The investment landscape is rapidly evolving, and few strategies are capturing attention like direct indexing. In a recent Asset TV Masterclass, industry leaders unpacked the current momentum behind this trend and explained why it's becoming central to wealth management.

Featuring insights from Andy Rosenberger, SVP of Custom Indexing at Orion; Paul Riccardella, Executive Director at MSCI Inc.; and Gerard Michael, President & Co-Founder of Smartleaf, the session provided a grounded look at how direct and custom indexing are empowering advisors and benefiting clients.

Why Direct Indexing? Simplified Customization and Tax Efficiency

As Andy Rosenberger explained, the power of direct indexing lies in its flexibility. “You're ultimately picking what you want to invest in… by buying the constituents, you can now put it back together, you can customize it.” Whether it’s for tax loss harvesting, ESG preferences, or a personal factor tilt, direct indexing offers a level of personalization traditional ETFs can’t.

Importantly, this isn’t just for high-net-worth clients anymore. As Gerard Michael noted, “You can bring down a direct index to someone with as little as $25… there are $5 direct indexes on our system.”

Tax Alpha and Tangible Client Value

Direct indexing also shines when it comes to after-tax performance. Paul Riccardella broke it down: “Our research leads us to believe that a cash-to-direct index SMA account essentially leads to 80 to 100 basis points of tax alpha per year for the first decade.”

And the benefits are measurable. Gerard shared that in one study,

“68% of the accounts saved or deferred more in taxes than the advisory fee — rising to 99% on a dollar-weighted basis for direct index accounts.”

Technology and Personalization at Scale

From zero-commission trading to smarter portfolio optimization tools, technology has eliminated previous barriers. “Technology has been phenomenally important to taking what’s really complicated and making it simple,” said Andy.

He drew a parallel to consumer trends:

“People want to have things that are designed for them in a mass-customized way. Why wouldn’t that apply to investing?”

Beyond Tax: House Views, Risk Management, and Values-Based Investing

The panel emphasized that direct indexing is not just about taxes. Paul highlighted how firms can embed their own “house views” into portfolios, while Andy discussed use cases like managing around concentrated stock positions or preparing for future liquidity events.

As Gerard put it: “We view direct indexing not as a product, but as a competence.”

The Road Ahead

All three experts agree: the future is bright. With ~$750 billion already allocated to the space and growing, direct indexing is becoming mainstream.

“The value proposition is the increasing automation of investment,” Paul concluded. And with smarter tools and broader adoption, direct indexing may soon be less of a niche and more of a norm.