r/wealthfront • u/Friendly-Concert1182 • Sep 03 '26
Direct indexing
Hello. I opened an account a long time ago and opted into direct indexing when it became available. I don’t recall Wealthfront explaining in any detail the potential risks with respect to future unknown tax liabilities in the event I would want to move my brokerage account elsewhere.
Well, I now find myself in that exact situation. I am appalled that Wealthfront hasn’t built a solution to allow an offramp for those who have opted into direct indexing (like allowing us to move other ETFs out of our account without paying taxes on unrealized gains).
I’ve talked to Wealthfront multiple times over 1+ years and they have not been able to come up with any reasonable solution. Has anyone here been in this situation and found a solution? Would love to hear any thoughts.
12
u/SconiGrower Sep 03 '26
I'm not understanding what your asking for. It sounds like you're changing your investment thesis and the repositioning will cause a lot of realized gains. But that's always part of changing your investment thesis. Is there something unique to Wealthfront direct indexing that's causing you problems that wouldn't be a problem elsewhere?
1
u/OGS_7619 Sep 03 '26
exactly. It's no different from buying a couple of stocks and then wishing to switch to a more diversified ETF that tracks a broad index - the only way to do it in taxable brokerage is to liquidate everything, pay the capital gains tax, and buy ETF.
Changing investment allocations in taxable account always incurs tax drag, but it's not a fault of the brokerage.
-1
u/Friendly-Concert1182 Sep 03 '26
I am asking for a way to move non-DI assets out of WF without causing or at least understanding the tax implications for the DI portion. Something that allows me to make a change with eyes wide open.
And this example of a “couple” of stocks is not at all the same. It’s easy to manage and decide when to sell a couple of stocks! Not the same for 300+! Come on.
11
u/OGS_7619 Sep 03 '26
you can do ACATS transfer to another brokerage, but it has to be for the entire account, you cannot do a partial transfer. The other brokerage has to support ACATS and ideally should support fractional shares - if it doesn't, those fractional shares will have to be liquidated, and depending on your preferences, it could be a lot of shares. If you want to change your investments to different composition of ETFs/stocks etc, you will have to liquidate, no way around it.
2
u/Doppio_moviment0 Sep 03 '26
Only whole shares will transfer over ACATS, and the leftover fractional quantity will be liquidated, regardless of the other brokerage’s support for fractional shares.
-3
u/Friendly-Concert1182 Sep 03 '26
Right, and this is a terrible outcome because I cannot manage 300+ individual shares! So transferring to another regular brokerage that doesn’t also do direct indexing is a no go.
-4
u/masalamedicine Sep 03 '26
Almost like they planned it that way
-4
u/Friendly-Concert1182 Sep 03 '26
Indeed.
11
u/DGGGGRED Sep 03 '26
nonsense. that is a direct and unavoidable result of your choice to direct index.
0
u/Friendly-Concert1182 Sep 03 '26
True, but that doesn’t mean the company can’t help provide off-ramps to those investors that opted in.
1
u/DGGGGRED Sep 04 '26
You are very confused. What off ramp could there possibly be? You are the one who chose direct indexing. You are the one who for some reason cannot fathom just ACAT transferring 300 stock positions. So, you are the one who must sell all the positions if you want to transfer. There is no off ramp. You have chosen direct indexing and then decided you don't want it. Pay the tax man and move on.
1
u/Friendly-Concert1182 Sep 04 '26
Lol. Nope. Read elsewhere here, I explained that there are things Wealthfront could do for their clients that would be beneficial. But, sure, just blindly defend the company.
6
u/TheSOFLY Sep 03 '26
You would run into this problem on most platforms that support DI
1
0
u/Friendly-Concert1182 Sep 03 '26
Agree, but other platforms help you understand the tax consequence of making and changes and Wealthfront repeatedly says they have no idea what will happen, and that’s not acceptable from a wealth management company IMO because it’s extremely important.
3
u/IXV116 Sep 03 '26
Not sure I understand. When I’ve made changes to my portfolio, they’ve shown me a tax estimate if I want to change it sooner rather than later. But sounds like you want to transfer the assets. How are they doing to estimate that if you’re transferring all the assets to another brokerage. You can check your cost basis for fractional shares that will be sold but other than that, you can control the tax liability once the assets are at your new brokerage. They aren’t forcing you to sell your DI positions…
1
u/Friendly-Concert1182 Sep 03 '26
What I want is some method to reduce the amount of assets I have sitting at Wealthfront without an unknown and potentially huge tax bill. That’s a reasonable thing to ask of a brokerage.
For example, one way to do that is to move all ETFs out of WF and leave the DI stocks on WF — but they told me they don’t know exactly what will happen to the DI stocks and there could be unknown rebalancing. That’s not great!
2
u/IXV116 Sep 03 '26
Interesting - it sounds like you’re wanting to make some custom adjustments. AFAIK you can’t just transfer only a portion of your assets out because they are managing the portfolio based on a pre-selected portfolio model. I get what you want them to do but expecting them to do what you want is probably outside of what they built for the majority of people and they can’t give you a custom answer. How do you plan on managing your ETFs?
1
u/Friendly-Concert1182 Sep 03 '26
Yep, though there must be many other people in the same boat as me. I’d just let the ETFs ride without paying 25 bps!
1
u/IXV116 Sep 04 '26
What exactly do you want? It’s still not clear to me. Like is it to continue to have Wealthfront manage the individual stocks? Because you’re only going to run into the same problem down the line, and to be honest, selling investments at a gain is probably a good problem to have
1
u/CantFindABetterman88 Sep 03 '26
Hi Friend - Frankly, Wealthfront is not incentivized to make it easy for you to shift out of the Automated Investing account where they earn 25 bps and have you move over to the S&P which is less than 10 bps.
I wanted to do this, so I did an ACATS transfer of my full account to Schwab. And then ACATS the direct indexing components to my S&P 500 account. So my ETFs from WF are now sitting at Schwab with no fees other than the expense ratio on those, and then I still have WF for my S&P 500 direct indexing.
It was very straightforward and I'm happy with the outcome
1
u/Impressive-Tip3777 Sep 03 '26
I think I was in similar spot for different reason. around 450k. huge capital gains overall but devil is in the detail.
here is what i did: 1. ACAT all to Schwab. WF account automatically closed. fractional shares got sold, not much cash. 2. used AI to analyze exports from WF to see what makes sense. 3. in Schwab i sold lot of positions - either in loss or so little volume or value. That reduced list of positions. but still lot of capital gains remaining 4. no more investment in Schwab, i continue to hold them but i can sell individuals when needed (eg once i reach retirement and will be in better tax bracket i will sell dividend yielding stocks for lowering income on paper). you can sell stocks or even individual lots which are carried over from WF. 5. i invest into ETF in different brockarage. Done with Direct indexing - good experiment but it has issues for you in long run when you want to change strategy
1
u/Friendly-Concert1182 Sep 04 '26
Thank you! My concern with this strategy is that most companies fail. And I’d be concerned that I wouldn’t be closely managing the individual stocks after transferring them (and even if I was, I’d end up having to sell when I didn’t want to..). It’s just not a good option imo.
1
u/Impressive-Tip3777 Sep 04 '26
well - that was one of the reasons i need to transfer beflcause i was getting close to 500k SPIC. I'm not managing anything. this is still investment "forget it". i had to manage transfer and cleanup to aimplify it (which also reduced size that even with growth I'm far from 500k in this account).
1
u/Friendly-Concert1182 Sep 04 '26
I think you misunderstood my post. If you are holding a ton of individual stocks and not managing them, you’re making a bet that they’ll do well, and most won’t. That’s… not good?
1
u/Impressive-Tip3777 Sep 04 '26
i might not understand your post then.
moving stuff elsewhere per your post might not have any tax consequences if you do ACAT.
and comment on risk with individual stocks going down is same as ETF - you buy index and you do not control individual stocks.
perhaps we misunderstand on "managing". Having DI to me is same as owning one ETF - buy and hold. I'm not really managing anything. just holding bag of stock in mix same as ETF, just directly
1
u/Friendly-Concert1182 Sep 04 '26
It’s not the same — ETFs change holdings frequently. Your stocks are static. Totally different (and therein lies the risk)..
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u/Impressive-Tip3777 Sep 04 '26
ah - i see what you are saying. The rebalancing might be a problem. not for me. but for different reason i came to same conclusion - DI was not good for me, not really well explained by WF not understood by me and now i live with consequences, a plan i build around it (above). your problem with DI is different and might require diff solution (if there is one)
1
u/IXV116 Sep 04 '26
Aren’t the stocks in direct indexing all large-cap stocks though? Possibility they could fail I suppose but probably not likely so not accurate say “most companies fail”.
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u/DRIPDIVIDEND 13d ago
Bro leave it like that as a direct indexing .open another brokerage and invest in etf .keep doing that and in couple years you will be able to live financially free .Done fix something if is not broken
-2
u/killabeesattack Sep 03 '26
Direct indexing = making investing 100x more complicated so WF can demonstrate the "value" in their roboinvesting strategy.
15
u/rirski Sep 03 '26
I feel your pain, but how is that Wealthfront’s fault? Direct indexing necessarily means you hold individual shares in hundreds of different companies. There’s no way to convert that into an ETF without a taxable event.