What America's $1 trillion direct indexing boom tells us about the evolution of MAs

Australia's managed accounts industry has just delivered another period of blockbuster growth. Funds under management (FUM) reached $292.9 billion at the end of December 2025, up 25.8% year-on-year, with separately managed accounts making up 64.4% of that total. By almost any measure, it's one of the great growth stories in local advice. The platforms, licensees and advisers who backed managed accounts early have been proven right.

But there's a version of this story running six or seven years ahead of us, and it looks materially different in one respect. In the US, direct indexing - a tax-efficient form of managed account - closed 2024 at $1.2 trillion (US$864.3bn), growing at a 22.4% compound annual rate since 2021 and outpacing growth in both ETFs and mutual funds over the same period. Direct indexing now makes up 37.6% of manager-traded separately managed account assets in the US, more than double its share just four years earlier. Model-delivered direct indexing - the version increasingly aimed at mainstream adviser platforms rather than only ultra-high-net-worth mandates - has more than tripled since late 2021 to US$17.2 billion. This isn't a niche corner of US wealth management anymore; it's one of the fastest-growing categories in the entire industry.

Australia has matched the US on the growth curve. We haven't yet matched it on what that growth is supposed to fund.

The managed accounts boom has largely been driven by advisers using managed accounts as an efficiency and governance tool, outsourcing investment management, simplifying compliance and reclaiming valuable time. It represents a valuable shift, that shouldn't be undersold. But it isn't yet the systematic, algorithmic tax-aware rebalancing that defines the proposition US providers make to their own clients. In practice, that means daily monitoring of every client's individual cost base, tax lots tracked and managed at the position level rather than the fund level, and losses realised in a disciplined, rules-based way as the year unfolds, not as an afterthought at financial year's end.

It's worth being honest about how concentrated, and how under-developed, even the US market still is. The top five providers control roughly 87% of US direct indexing assets, led by Morgan

Stanley's Parametric at over $430 billion (US$300bn) and BlackRock's Aperio at over $287 billion (US$200bn). Building genuine tax-aware portfolio management at scale isn't trivial - it takes real technology, built specifically for the job, not a spreadsheet bolted onto an existing managed accounts platform. That's reflected in adviser behaviour too. Even in the world's most developed market for this type of sophisticated quantitative investing, uptake is still a minority behaviour. Only 18% of US advisers used direct indexing in 2024, up from 16% the year before. Another 26% have access to it through their platform but don't use it, and 12% openly say they don't know what it is. That's not a client-demand problem. It's an education gap - exactly the kind of gap that tends to close fast once the economics continue to become harder to ignore.

And the economics are the point. Schwab's Personalised Indexing charges around 0.40%, a tenfold premium over the 0.04% a comparable index fund costs. Clients only wear that premium once the after-tax benefit is demonstrable rather than assumed, and in the US, it's been quantified from multiple, third-party sources. According to Vanguard, direct indexing turns market volatility into a potential tax asset, creating opportunities to realise capital losses at the individual stock level while maintaining benchmark exposure and efficient index tracking.

Parametric estimates up to 2% a year in after-tax, after-fee value for eligible investors. Aperio's own study found 0.81-1.93% over 10 years against comparable index funds. Vanguard's modelling landed on "more than 1% a year" for investors in the highest tax brackets with substantial embedded gains. Multiple competitors, separate methodologies, and one converging answer. On a $2 million portfolio, even the more conservative end of that range is worth tens of thousands of dollars a year, sitting in the client's account.

The stakes here go well beyond matching a US growth curve. The Australian Productivity Commission has estimated that around $3.5 trillion will transfer from Australian baby boomers to younger generations by 2050, and JBWere's updated modelling puts the figure as high as $5.4 trillion over the next two decades. Either way, it is one of the largest intergenerational wealth transfers in Australian history, much of it sitting in portfolios that have never had their cost base actively managed. If that transfer happens on infrastructure built only for efficiency and governance, the tax outcome is left largely to chance and inherited history. If it happens on infrastructure that also manages cost base, timing and structure the way US direct indexing platforms do, it becomes something an adviser can actively demonstrate value on, not once, but generation after generation, as portfolios pass from one set of hands to the next.

Australian advisers are about to get their own reason to care about that number, on a much shorter timeline than the US ever did. From 1 July 2027, the 50% capital gains tax discount for individuals, trusts and partnerships will be replaced with CPI-based cost indexation, and a new 30% minimum tax will apply to gains. Every asset held before that date will effectively be treated as sold and reacquired just beforehand, which means the cost base clients carry into the new regime is being shaped by decisions made now, not in 2027. It's the same kind of policy shift that, in other markets, has been the trigger for advisers and platforms to build out serious tax-aware portfolio construction, not as a nice-to-have overlay, but as core infrastructure.

The lesson from the US isn't that Australia needs to import direct indexing wholesale, or that scale alone solves the problem. Clearly it hasn't, even there. It's that the managed accounts growth curve and the tax-optimisation curve are two different things, and the market that gets there first will be the one whose advisers can put a number on what they're actually delivering, in the client's bank account, after the ATO has taken its share. I spent seven years building a model portfolio business in this region from a standing start, and a strong pattern has emerged - growth is the easy part to chase, and the easy part to measure. Genuine, provable, after-tax value is harder to build and far harder to copy, which is exactly why it's worth building now. Australia has the platform infrastructure. The next phase is building what runs on top of it.