FTSE Russell is also focused on index innovation and customer partnerships as it seeks to enhance the breadth, depth and reach of its offering. 

FTSE Russell is wholly owned by London Stock Exchange Group. 

For more information, visit FTSE Russell.

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