Financial advisors are experiencing a pivotal shift in how they deliver value for clients, thanks to the rise of direct indexing and new tools like Schwab Personalized Indexing. During a conversation at the 2025 Schwab IMPACT Conference in Denver, D. J. Tierney, Senior Investment Portfolio Strategist at Schwab Asset Management, shared how this next generation of portfolio management is democratizing access, increasing customization—and changing the advisor playbook for tax efficiency and client outcomes.

Direct Indexing Comes Down Market

"Some people will say direct indexing is new, but it's been around for about 20 years," Tierney explained, "What's new about direct indexing is it's just kind of come down for wealth level. 25 years ago, it was really for people with $10, $20, $30 million accounts. They realized there was this big tax opportunity to do dynamic tax loss harvesting. When we came into the market, account minimums of $100,000. RIAs all of a sudden kind of took notice and said, 'Oh, I shouldn't just be thinking about the highest wealth segments of my practice. I can think about anybody in mass affluent, and find after-tax return benefits. '" This democratization, driven partly by digital onboarding technology and lower account minimums, means more clients are eligible for advantages that were once exclusive to ultra-high-net-worth investors. ​

Schwab Personalized Indexing has become a catalyst for this shift, making it possible for more advisors to offer tailored solutions to a broader range of investors.

Why Advisors Are Adopting Schwab Personalized Indexing

The appeal of Schwab’s platform isn’t only in its accessibility. "Advisors are fiduciaries. They know that they can't leave these tax benefits on the table. So the adoption is picking up," Tierney said. Schwab Personalized Indexing offers features such as daily portfolio management, tax-loss harvesting technology, and a hands-on support team for onboarding and ongoing customization. ​

Tierney highlighted one major evolution: "We just put [Schwab Personalized Indexing] on a new platform called Schwab Marketplace, but what's different. . . this platform comes with a dedicated client service team. It turns out, RIAs that onboard, they may need some ongoing support. We can make it as easy as possible online, but talking to somebody about changing customizations, talking to somebody about. . . how operationally can we gift individual tax lots out of the portfolio? So, we realized, now, this is a better fit for them. "

"We've added new indices. About a year ago, we added two more U. S. equity indices. Now we have the ability to take in fractional shares," he noted—enhancements that expand portfolio personalization and demonstrate Schwab’s commitment to evolving alongside advisor demand.

Portfolio Design: Core and Satellite Approaches

Many advisors are wondering where direct indexing fits into a diversified portfolio. Tierney provided clear guidance: “Direct indexing is a good fit for the core part of the portfolio… it should be an intermediate to long-term time horizon—three years, five years, even fifteen. That’s how direct indexing works, and the tax advantages and all the real benefits accrue over a longer time period. ”

For clients who may need to tap certain assets sooner, he added, “Use ETFs as satellites for more tactical views—money that you want in the market for one, two, three years. ETF all day long. Direct indexing should be longer-term. ”

Maximizing Tax Alpha: Technology Meets Daily Management

The ability to unlock tax alpha—value generated from tax-management techniques—remains the single biggest draw of direct indexing. "It's a whole new ball game. We have the ability to manage that portfolio for them every single day," Tierney pointed out, distinguishing technology-driven direct indexing from more manual approaches.

"If you can imagine an RIA literally coming into their office and going through all their accounts and trying to look for tax lots to harvest on a daily basis when the market has its moves, we can do that with scale with technology," he said. Schwab’s platform can identify loss-harvesting opportunities on any day of the year—even during periods of market volatility when human oversight is impractical. "Our system will catch that," he emphasized, letting advisors focus on strategy and planning rather than tactical tax management.

The New Conversation Around Fixed Income

As interest rates have stabilized, advisors’ fixed income allocations are also shifting. Tierney noted that Schwab has seen significant movement into bond ETFs, reflecting broader industry trends. “The last two years have been the biggest inflow into bond ETFs on record—300-odd billion dollars,” he said. Fixed income allocations have risen, returns have been healthy, and Schwab remains constructive on intermediate bonds. “I think you’re going to continue to see that wave coming in. ”

The integration of ETFs into fixed income strategies signals a broadening use of efficient, transparent vehicles that complement the customized nature of direct indexing.

Personalization: A Behavioral Advantage for Advisors

Tierney believes that the real power of Schwab Personalized Indexing lies in its ability to connect with clients on a personal level. "Personalization is real, and inside of direct indexing is the ability to personalize. If you're employed by a pharmaceutical company, you don't want to buy an index fund and own more pharmaceuticals, so you can exclude the pharmaceutical industry. Schwab Personalized Indexing lets you do that kind of customization. " Such exclusion features do more than align portfolios with investor goals; they may improve behavior. "The studies say there's something called the endowment bias. If you make a portfolio specific to them and their needs, they'll actually value it more highly. That's a good thing because when the market gets volatile and people start to feel bad about their equity allocations, if it's been customized for them, they'll be more comfortable and more likely to keep it on for a longer period of time, which is what advisors try and do—time in market," he said.

Looking Ahead: Why Direct Indexing, Why Now

Direct indexing and Schwab Personalized Indexing represent a shift toward hyper-personal, technologically enabled wealth management. With Schwab’s deep investment expertise, scalable tech, and competitive fee structure (0. 40% for the first $2 million managed, 0. 35% above that), advisors can deliver more value in both results and client experience. ​

"Every client is unique. So their portfolios shouldn't look just like somebody else's," Tierney said. "We're working really hard at Schwab to bring tools, to help them have more customized models and portfolios. "

Ready to explore how Schwab Personalized Indexing can help your clients? Discover more at Schwab Asset Management. ​