FA Talks is an interview series where industry thinkers share their thoughts and perspectives on a variety of market trends and themes impacting indexing.
The shift toward indexing in wealth management continues to accelerate as many advisors reorient their core value proposition from investment management to financial planning in response to shifts in client expectations. Despite growing adoption of index- based solutions, recent research suggests that many advisors are not maximizing the resources index providers offer them. This creates an opportunity for advisors to deepen their engagement with index providers and unlock additional value for their practices.
S&P Dow Jones Indices (S&P DJI) and Cerulli Associates hosted a discussion with senior leaders from two wealth management firms to learn more about how they are using index-based strategies and engaging with index providers to support their practices.
To hear the entire discussion, watch Evolving Trends Redefining Index Usage.
Cerulli research reveals a significant gap: 98% of advisors surveyed use index-based products, but only 33% use index provider content and 27% actively engage with index providers. What’s behind this underutilization?
Brendan: This research is based on a survey of about 300 financial advisors and interviews with 25 wealth management executives. We found that advisors generally want to use more index-based products—they currently allocate about 46% of client assets to index-based strategies and plan to increase that to 49% by 2026.
But here’s the disconnect: Despite the evolution of index-based products and advisors’ growing interest in index methodology when selecting these products, they’re not taking full advantage of index providers. Many advisors simply aren’t aware of the scope, scale and breadth of capabilities that index providers can bring to bear. Advisors often get information from asset managers building the products rather than going directly to the source—the index providers themselves.
What capabilities do index providers offer that advisors might not be aware of, and how can these resources support wealth management practices?
Brandon: Index providers offer much more than just the benchmarks themselves. We provide extensive research capabilities.
For example, SPIVA®—S&P Indices versus Active—is now in its 21st year. We examine the entire active management universe and compare it to appropriate indices, looking at what outperforms, what underperforms and how these trends evolve over time.
We also analyze persistence—the ability to consistently outperform or remain in top quartiles. Much of this research is written specifically for financial advisors.
We also provide extensive education about our indices’ methodologies—you can search for any S&P DJI index online and find the methodology deck. We actively seek feedback through public consultations on existing indices and work with firms on custom indexing solutions. Someone might come to us wanting a combination of different exposures, and we’ll work with them in the lab to create exactly what they need.
The key is that we don’t operate in a vacuum. We’re constantly listening to what the market demands and how we can innovate our index methodology to support the ecosystem going forward.
