Wells Fargo Investment Advisors were the first to use indexed portfolios for some of their institutional pension plans from 1969-1971. The Vanguard 500 Index Fund was the first U.S. index fund offered to individual investors. Beginning in 1976, the fund did not reach $10 billion in assets for almost 20 years.
The S&P 500 represents ~ 75% of U.S. stock market valuation. By the late 1970s, the majority of the academic community viewed U.S. stock market as being reasonably efficient, recommending indexing over active management. Such thoughts likely first began with Malkiel (1973) who believed monkeys throwing darts at the Wall Street Journal’s stock listings would likely have the same results as professional money managers.
John Bogle, Vanguard’s former chairperson, came up with the idea of setting up the first retail U.S. index fund. Because the fund attracted only modest amounts of money during its earlier years, some believe the fund would have closed had it not been a pet project of the boss. According to MarketWatch.com, the Vanguard 500 Index Fund’s admiral shares (VFIAX) represent the largest mutual fund (SPDR S&P 500 is the largest ETF); Vanguard has six of the eight largest funds in the U.S.
There are a number of reasons advisors and clients do not index:  they think they can beat the market by using actively-managed funds,  there is a pattern to the market and it just needs to be discovered,  newsletters and other advisory services proclaiming a superior strategy can be convincing, and  using active management means advisor or client can take credit for good returns and blame others, such as a fund manager or newsletter, for negative returns.
Each year, Morningstar selects a Portfolio Manager of the Year. According to Bryant (2000), subsequent returns of passed winners was quite mixed:  just over 50% continued to outperform their peers,  past winners who attempted to time the market had the most unpredictable returns, and  managers who were contrarian with a moderate-sized portfolio had the most reliable results.