Direct indexing is a loss leader
Other products are growing AUM and margins at the same time...
Tax alpha bulletin board…
🎉 Basis Northwest is my taxable wealth conference. It’s in Seattle in 2026.
📗 The Adviser’s Guide to Seeding an ETF In-Kind… I have 4 physical copies left
🔬 Call for papers… Nathan Sosner, a principal at AQR, is Special Section Editor for the Journal of Wealth Management’s Fall 2026 issue. Submit a paper by Feb 1, 2026.
I understand direct indexing is still making its way into broad consciousness, but at this point, there are well over 100 vendors, covering every possible niche, and fees are dropping into “loss leader” territory.
“The clearing price for direct indexing is zero,” a friend said to me a while back.
Advisers and investors often tell me they’re paying single-digit AUM fees.
I’m not dunking on direct indexing. It’s a great fit for certain clients.
I just think there are fewer of those clients than the rapturous overtures about direct indexing suggest, and they tend to be HNW+.
It seems to me the right way to think about direct indexing is, as Jerry Michael over at Smartleaf says, as a competency (if you think about it at all, plenty don’t).
In other words, it's one of many things you do, and the other things you do define your niche and set you apart.
In other words, direct indexing is table stakes. And nowadays it's very low table stakes.
Back to the fees thing…
You might not know this, but certain products are expanding margins.
They are growing, and since demand is so hot, they are charging more.
I think RenTec did something like this once they hit their stride, eventually closing Medallion to outside investment.
If this sounds like hedge fund stuff, you’re not far off…