Direct Indexing Is Taking Off...

Jason Escamilla, co-founder of ImpactAdvisor, who built his own direct-indexing platform for his ESG-focused and high-net-worth clients in California: It’s a long-term commitment to reap the compounding benefit of tax-loss harvesting, and it’s best for investors who will likely always have high capital gains to write off.

Investors who don’t have the long-term time frame to enjoy the tax benefits of direct indexing should stick to ETFs, Escamilla suggests.

Evolution of Indexing | Direct Indexing

For investors in high-tax states with taxable-account holdings, direct investing allows much easier tax-loss harvesting, because he can trim individual stock holdings, rather than a basket of ETFs.

“You open up a wide range of tax opportunities,” he said, including moving appreciated holdings into donor-advised funds.

“The beauty of direct indexing is you can pick what your definition of responsible investing is,” Escamilla added

Direct Indexing | Advisors & ETFs: A Perfect Match?

There are two benefits to direct indexing: better customization and even greater tax efficiency. Being based in San Francisco with clients in the technology industry and residing in a high-tax state such as California, direct indexing makes a big difference, Escamilla adds.

“Direct indexing is an incredible product for a high net worth person who has professional support from a CPA and an advisor,” he says, noting direct indexing brings a level of complexity. “If you do direct indexing, you start to lose your ability to do your taxes on an iPhone app.”