Troy Espeseth, CIM, CPWA, AIF, Head of US Strategic Accounts at Russell Investments, joined Keith Black, Managing Director of RIA Channel, to discuss how advisors can offer added value to their clients by offering investment portfolios customized to their personal tax circumstances.
Espeseth describes direct indexing as personalized and customized market exposure that can be used to reduce the tax burden on low basis and concentrated stock positions. Investing in an index fund provides market exposure at a low cost but index funds don’t consider each client’s unique tax situation. Direct indexing offers market exposure at a low cost but also provides opportunities for tax loss harvesting that can be used to reduce the tax burden on other taxable investments held by the client.
Advisors can benefit from offering direct indexing by customizing portfolios designed to optimize each client’s tax situation. Tax-aware advisors can add significant value to their clients, which can help to grow their practice.
Espeseth notes that advisors are starving for education about direct indexing and how it can help their clients. Russell built a Direct Indexing Resource Center with articles and videos explaining the process and benefits of direct indexing. Everything about direct indexing is customized, as each investor has a different tax situation.
Russell also offers Transition Planning For Tax Management, which is a roadmap for implementing direct indexing in client portfolios. Advisors should discuss the tax budget and transition plan with clients before implementing a direct indexing solution.