Alphathena, a fintech platform specializing in real-time direct indexing, has announced a partnership with etf.com to provide financial advisors with educational content about direct indexing, the firms said in a press release.

The collaboration will allow users searching for specific ETFs on etf.com to access information from Alphathena about replicating the fund in a more tax-efficient manner, the companies said.

“We saw an opportunity to equip advisors with software that not only personalizes investment strategies but also automates the complex tasks of trade execution, rebalancing, and ongoing account management,” Alphathena co-founder Mohan Naidu said in the release.

Historically reserved for ultra-high-net-worth clients due to its resource-intensive nature, direct indexing is becoming more accessible as advisors look for tools to make it easier to build highly tailored client portfolios, the release said.

Explaining Direct Indexing

Direct indexing involves directly holding individual stocks that make up an index, allowing for highly tailored portfolios. This approach offers several potential advantages over traditional ETF investing, including greater customization and tax optimization opportunities, said etf.com Research Lead Kent Thune.

By selectively selling individual stocks, investors can realize tax losses to offset gains in other parts of their portfolio, potentially resulting in tax savings and improved after-tax returns, Thune said.

However, Thune notes that direct indexing typically requires a larger amount of capital compared to investing in ETFs, often $1 million or higher, to achieve adequate diversification.

The strategy also involves increased complexity, as investors must select, monitor, and manage individual stocks, which requires more time and expertise than simply buying an ETF, Thune explained.

Read More: Direct Indexing: What Is It and Who Should Invest?

“Direct indexing provides the unique advantage of tailoring investment portfolios to individual client preferences and goals,” said Jeremy Dwyer, etf.com product manager. “This approach not only personalizes investment strategies but also streamlines complex processes like trade execution and rebalancing, making it accessible for a broader range of investors.”

On etf.com, users can now see the potential benefits of direct indexing on fund pages. According to Thune, the "Direct Indexing" tab displays data points such as "Annual Returns vs. Tax Alpha," showing potential tax benefits from tax loss harvesting within a direct indexing strategy.