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Direct Indexing
& Tax Loss Harvesting
Control tracking error to a chosen benchmark while generating tax alpha.
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Current Challenge
Direct indexing is a powerful strategy for capturing market returns while enabling tax loss harvesting at the individual security level, but traditional approaches come with significant drawbacks. Managing direct indexing strategies in-house is time-consuming and operationally complex, while outsourcing to third-party providers often comes with high costs and limited flexibility. Additionally, most direct indexing platforms offer little to no personalization—clients are generally locked into a broad index with few options to tailor the portfolio to their specific preferences or values.
While tax loss harvesting is a key benefit of direct indexing, the way it’s typically implemented is often generic. It’s rarely optimized for maximizing post-tax net returns or tailored to an individual client’s unique tax profile. As a result, the full potential of direct indexing and tax loss harvesting is often left unrealized. Advisers are left choosing between costly solutions that lack customization or operational burdens that are difficult to scale—making it a less-than-ideal fit for delivering true personalization at scale.
While tax loss harvesting is a key benefit of direct indexing, the way it’s typically implemented is often generic. It’s rarely optimized for maximizing post-tax net returns or tailored to an individual client’s unique tax profile. As a result, the full potential of direct indexing and tax loss harvesting is often left unrealized. Advisers are left choosing between costly solutions that lack customization or operational burdens that are difficult to scale—making it a less-than-ideal fit for delivering true personalization at scale.
Pave Solution
Pave enhances direct indexing by combining sophisticated risk analytics with powerful customization and tax optimization tools—delivering a smarter, more scalable alternative to traditional approaches. Using proprietary asset risk scoring, Pave can construct portfolios that tightly track a chosen benchmark, such as the S&P 500, while using a fraction of the assets. This increased asset optionality opens the door for deeper personalization based on client preferences, values, or constraints—something standard direct indexing solutions rarely offer.
Pave also personalizes tax management to each client’s unique situation. Advisers can set annual capital gains limits, activate a max harvesting mode to realize as many losses as possible, or allow Pave to intelligently balance tax savings and performance by optimizing for post-tax net returns. All of this is managed automatically, and because Pave charges a flat monthly fee it can be significantly more cost-effective than traditional outsourced direct indexing solutions, which often charge around 0.4% of AUM annually.
Pave also personalizes tax management to each client’s unique situation. Advisers can set annual capital gains limits, activate a max harvesting mode to realize as many losses as possible, or allow Pave to intelligently balance tax savings and performance by optimizing for post-tax net returns. All of this is managed automatically, and because Pave charges a flat monthly fee it can be significantly more cost-effective than traditional outsourced direct indexing solutions, which often charge around 0.4% of AUM annually.
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See It in Action
Learn how to implement Value-based Personalization Screens within Pave
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Reimagine Your Firm's Potential
Evolve your investment strategies and client relationships through the power of automation and personalization.
Automate
Implement Value-based Personalization Screens and turn on Autopilot to save each advisor up to 60 days a year.
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Personalize
Further personalize Value-based Personalization Screens to create portfolios as unique as your clients.
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Start saving up to 18 hours per week with automated portfolio management
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4 Source: Vanguard; Pave performance is actual performance of the Islay affiliate Systematic Alpha investments, LLC. Please see disclaimers at the end for more details
The above material is for educational purposes only and not an offer, solicitation, or recommendation. Investing is speculative and involves risk, including the possible loss of principal. Performance herein is from Pave affiliate, Systematic Alpha Investments, LLC (“Systematic Alpha”). Systematic Alpha is a registered investment adviser. Such registration does not imply any level of expertise by the registrant. Performance assumes the reinvestment of all interest, capital gains, dividends, and fees and expenses of 0.5% charged on an annualized basis. Past performance is no guarantee of future results. Performance results may vary on an investor-by-investor basis.
For Financial Professional Use Only.
Any videos are for illustrative purposes only, Pave is not recommending any specific investments.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
We take protecting your data and privacy very seriously. Please see our privacy policy here.
Pave Investment Advisors, LLC is an SEC Registered Investment Advisor. Such registration does not imply any level of expertise.
Securities offered through Pave Securities, LLC – New York, NY. Member FINRA/SIPC. You can review Pave Securities LLC with FINRA’s BrokerCheck BrokerCheck.
Advisory Services are only offered through Pave Investment Advisors, LLC., an SEC Registered Investment Advisor which is an affiliate of Pave Securities, LLC.
Pave Securities, LLC and Pave Investment Advisors, LLC do not offer tax or legal advice.
The news, resources and articles available on this site are being presented for educational purposes only and should not be considered specific investment or planning advice applicable to each individual.
Please see ADV Part 2A here and Form CRS here.
For Additional Information and Important Disclosures please click here.
Any videos are for illustrative purposes only, Pave is not recommending any specific investments.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
We take protecting your data and privacy very seriously. Please see our privacy policy here.
Pave Investment Advisors, LLC is an SEC Registered Investment Advisor. Such registration does not imply any level of expertise.
Securities offered through Pave Securities, LLC – New York, NY. Member FINRA/SIPC. You can review Pave Securities LLC with FINRA’s BrokerCheck BrokerCheck.
Advisory Services are only offered through Pave Investment Advisors, LLC., an SEC Registered Investment Advisor which is an affiliate of Pave Securities, LLC.
Pave Securities, LLC and Pave Investment Advisors, LLC do not offer tax or legal advice.
The news, resources and articles available on this site are being presented for educational purposes only and should not be considered specific investment or planning advice applicable to each individual.
Please see ADV Part 2A here and Form CRS here.
For Additional Information and Important Disclosures please click here.
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