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Schwab to Launch Direct Indexing Platform in Early 2022

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What You Need to Know

  • Schwab is currently piloting the program, which initially is focused on investments in three equity indexes.
  • They indexes are the large-cap Schwab 1000 Index, S&P Small Cap 600 Index and the MSCI KLD 400 Social Index.
  • Schwab also expects to launch a separate thematic investing platform next year.

Charles Schwab plans to launch its direct indexing offering, called Schwab Personalized Indexing, early next year, according to Omar Aguilar, the chief investment officer of Schwab Asset Management.

In a presentation at this week’s Schwab Impact 2021 conference, Aguilar said the offering, which is currently being piloted, will be based initially on three indexes: the large-cap Schwab 1000 Index, S&P Small Cap 600 Index and the MSCI KLD 400 Social Index.

Using the program, advisors will be able to adjust clients’ allocations in these indexes to align with their value preferences, to reduce concentrated stock positions they may already have, often through employment compensation programs, and to reduce their taxes by identifying individual stocks that can be sold at a loss and replaced with comparable stocks without violating wash sale rules.

The ability to do this requires that investors “partner with a large index provider,” said Aguilar.

The minimum account size for the direct indexing platform will be $100,000, according to D.J. Tierney, who leads Schwab’s personalized indexing effort and spoke in a subsequent session.

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After the initial launch, enhanced customization features will be added to the platform as well as digital onboarding for advisors and investors to access, Tierney said. Pricing for the platform is not yet finalized.

Schwab’s direct indexing offering is part of a broader Personalized Investing approach that the firm is undertaking that also includes investments focused on environmental, social and governance factors and thematic investing outside of ESG, Tierney said. He added that Schwab expects to launch a new thematic platform next year.

Schwab will be joining a growing number of financial firms that are entering the direct indexing space either on their own or through acquisitions, including Vanguard, Fidelity, BlackRock and Morgan Stanley.

On Wednesday, PGIM Investments announced it has entered into an agreement to acquire Green Harvest Asset Management, a separately managed account platform that provides customized solutions for high-net-worth investors.

(Photo: Bloomberg)