[lyrrad]

There is financial friction involved.

As I understand it, this product involved using fractional shares to try to adhere to an index, while using tax loss harvesting to optimize for tax.

Fractional shares cannot be transferred between brokerages and are generally sold when transferring brokerages. If you owned on average, half a share of the largest 250 US companies, you'd may need to sell about $30,000 in shares, which could result in an unexpected tax bill.

There are large brokerages and companies offering similar direct indexing products, generally at a higher cost. However, I expect those products are less likely to be shut down.

[calmbonsai]

This was precisely their business model.

The problem was easy/trivial competition from larger brokerage firms. The core IP was all about tax optimization. The same customers who would employee direct indexing already have dedicated accounting services for exactly that purpose and the additional brokerage fees are either sunk costs or de minimis.

To use an analogy, the folks who are hedge fund customers don't care about the lack of liquidity or higher management fees. You can't capture that market on margin, volume, or any kind of flow ancillaries.