Building an effective lead generation strategy is essential for advisors who are serious about growth. According to Angela Osborne, the COO of Bluespring Wealth Partners, advisors should focus on generating referrals from existing clients and working on leads that are already in the pipeline. Failure to do so runs the risk of becoming a ‘melting iceberg’ which is a firm with no growth strategy that loses clients and assets through time and attrition.

She recommends being clear with prospects about the value being offered in addition to what differentiates you from competitors. And this branding should be consistent across all the mediums where you want to share your message. Additionally, the message should resonate with your ideal client. 

In terms of optimizing lead generation, she recommends having a digital marketing strategy. Advisors should also refine their messaging to quickly and clearly articulate why clients should choose them over their competitors. Once a lead is acquired, it must be nurtured which takes time in order to build an authentic relationship. 

The final step is to actually convert a lead into a client. Many advisors fail at this final step. She recommends identifying who in the company does this well and have them mentor others at the firm. 

Finsum: Without an effective lead generation strategy, RIAs are bound to become ‘melting icebergs’ as they lose clients and assets through time and attrition. 

Franklin Templeton is optimistic about fixed income in the coming year due to the Federal Reserve ending its hiking cycle, and inflation continuing to trend lower. However, it believes that rates will remain at these levels for much of 2024 in order for inflation to fall to the Fed’s desired level, leading to a more challenging environment in the first-half of the year. 

Amid this backdrop, the firm is bullish on municipal bonds especially with so many investors on the sidelines, overweight cash, or in short-term credit. Municipal bonds offer historically attractive yields, favorable tax treatment, and a longer-duration which should outperform in an environment with falling rates and a flattening yield curve. 

The firm notes that local governments remain in strong shape from a fiscal perspective even despite a slowdown in economic activity and rising costs. Many still have excess funds leftover from federal aid during the pandemic and have been relatively disciplined in terms of spending. Further, muni bonds have lower default rates than corporate credit while also having higher after-tax returns. Franklin Templeton believes many investors will reallocate from money markets into municipal bonds in order to lock in yields at these levels especially as monetary policy eases. 

Finsum: Franklin Templeton is bullish on fixed income in the coming year. It also highlights a bullish case for municipal bonds due to the sector’s strong fundamentals and favorable positioning in this macro environment. 

Annuity sales hit a new record high in 2023 at $360 billion which exceeded last year’s record of $311 billion. Experts attributed this to a combination of anxiety about stocks and the economy paired with the high interest rates in decades. 

Typically, annuity sales spike during periods of economic uncertainty. However, sales had been muted over the last decade due to the prevalence of ultra-low interest rates. This is evidenced by 2008 being the last year that annuity sales exceeded $250 billion prior to 2022. 

Currently, the majority of annuity sales are fixed-rate deferred annuities which pay an average of 4.5%. Prior to the Fed’s tightening campaign, this annuity paid 1.5%. In contrast, sales of single premium indexed annuities and deferred indexed annuities were much lower. 

These annuities are the simplest as the buyer hands over a lump sum in exchange for an income stream that lasts through their life. They are also the most effective in terms of hedging longevity risk for clients. However, there is a tradeoff in terms of liquidity and being unable to access the money once it’s put into the annuity. In contrast, fixed-rate deferred annuities do have more liquidity and offer higher rates but come with higher costs.

Finsum: Annuity sales hit a new record high in 2023 due to fears of a recession and inflation in addition to high interest rates. 

Rich Hill, the head of Real Estate Strategy at Cohen & Steers, shared his bullish outlook for REITs in 2024. He sees falling interest rates, tightening credit spreads, and undervaluation as the biggest catalysts for significant gains over the next year. However, he cautions that office REITs have their own dynamics due to vacancy rates remaining elevated amid the increase in remote and hybrid work.

REITs benefit in two ways from lower rates - their yields become more attractive to investors on a relative basis, and it leads to lower financing costs. Hill points to improving credit markets as another reason to overweight the sector in the coming year. This means REITs will have an easier time accessing credit which will lead to more activity such as acquisitions and new projects. Historically, REITs have outperformed during periods of tightening spreads and falling rates. 

Another attractive component of REITs is that valuations are compelling as prices have declined over the past couple of years, while earnings have remained quite stable due to the economy avoiding a recession. Further, most REITs continue to have a relatively low cost of capital due to refinancing at lower rates in 2021. 

Finsum: Rich Hill of Cohen & Steers is bullish on REITs for next year. He sees falling rates, tightening credit spreads, and an improving credit markets as major catalysts. 

Single-stock ETFs were introduced in Europe in 2018 and last year in the US. Now, there are nearly 50 single-stock ETFs with the majority of them tracking mega cap tech stocks like Microsoft, Nvidia, Amazon, and Tesla. Collectively, they have $3.3 billion in assets. Providers include Direxion, AXS, GraniteShares, and YieldMax and strategies fall under option income, bull, or bear.

The largest one is the Direxion Daily TSLA Bull 1.5x Shares which has over $1 billion in assets and tracks the underlying stock with leverage by using swaps and other derivatives. The second-largest at $841 million in assets is the YieldMax TSLA Option Income Strategy ETF. This category of single-stock ETFs will sell call options on the underlying stock to generate monthly income. 

The recent success of these ETFs isn’t surprising given the strong performance of tech stocks this year with many hitting all-time highs. According to Rich Lee, the head of ETF trading at Robert W. Baird & Co., more single-stock ETFs will be hitting the market due to strong demand for these products, and he expects more innovation as well.

The current crop of single-stock ETFs are more suited for short-term speculation rather than long-term investing given higher costs. In August, the SEC issued a warning about these products, “Because leveraged single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself,” which encapsulates the risks. 

Finsum: Single-stock ETFs are a small but fast-growing category. While they’ve performed well due to the bull market in tech, they remain unsuitable for long-term investors. 

For discerning investors seeking a personalized approach to wealth management, mutual funds are often just the tip of the iceberg of possible solutions. Mutual funds offer professional oversight and a level of diversification, but transparency and flexibility are not typically among their strengths. Enter Separately Managed Accounts (SMAs).

SMAs function like custom portfolios tailored to the account holder's unique risk tolerance, goals, and even ethical considerations. Want to prioritize tech stocks? Avoid fossil fuels? SMA customization lets investors and their advisors call the shots. And forget about waiting until the quarter or year-end to see the securities held by your fund - SMAs' full transparency of underlying investments provides crystal-clear clarity any time of the year.

Of course, with power comes responsibility. SMAs often require deeper engagement in the investment process, but the effort is often worth it for investors who want the added benefits.

While minimum account balances in the past for SMAs may have seemed intimidating, the tides are turning. Advancements in platforms and technology have lowered entry points, making customized wealth management more accessible than ever. For advisors seeking to cater to sophisticated clientele who value tailored solutions, SMAs deserve a closer look.

Finsum: Separately Managed Accounts offer an advantage over mutual funds for investors who desire greater transparency and flexibility in their accounts.

The cornerstone of modern portfolio theory rests on the principle of diversification – seeking uncorrelated assets to mitigate risk and enhance returns. Traditionally, stocks and bonds have been the primary players in this diversification game. However, crypto assets, often perceived as a volatile outlier, presents a curious proposition: could they hold the key to enhanced portfolio resilience?

Recent research suggests the possibilities. A study examining the correlation between Bitcoin and major market indices from early 2021 to mid-2023 revealed a noticeably low relationship. Compared to the S&P500 index, Bitcoin's 90-day correlation ranged from about 0.0 to 0.6. As compared to an aggregate bond index, Bitcoin's correlation ranged roughly between -0.3 and 0.3. Investors should consider all risks before adding an asset to their portfolio. Still, these results indicate that, in recent historical periods, Bitcoin has provided a diversification option for advisors and investors looking for ways to smooth their portfolio returns.

Of course, crypto's nascent nature and past volatility warrant caution. Unlike more traditional asset classes, crypto has yet to experience multiple economic cycles, leaving its long-term behavior yet to be seen. However, its recent low correlation with traditional assets presents an intriguing opportunity for portfolio optimization.

Finsum: Bitcoin’s recent correlation with traditional asset classes offers an intriguing proposition: can it help mitigate overall portfolio risk?

A familiar mantra of financial advisors and tax planning experts is that it’s not what you earn; it’s what you get to keep that matters. This principle underscores the significance of effective tax management strategies within a taxable investment portfolio. An essential technique in optimizing after-tax returns is tax-loss harvesting, which involves selling investments at a loss to offset taxable gains in the same year.

A powerful tool for executing this strategy is direct indexing. Unlike product structures like mutual funds, direct indexing accounts allow investors or their advisors to buy and sell individual securities. This granular control enables them to recognize losses for tax purposes while maintaining their investment strategy.

However, timing is crucial. Establishing a direct indexing account early in the taxable year affords the account holder increased flexibility later. This positions them to maximize the opportunities for tax-loss harvesting as they accumulate over the year. By doing so, advisors can proactively manage the portfolio to leverage potential tax savings, which can be particularly beneficial when preparing for year-end financial discussions with clients.

Essentially, the sooner an advisor sets up a direct indexing account for their client, the more they can potentially benefit from tax-loss harvesting strategies during the year.

Finsum: Advisors can help their clients keep more of what they earn by utilizing direct indexing accounts to harvest tax losses throughout the year.

This year has seen some big swings in crude oil prices given a variety of developments. These include rising US oil production, OPEC production cuts, the ongoing war in Ukraine, rising tensions in the MIddle East following Hamas’ attack, and a slowing global economy. As a result, crude oil prices ended the year down 10%. 

Entering 2024, these will continue to be major themes that need to be monitored. At its last meeting, OPEC reduced its production by 2.2 million barrels per day and said that more cuts may be necessary to support the price. But, there is increasing skepticism whether countries will actually abide given that many are reliant on oil revenue. 

Another challenge for OPEC is that US oil production continues to rise. Next year, it’s forecast to be 13.3 million barrels per day, an increase from this year’s average of 13 million barrels per day. Companies like Exxon Mobil and Chevron recently made major acquisitions of domestic producers and are also increasing capital expenditures. Unlike smaller producers, these majors are able to take advantage of economies of scale to push their costs lower and remain profitable with lower prices. 

OPEC now only has control of 51% of the crude oil market which is the lowest in decades. This raises the possibility that Saudi Arabia could choose to increase the supply to temporarily crash the price of oil in order to punish these producers and take back market share, although most analysts believe this is unlikely. 

On the other side, demand is projected to grow at the smallest rate in a year - 1.3 million barrels per day. In 2023, oil demand increased by 1.8 million barrels per day.  In part, this is due to a slowing global economy especially in China. 

Finsum: Oil has been quite weak to end the year despite several bullish catalysts. In hindsight, the most important development has been rising US oil production which is expected to hit a new record next year. 

Over the next few years, it’s expected that alternative assets will become a larger part of client portfolios. Advisors will have to contend with a changing landscape especially as more products will be introduced that are more complicated in terms of taxes and reporting. 

A looming challenge for advisors will be handling the increased workload as well as understanding these products in a comprehensive manner in order to explain it to their clients. It’s likely that asset managers will form partnerships with RIAs in order to help them navigate and simplify the process. Already, some asset managers have started to invest in efforts to educate advisors, but more will be necessary given the increase in the number of options.

According to Ernst & Young America's Financial Services, some advisors will increase allocation to alternatives to 10% or more. In the near-term, private credit products will see the strongest growth as they are seen as less risky while offering higher yields than fixed income.

In addition to private credit, most exposure to alternatives currently is through liquid alt mutual funds, liquid alt ETFs, and publicly-traded REITs. Over the next couple of years, areas forecast to have the highest growth in terms of assets are cryptocurrencies, digital assets, hedge funds, private equity, and private debt. 

Finsum: The alternative assets space is expected to heat up in the coming years. One challenge for advisors will be to understand these products and handling an increased workload.