Article

Next on the horizon: direct indexing

The next product to meet evolving investor expectations

Driven by lower costs and increased client demand, direct indexing has seen significant growth in assets under management (AUM) in the United States, increasing from approximately $100 billion in 2015 to approximately $350 billion USD in 2020. Advanced technology, low trading fees, and the rise of fractional shares have lowered the high costs traditionally associated with direct indexing. In response to this growth, leading US wealth and asset managers have been busy over the last 18 months acquiring direct indexing capabilities.

Direct indexing provides a new opportunity for wealth managers to offset fee erosion and provide clients a differentiated offering. Direct indexing enables greater control and customization, and tax optimization to the investors.

As the interest in direct indexing continues to grow, Canadian wealth managers can capitalize on the trend to:

  • Position themselves as market leaders by being the first to make direct indexing accessible to Canadian clients
  • Increase their market share and attract new clients
  • Address growing client demand for ESG-related products and services
  • Enable other offerings, such as portfolio mirroring, for self-directed investing clients
  • Offset potential investments in underlying capabilities for direct indexing (e.g., fractional shares) that can drive adjacent revenue for the financial institution and value to the client
  • Increase stickiness between the advisor and client that can be difficult to replicate elsewhere

Download and read the full article to explore our in-depth perspective.

Contributors

Kendra Thompson
Partner, National Wealth Management & Advice Leader

Sandeep Mukherjee
Director, Consulting

Ferishta Sahebzada
Senior Consultant, Consulting

Shaun Goffenberg
Consultant, Consulting

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