Traditionally reserved for the wealthy, direct indexing has become more widely accessible thanks to technological advancements. This investment strategy involves owning the individual stocks in an index such as the S&P 500, which allows investors to sell off underperforming stocks to generate tax losses—a technique known as tax-loss harvesting.

 According to Frec, a direct-indexing startup, a simulated S&P 500-based portfolio could boost after-tax annual returns by more than 2% over a decade, compared to an ETF, assuming a tax rate of 42.3% and excluding advisory fees. 

Firms like Charles Schwab, Vanguard, and Fidelity now offer direct-indexing services with various account minimums and fee structures, lowering the entry barrier for average investors. With the market for direct indexing expected to reach $825 billion in assets by 2026, this approach is set to become increasingly popular among a broader range of investors.

Finsum: Computing power has drastically driven down the costs of Direct Indexing allowing more investors to gain its tax alpha. 

As one of the leading asset managers, BlackRock, shook the market his week when, through regulatory filings, it disclosed that its income funds are invested in its own Bitcoin ETFs. The two important funds were the Strategic Income Opportunities Fund (BSIIX) and Strategic Global Bond Fund (MAWIX),  which acquired $3.56 million and $485,000 worth of iShares Bitcoin Trust (IBIT) respectively. 

These investments are a minor part of the $37.4 billion and $776.4 million portfolios of BSIIX and MAWIX, respectively. As of May 24, the iShares Bitcoin Trust held about $19.61 billion in Bitcoin, which trails the Grayscale Bitcoin Trust (GBTC).  

Globally, spot Bitcoin ETFs hold over 1 million Bitcoin, valued at more than $68 billion, which is nearly 5.10% of Bitcoin's circulating supply of over 19.7 million BTC. Since their launch in January, over 600 investment firms, including major institutions like Morgan Stanley, JPMorgan, and Wells Fargo, have invested in spot Bitcoin ETFs, with Millennium Management being the largest accumulator at $1.9 billion.

Finsum: While this fund cannibalism isn’t new, it’s definitely something to be aware of when looking at income funds. 

Research shows that the average advisor spends about 11 hours per week on administrative duties. Ideally, this time could be better spent on activities that are more directly connected to the firm’s success. AI can offer some relief in terms of reducing time spent on repetitive tasks. It can also help generate better outcomes by increasing efficiency, analysis capabilities, and decision-making. 

Among the many use cases, scheduling and transcription are two that can be immediately applied. For scheduling, apps like Trevor or Clockwise can organize tasks, create to-do lists and daily plans, sync calendars across apps, and maximize time for deep work and productivity. These apps also become more effective over time as they adapt, learn patterns, and can help prioritize tasks.

Another powerful use for AI is transcription. Apps like OtterAI record, transcribe, and summarize meetings and can be integrated with Zoom, Microsoft Teams, or Google Meet. Future versions of these apps could analyze communications with clients or prospects to understand their emotions and provide more personalized service and communications. 

While AI can make advisors more effective, it’s necessary to understand the limitations, especially given the nature of financial services and the importance of safeguarding client information. 

Finsum: Advisors spend 11 hours per week on administrative tasks. AI apps can offer relief, especially in terms of scheduling, transcription, and organization. 

A major trend in wealth management is the rise of customized products and services. Direct indexing is essentially a personalized equity or bond index. 

In terms of benefits, direct indexing gives more control over the timing of realizing capital gains for maximum tax-efficiency. Unlike ETFs or mutual funds, tax losses can be harvested and then used to offset capital gains with direct indexing. According to research, this can boost after-tax returns between 1% and 2%. 

It also allows clients to invest in a way that aligns with their values and/or unique financial situation. This could mean not including stocks from a particular industry, such as tobacco or firearms. It also allows for better risk management, as exposure to certain stocks or sectors can be more effectively managed. 

In terms of drawbacks, a major chunk of direct indexing’s benefits are due to tax savings. However, this is less relevant in a retirement account. Another complication is that short-term losses cannot offset long-term gains. 

Another is the ‘wash sale rule’ which means that investors cannot sell and then repurchase the same security within 30 days. One workaround is to buy securities with similar factor scores to remain consistent with the underlying benchmark. 

Finally, direct indexing has become available to a wider group of investors in recent years due to technology and low-cost trading. However, it’s still most impactful for investors in a higher tax bracket, long-term capital gains, and large, concentrated positions. 

Finsum: Direct indexing is increasingly popular, especially as it’s becoming available to more investors. However, the strategy is most applicable for investors in a higher tax bracket, large concentrated positions, and long-term capital gains. 

In the past two years, retirement investors have funneled over $20 billion into US exchange-traded funds (ETFs) that limit both gains and losses, challenging traditional insurance products. These "buffered" ETFs capitalize on derivatives to cushion the effects of extreme market swings and have grown popular since their 2018 debut, especially after the market turbulence of 2020 and 2022.

The draw of buffered ETFs lies in their downside protection, which has become increasingly attractive to investors seeking to safeguard their retirement savings. Financial advisers in the US have embraced these ETFs, driving $10 billion in net inflows in both 2022 and 2023, while taking market share from the $3.3 trillion annuities market and costly structured notes.

This has grown not only the size but the scope of the market with 200+ defined outcome ETFs in the US, totally a staggering $37bn. In turn new competitors like BlackRock and AllianceBernstein are joining the competition to try and capitalize on the gains from First Trust and Allianz. 

Finsum: The uniqueness of buffer ETFs really is in how they integrate derivatives to drive performance and outcomes and can present nearly all in one solutions.