There are two benefits to direct indexing: better customization and even greater tax efficiency. Being based in San Francisco with clients in the technology industry and residing in a high-tax state such as California, direct indexing makes a big difference, Escamilla adds.
“Direct indexing is an incredible product for a high net worth person who has professional support from a CPA and an advisor,” he says, noting direct indexing brings a level of complexity. “If you do direct indexing, you start to lose your ability to do your taxes on an iPhone app.”
...another way he mitigates tax hits is to use closed-end municipal bond funds. Escamilla watches for sizable discounts to occur, such as what happened in the March sell-off, which gives him a margin of safety for clients while adding alpha over time.