What direct indexing is, how it works, who offers it — and why your data infrastructure determines whether it actually delivers for clients.

Direct indexing allows investors to own individual securities that replicate an index, rather than owning the index through an ETF or mutual fund. This unlocks tax-loss harvesting at the individual security level, values-based exclusions, and factor tilts — personalization that packaged products cannot deliver. The projected market: $800B+ by 2026.

How Direct Indexing Works

The core idea is straightforward: instead of buying SPY or another ETF that tracks the S&P 500, the investor directly purchases the underlying ~500 individual stocks. The portfolio is managed by software that continuously monitors positions, harvests losses at the security level, and maintains the desired index exposure — all in a single taxable account.

Tax-loss harvesting at the security level

Because the investor owns individual stocks, the portfolio manager can sell securities that have declined in value — realizing a capital loss — and replace them with correlated substitutes that maintain similar market exposure. This systematic harvesting at the security level generates tax losses that can offset gains elsewhere in the portfolio, a capability that ETF shareholders cannot access.

Values alignment and exclusions

Direct indexing allows clients to exclude individual companies, entire sectors, or any universe of securities that conflicts with their values or specific requirements. A client who works at a publicly traded company can exclude that stock to manage concentration risk. A client committed to fossil fuel divestment can exclude energy producers. These exclusions are applied at the individual security level without sacrificing the broader index exposure.

Factor tilts and customization

Beyond exclusions, direct indexing can overweight securities that exhibit desired factor characteristics — small-cap value, momentum, quality, low volatility — while underweighting others. The result is a portfolio that tracks an index as a starting point but is shaped around the client's return expectations, risk tolerance, and specific financial goals.

The infrastructure required

Managing hundreds of individual positions — continuously rebalancing, harvesting losses, applying substitutes, tracking wash sale rules — requires sophisticated trading, rebalancing, and data infrastructure. This is why direct indexing has historically been delivered by specialized platforms rather than portfolio managers building it from scratch. It also means that the data generated is substantial and complex: individual lot-level positions, daily transactions, cost basis records, and wash sale tracking across every account.

Who Offers Direct Indexing

The direct indexing landscape has expanded significantly over the past five years as technology costs dropped and fractional share trading became mainstream. The major providers active in the RIA market include:

Orion Custom Indexing

Orion's direct indexing offering is integrated with the broader Orion platform, including the behavioral finance overlay from HiddenLevers and access to Brinker Capital strategists. Firms already running Orion for portfolio management and reporting will find the integration straightforward — data flows within the Orion ecosystem, and the workflow aligns with existing Orion processes.

Best for: All-Orion advisory firms

Envestnet

Envestnet's direct indexing capability is positioned around "portfolio personalization at scale" and is connected to Tamarac rebalancing for firms in the Envestnet ecosystem. Access to Envestnet's data network — including insurance, annuity, and alternative investment data — provides additional context for household-level personalization.

Best for: Envestnet ecosystem advisory firms

Parametric (Morgan Stanley)

Parametric is widely regarded as the pioneer of direct indexing, having operated in this space since the 1990s. Now part of Morgan Stanley, Parametric provides institutional-grade direct indexing with deep tax management capabilities and sophisticated overlay management. Their processes are built for high-net-worth and ultra-high-net-worth clients with complex tax situations.

Best for: HNW/UHNW clients with complex tax situations

Aperio (BlackRock)

Aperio, acquired by BlackRock in 2021, has a strong heritage in ESG and values-based customization alongside tax management. The platform's strength is in applying sophisticated values screens and factor tilts while maintaining rigorous tax optimization — making it particularly well suited for clients with strong values-alignment requirements.

Best for: Values-driven investors and ESG-focused firms

Separately Managed Accounts (Various)

Traditional SMA providers have increasingly added direct indexing capabilities to their offerings, blurring the line between conventional separately managed accounts and purpose-built direct indexing platforms. For RIAs already using SMAs as a delivery vehicle, evaluating whether their SMA managers have added direct indexing capabilities is a natural starting point.

Best for: RIAs already operating within SMA frameworks

The Data Requirements Nobody Talks About

Every conversation about direct indexing focuses on the investment strategy — and almost none of them focus on the data infrastructure required to actually measure whether it's working. That gap is where most advisory firms run into problems.

Direct indexing generates massive amounts of data

Owning 500 individual securities instead of one ETF doesn't just change the investment structure — it multiplies the data footprint by roughly 500x. Each position has individual lot-level cost basis records. Daily tax-loss harvesting generates transaction data every market day. Wash sale tracking requires monitoring across every account in a household. Cost basis management becomes a continuous operational process rather than an occasional event.

Measuring tax alpha requires data you don't have in the DI platform

To actually evaluate whether direct indexing is delivering value for a specific client, you need to connect the direct indexing data with information that lives outside the direct indexing platform:

• Client tax situation. The harvested losses need to be evaluated against the client's marginal tax rate, existing carry-forwards, and planned realized gains from financial planning tools — data that lives in the client's tax files or planning software, not in the direct indexing platform.

• Household-level portfolio context. Wash sale rules apply across all accounts in a household — direct indexing, traditional brokerage, retirement accounts — regardless of which custodian holds them. Full wash sale analysis requires a household view across custodians.

• Client preferences and history. Whether the direct indexing strategy is actually aligned with the client's documented preferences requires connecting to CRM data about exclusion requests, stated values, and previous conversations — not just the current portfolio configuration.

The silo problem

Most direct indexing platforms keep their data within their own ecosystem. Orion Custom Indexing data stays in Orion. Envestnet's direct indexing data stays in Envestnet. Parametric delivers reporting through their own portal. The result is that the data an advisor needs to answer the most important question — "how much tax alpha did direct indexing generate for this client across their full household?" — is fragmented across multiple platforms, none of which can see the others.

If your data is siloed, you cannot answer that question. And if you cannot answer that question, you cannot demonstrate the value of direct indexing to clients in any meaningful way.

Siloed vs. Connected Direct Indexing Data

The difference between siloed and connected direct indexing data is not a technology preference — it is the difference between being able to demonstrate client value and not.

Siloed Data

Direct indexing data trapped inside one provider's platform

Tax alpha measured in isolation, not against client's full tax picture

No household-level view across custodians and accounts

Manual reporting required to bridge systems

Wash sale compliance requires manual cross-account checks

Connected Data

Direct indexing data joined with custodian, CRM, and planning data

True household tax alpha measurement across every account

Automated cross-system reporting without manual reconciliation

AI-ready analytics on direct indexing outcomes and client impact

Household-level wash sale tracking across all custodians

Where Milemarker Fits

Milemarker is not a direct indexing provider. Milemarker is the data layer that connects direct indexing data — from any provider — alongside everything else in a firm's technology stack.

Milemarker connects Orion Custom Indexing, Envestnet, Parametric, Aperio, or any other direct indexing provider's data into a firm-owned Snowflake data warehouse. Direct indexing keeps running exactly as before. Milemarker becomes the data layer that makes the outcomes measurable.

What connecting direct indexing data enables

• True tax alpha measurement. By joining direct indexing transaction data with custodian account data and financial planning outputs, Milemarker enables household-level tax alpha calculation that a single direct indexing platform cannot provide on its own.

• Cross-system reporting. Automated reporting that combines direct indexing performance with the broader household picture — across custodians, account types, and planning scenarios — without manual reconciliation between systems.

• AI analytics on direct indexing outcomes. With all direct indexing data normalized and connected in Snowflake, AI models can identify patterns across clients — which client segments benefit most from direct indexing, which harvesting strategies generate the most tax alpha, which exclusion requests are most common — at a firm-wide level.

• Provider flexibility. Because Milemarker connects to any direct indexing provider, firms are not locked into a single ecosystem's data model. Switching providers, adding a second provider, or evaluating alternatives is supported by the data infrastructure rather than constrained by it.

Works with any direct indexing provider

Milemarker maintains integrations across the major direct indexing providers and portfolio platforms active in the RIA market. Firms using Orion Custom Indexing, Envestnet, Parametric, or any SMA-based direct indexing solution can connect that data into Milemarker's Snowflake-native data model alongside their existing CRM, custodian, and planning tool integrations. The direct indexing provider continues to manage the strategy. Milemarker provides the data layer to measure it.

Direct Indexing Provider Comparison

The table below compares major direct indexing providers on the dimensions most relevant to RIA evaluation — and shows how Milemarker's role as a data layer complements any of them.

Orion Custom Indexing

• Tax-Loss Harvesting: Yes — integrated with Orion reporting

• Values / ESG: Yes

• Factor Tilts: Yes — Brinker strategists

• Data Portability: Within Orion ecosystem

• Cross-System Analytics: Orion-ecosystem only

Envestnet

• Tax-Loss Harvesting: Yes — connected to Tamarac

• Values / ESG: Yes

• Factor Tilts: Yes

• Data Portability: Within Envestnet ecosystem

• Cross-System Analytics: Envestnet ecosystem only

Parametric (Morgan Stanley)

• Tax-Loss Harvesting: Yes — institutional-grade

• Values / ESG: Yes

• Factor Tilts: Yes — advanced overlays

• Data Portability: Within Parametric reporting

• Cross-System Analytics: Parametric portal only

Aperio (BlackRock)

• Tax-Loss Harvesting: Yes — with tax management heritage

• Values / ESG: Yes — ESG strength

• Factor Tilts: Yes

• Data Portability: Within BlackRock ecosystem

• Cross-System Analytics: BlackRock reporting only

Milemarker (data layer)

• Tax-Loss Harvesting: Connects harvesting data from any provider

• Values / ESG: Connects exclusion data to CRM preferences

• Factor Tilts: Connects tilt data across systems

• Data Portability: Firm-owned Snowflake warehouse

• Cross-System Analytics: Any provider + custodian + CRM + planning

Milemarker does not replace any direct indexing provider — it connects the data each provider generates into a unified, firm-owned data layer. Advisory firms can evaluate direct indexing providers on investment strategy, tax management sophistication, and pricing, knowing that the data infrastructure to measure outcomes is not locked to any single provider's ecosystem.

Frequently Asked Questions

What is direct indexing?

Direct indexing is an investment strategy that allows investors to own the individual securities that make up an index — such as the S&P 500 — rather than purchasing the index through an ETF or mutual fund. Because the investor owns the underlying securities directly, they can customize the portfolio by excluding companies or sectors, applying factor tilts, and harvesting tax losses at the individual security level. This personalization is not possible with packaged index products like ETFs.

What is the minimum account size for direct indexing?

Minimum account sizes for direct indexing vary significantly by provider. Historically, direct indexing required $250,000 or more in investable assets. Fractional share technology and automation have pushed minimums lower — some providers now offer direct indexing at $100,000 or even $50,000. Institutional-grade providers like Parametric and Aperio generally maintain higher minimums appropriate for HNW and UHNW clients.

How much tax alpha can direct indexing generate?

Tax alpha from direct indexing varies considerably based on market volatility, the client's tax situation, account size, and how the harvesting algorithm is implemented. Academic research and provider studies have suggested annual tax alpha ranging from 0.5% to 1.5% or more in volatile markets. However, measuring true tax alpha requires connecting direct indexing data with the client's full household tax picture — something that requires cross-system data infrastructure rather than relying solely on the direct indexing provider's reporting.

Can I use direct indexing with multiple custodians?

Yes, though the data complexity increases significantly. Direct indexing providers operate across different custodian relationships, and the wash sale rule applies across all accounts in a household regardless of custodian or provider. Managing direct indexing across multiple custodians requires connecting account-level data from each custodian to maintain household-level tax loss harvesting hygiene. Milemarker connects this custodian and direct indexing data in a unified Snowflake warehouse to support household-level analysis.

How does Milemarker work with direct indexing providers?

Milemarker is not a direct indexing provider. Milemarker is the data layer that connects direct indexing data — from Orion Custom Indexing, Envestnet, Parametric, Aperio, or any other provider — alongside custodian feeds, CRM data, and financial planning data in a firm-owned Snowflake warehouse. This enables true household-level tax alpha measurement, cross-system reporting, and AI-ready analytics on direct indexing outcomes. Milemarker works with any direct indexing provider your firm already uses or selects.

Is direct indexing better than ETFs?

Direct indexing is not universally better than ETFs — it depends on the client's situation. ETFs remain the most cost-efficient, simple solution for clients with straightforward investment needs, taxable accounts below minimums, or no tax complexity. Direct indexing adds value specifically when: (1) the client has a taxable account with meaningful unrealized gains, (2) there are values-based exclusion requirements, (3) the client has concentrated stock positions that benefit from offset harvesting, or (4) factor customization is a priority. The tax alpha benefit only accrues to taxable accounts — direct indexing in a retirement account provides no harvesting advantage.

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• Data Migration for RIAs: Moving CRM, Custodian & Portfolio Data Without Breaking Everything

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