Trend 1
When it Comes to Direct Indexing, the Unknowns Exceed the Knowns for Most Firms
Critical Issues and Actionable Intel
- Less than half of firms are highly aware of the potential impacts and opportunities direct indexing brings to the industry
- Firms need to build foundational knowledge, such as direct indexing doesn’t just relate to indexes, it isn’t just another way to say UMA, and yes, overlay managers can do direct indexing for them
- The pathway between where firms currently are and outcomes they’ve been promised isn’t known yet; the industry still has work to do
- Custodians will need to significantly expand/support fractional share trading in order for the economics to work for direct indexing down market
- Take Action: Begin now—65% of firms do not have a UMA or sleeve-reporting platform in-house. Once direct indexing is widely available, firms with no groundwork will be years behind their competition
Trend 2
Firms are Eager to Offer Increased Customization at Scale and Realize Cost Savings
Critical Issues and Actionable Intel
- Higher levels of customization at scale are finally available
- Ability to overlay customization offers great opportunities for managing around concentrated positions
- Direct Indexing offers firms refined ability to manage taxes and especially the chance to control tax authorizations within mutual funds
- Hyper customization available at much lower minimums
- Take Action: Prepare for hyper customization with sufficient oversight and reporting to show that the customization is not at the expense of risk control, goals-achievement and client suitability
F2 Strategy Research is the propriety research division of F2 Strategy, a leading global strategy consulting firm, delivering intellectual and advisory-based research on technology and business issues impacting the RIA, wealth, bank/trust and family office industries. With expertise spanning across the wealth management sector, we provide an unfair advantage to our clients and partners by illuminating industry gaps and delivering insights to help their businesses make great decisions.
Survey Information: The data in this report is pulled from a survey conducted by F2 Strategy in April 2021. The survey includes responses from 20 RIA, Wealth Management and Asset Management firms representing $7 trillion in assets.
