The Fast-Growing Investing Strategy That's Attracting Younger Clients

At the same time, large wealth management firms are incorporating direct indexing capabilities into their in-house offerings, providing their advisors with a strategic advantage in serving millennial clients. These developments have been facilitated by significant investments in technology firms, allowing for the scalable implementation of direct indexing strategies.

Broader accessibility makes it easier to reach millennial investors. They seek investment portfolios that can be finely tuned to their unique preferences, often with a strong focus on environmental, social and governance considerations.

The rising prominence of socially conscious investing dovetails perfectly with direct indexing’s capabilities, empowering investors to craft portfolios that resonate with their values and ethical principles.

To cater to the preferences of younger investors, Dimensional Fund Advisors and Fidelity, among others, have recently lowered their minimum investment thresholds for separately managed accounts, enhancing direct indexing’s accessibility. We should expect to see other brokerages and robo-advisors doing the same as the cost of implementation goes down.

A Millennial Moment

The future of direct indexing appears promising, with expected annual growth rates surpassing those of traditional investment products. By embracing direct indexing, financial advisors can effectively address the demands of millennials, differentiating their offerings in a highly competitive landscape.

Direct indexing is more than just a passive investment strategy; it’s a potent tool for advisors looking to engage with the next generation of investors. It aligns perfectly with the preferences of millennials, accommodates their ESG investment interests, and delivers the customization and tax optimization opportunities that were traditionally reserved for high-net-worth individuals.

By adopting this innovative strategy, advisors can solidify their positions as industry leaders, connecting effectively with dynamic, and tech-savvy, millennials.

Germán Soto Sanchez is head of corporate strategy at Broadridge, focusing on partnerships and other growth-related activities to drive the development, evolution and communication of the firm’s vision and strategic plan. Earlier, he was president and a board member for Cloud9 Technologies and also worked for JPMorgan Chase & Co., AIC Private Equity and McKinsey & Co.

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