I was first introduced to the concept of direct indexing when I met Mike Kerins, founder of RobustWealth, in 2016 at some industry conference or other. At a time when white-label digital advice was all the rage, Kerins pitched his company as being an all-in-one platform for advisors, providing the standard features of a robo advisor as well as billing, client communication and tools for advisors to make a website.
It was a good pitch. I picked him as one of 10 people to watch in 2017, and in 2018 RobustWealth was purchased by Principal Financial — only to be closed down three years later.
But what really stood out from the hundreds of wealthtech demos I’ve sat through is when Kerins showed me how his technology could automate an investment strategy that had traditionally been so time-consuming and so labor-intensive that it only made sense for the ultra-wealthy. He showed me how with a few clicks, a financial advisor could re-create a portfolio of index funds by instead buying all of the underlying equities. He also explained the tax advantages of doing so, and how advisors could offer greater customization by tweaking weights or excluding certain stocks.
And if fractional shares became more widespread, there’s no reason this strategy couldn’t be available to mass-affluent investors, he said.
I was convinced that direct indexing was the future and was determined to write an article examining if it could be a threat to the dominance of ETFs. I eventually did, but at the time few advisors knew what direct indexing was, and asset managers either didn’t return my calls or, in the case of Vanguard, dismissed direct indexing as not viable.
Four years later — and acquiring direct indexing capabilities is suddenly all the rage. It feels a lot like when everyone was scrambling to build or buy a robo advisor. To paraphrase Luke Skywalker in Return of the Jedi: Morgan Stanley has it, BlackRock has it and JPMorgan has it. Now Vanguard has that power too.
So this week, I dive into how, and why, this is happening, and our columnist Allan Roth gives an excellent explainer on what it all means for advisors. What remains to be seen is if advisors will start using it, and if it ever meaningfully redirects flows away from the almighty index fund.
What do you think? Let me know either by email, ryan.neal@arizent.com, or on Twitter, @ryanWneal.

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