Model portfolios represent an effective strategy for financial advisors to enhance efficiency within their practices by offering a standardized approach to portfolio construction and analytics. Models simplify the portfolio design process, allowing advisors to save significant research time and scale their services more effectively. Moreover, uniformity in portfolio construction promotes consistency, reduces biases, and improves regulatory compliance.

However, advisors must exercise due diligence in evaluating the credentials of model portfolio providers, considering aspects such as investment philosophy, historical performance, and associated fees. It is also essential to maintain flexibility for customization to meet the unique needs and risk profiles of individual clients.

While model portfolios offer considerable efficiency and informed decision-making advantages, their successful integration into a financial advisory practice requires careful consideration and a client-focused strategy. When utilized judiciously, model portfolios can significantly contribute to a financial advisory practice's operational efficiency and client satisfaction levels, albeit not as a universal solution but as a valuable component of a broader strategic framework.

Finsum: Explore how model portfolios boost advisory efficiency with standardized construction, analytics, and compliance, while ensuring due diligence and customization.

For income-seeking investors, navigating the often volatile capital markets can be a tightrope walk between yield and stability. Enter income-producing ETFs, a potent blend of diversification and dependable returns. These innovative funds package high-yielding assets into a single, tradable security, offering investors a steady income stream without the burden of individual security selection.

One of the key strengths of income-producing ETFs lies in their inherent diversification. By spreading investments across a basket of assets, they mitigate the risks associated with individual maturities or underperformance. This eliminates the headache of reinvesting maturing bonds at potentially lower rates, a common pitfall for fixed-income investors.

Furthermore, income-producing ETFs typically hold less cash than their mutual fund counterparts. This seemingly minor distinction translates to a potentially significant advantage: reduced cash drag. Unlike mutual funds, which often require a cash cushion to facilitate redemptions, ETFs minimize uninvested capital, ensuring a greater portion of your portfolio actively generates income within its intended asset class.

Financial advisors seeking to craft reliable income streams for their clients should consider income-producing ETFs as a possible solution. They provide instant diversification, mitigate reinvestment risk, and maximize income potential through reduced cash drag.

Finsum: Income-producing ETFs can provide both diversification and steady returns with reduced reinvestment risk and cash drag.

When financial advisors contemplate switching to a new broker-dealer, the due diligence process typically begins with evaluating compensation structures and the range of available products. However, one critical factor that deserves equal attention is the caliber of the advisors within the prospective broker-dealer. The professional community you join can significantly influence your growth and development.

The collective quality of advisors within a broker-dealer reflects the firm's standards and commitment to excellence. Engaging with a new cohort of professionals presents opportunities to gain fresh insights, foster meaningful professional relationships, and refine business practices. It is a chance to challenge your status quo and infuse new life into your approach by learning from the successes and strategies of others.

Before making a transition, advisors should seek to understand the professional dynamics of the broker-dealer's network. This includes the expertise of the other advisors, the collaborative environment, and the overall knowledge-sharing culture. Evaluating whether the new network encourages continuous learning and improvement can be a decisive factor in ensuring the move aligns with an advisor's long-term goals and values. Thus, joining a broker-dealer with a vibrant and skilled community of advisors is not merely a change in business affiliation; it's a strategic step towards personal and professional enrichment.

Finsum: Researching the caliber of advisors within the broker-dealer you are considering joining can pay greater dividends than you might think.

The era of high yields has led to a significant boost of inflows into fixed income ETFs. Last year, short duration bond ETFs were the biggest recipient of inflows, but this started to change at the end of last year. Inflation started to move closer to the Fed’s 2% target, and the market began to price in rate cuts in 2024.

So, investors have been moving further out in the curve into intermediate and longer-duration fixed income ETFs to lock in yields for a longer period of time. One example of this can be seen in BondBloxx ETFs.

For instance, the BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF has seen $49 million of inflows YTD. This is more than 50% of net inflows over all of last year. In contrast, the BondBloxx Bloomberg Six Month Target Duration US Treasury ETF only has $17 million of net inflows YTD, while it had $904 million of inflows last year. 

BondBloxx has also seen similar flows from its 1 Year and 2 Year duration-focused Treasury ETFs. To appeal to fixed income investors seeking longer duration exposure, the firm recently launched 3 high-yield corporate bond ETFs with time frames of 1-5 years, 5-10 years, and more than 10 years. 

Finsum: Flows into fixed income ETFs remain strong in 2024, but one definite change is that investors are favoring intermediate and longer-duration ETFs in anticipation of the Fed cutting rates.    

Value stocks have consistently underperformed growth stocks for many years. Yet, there are some signs that 2024 could herald a change in trend. Underperformance in value stocks was exacerbated in 2023 as many growth stocks, in the tech sector, saw huge gains due to excitement around artificial intelligence (AI). 

However, this could present a silver lining for value stocks as they are historically cheap, and mean-reversion could lead to solid gains. Further, growth stocks have become quite expensive, following the most recent rally, and there could be rotation into value especially if earnings don’t meet investors’ lofty expectations.

Value stocks are primarily comprised of healthcare, industrial, and financial stocks. A major impediment over the past year has been the struggles in the banking system due to high rates and an inverted yield curve. This means that lending is not as profitable, while banks are paying high rates on deposits but holding loans that were made when rates were much lower. But, there could be some relief coming as the Fed signals it will look to cut rates later this year. 

In addition to the path of monetary policy, the economy re-accelerating would be another positive catalyst for the sector. Many value stocks are economically sensitive and would see an increase in top and bottom-line numbers. However if investors are bearish on the economy but want exposure to value, they can stick with utilities and consumer staples which would outperform in a lower growth circumstance. 

Finsum: Value stocks underperformed in 2023. Here’s why 2024 is shaping up to be better, and under what circumstances, value will outperform growth.