Direct indexing has been a tool for high-net-worth investors for decades, but advancements in technology like fractional shares have transitioned it into a widely accessible and indispensable strategy.
By allowing clients to own the individual stocks that make up an index rather than a pooled investment like a mutual fund or ETF, direct indexing offers unparalleled flexibility and customization. Advisors can help investors align their portfolios with their personal values—avoiding stocks that don’t resonate with their beliefs—while retaining the diversification benefits of traditional funds.
The appeal of direct indexing lies in its ability to deliver value-driven investments and optimize tax outcomes. From tax-loss harvesting to managing capital gains, the tax efficiencies alone make this approach compelling. For clients seeking customization, direct indexing enables tailored portfolios that address specific values, goals, and preferences, creating a unique investment experience specific to them.
Today, direct indexing is on a steep growth trajectory. In 2024, roughly 21% of financial advisors utilize direct indexing, and nearly half plan to adopt it in the next five years. But the question looms, how can this be used as a tool to grow your practice and connect with clients?
First Affirmative Financial Network (FAFN) in collaboration with YourStake has developed the Values-Aligned Direct Index Solution (VADIS). Using sophisticated optimization techniques with YourStake’s dynamic technology, we can replicate an index, or model with a subset of securities – and incorporate client-specific impact preferences and tax considerations.
