In an article for AdvisorPerspectives, Jack Van Dyke of Russell Investments shared some strategies for advisors to attract high net worth investors with direct indexing. 

For most advisors, most strategies or tactics to grow their practice revolve around generating additional revenue from existing clients or adding new high net worth clients. And, the key to accomplishing these goals is to have a unique and differentiated offering. 

Direct indexing fits the bill as it can help reduce a clients’ tax bill, retain the benefits of indexing, and allow for effective customization. While most advisors are aware of this innovation, they have not yet begun offering it to clients. 

Therefore, it’s essential to start the conversation with your prospects and clients. Van Dyke recommends that advisors begin by asking questions to determine whether direct indexing is a good fit for them. These include whether or not they are expecting a large windfall in the future, their current tax liabilities from investments, and whether they have a concentrated stock position. 

These questions are effective conversation starters that you can transition into a discussion about why direct indexing can help them reach their financial goals while giving them more control over their financial destiny.

Finsum: The key to a financial advisory practice is to grow their business and/or increase revenue per client. Direct indexing is one way that advisors can achieve these goals.

In an article for AdvisorHub, Karmen Alexander covered comments from Stifel Financial’s recent conference call when CEO Ronald Kruszewski remarked that there was an opportunity to recruit financial advisors especially following the exit of ‘high payers’. 

While Kruszewski didn’t single out any firms by name, it’s likely that he was referring to First Republic which was a victim of the regional banking crisis and was taken over by JPMorgan with an FDIC backstop. The bank was notable for being an aggressive recruiter of financial advisors with large bonuses and attractive packages. At the start of the year, First Republic was reportedly offering as much as 400% of revenue generated in the past year to advisors with over $10 million in revenue. 

Unlike First Republic which targeted brokers with over $2 million in revenue, Stifel tends to target smaller brokers. Additionally, Stifel has been much more conservative in the terms that it offers. Overall, the bank hired 49 advisors. Of these, 20 were experienced brokers who were lured from other firms. 

Yet, the company also affirmed that while it sees the landscape becoming less competitive with First Republic’s exit, it will continue sticking to its discipline in terms of not offering excessively lavish packages.

In an article for the Financial Times, Mary McDougall reported on growing investor nervousness regarding junk bonds due to tightening credit and financial conditions. According to the Federal Reserve’s survey of Senior Loan officers about 46% of banks are planning to tighten lending standards given worries about defaults and recent stresses to the banking system. 

Historically as lending standards tighten, it leads to a wider spread between junk bonds and Treasuries, indicating concerns over growing defaults. This can even potentially exacerbate a recession as companies have tougher times accessing capital markets which can affect corporate decisions,leading to belt-tightening and job losses. 

What’s interesting is that many expected that the regional bank failures that began in March would have impacts on spreads and lending. Yet, there hasn’t been an impact yet. In fact, the entire bond complex has been quite strong since these stresses began as many interpreted it as increasing the odds of the Fed pausing rate hikes. 

The Federal Reserve also seems to share these concerns as Chair Powell discussed the possibility of a credit crunch and that it poses one of the major risks to its economic outlook and financial stability. 

Finsum: Despite the Fed’s rate hikes and regional banking concerns, lending and spreads have remained relatively resilient, but some are concerned that this won’t last. 

Category: Wealth Management; 

Keywords: #bonds; #Fed; #fixed income

In an article previewing the first quarter earnings season for the energy sector for Zacks Investment Research, Sheraz Mian discussed the major factors for why analysts are forecasting 2023 earnings to decline by about 21% compared to 2022. 

The major factor is that prices are down by about 25% when compared to last year. Additionally, costs are going up faster than expected, leading to downwards pressure on margins. Given these uncertainties, companies continue to be conservative in terms of CAPEX and optimizing balance sheet health.  

In terms of the outlook for crude oil prices in 2023, the major headwind is weaker demand as economic growth decelerates across the world. Many expect the US economy to stumble into a recession later this year as the Fed keeps rates high to tamp down on inflationary pressures. Additionally, Chinese growth has also been less robust than expected following the end of its Covid policies. 

This is sufficient enough of a headwind to offset bullish impulses from OPEC cutting production, sanctions on Russian oil production, and the US government restocking its depleted crude oil inventories. 

Finsum: Earnings for the energy sector are expected to be down 21% compared to last year as recession concerns dominate. 

In an article for MarketWatch, Jamie Chisholm discussed some reasons for why stock market volatility has remained depressed despite the ongoing crisis in regional banks which some fear could lead to a credit crunch. In contrast, the stock market seems more responsive to economic data and the Federal Reserve. 

Economic data continues to signal an economy that is growing albeit decelerating but also not in a recession which would hurt corporate earnings. Q1 earnings also have come in stronger than expected. 

The Federal Reserve is in the final innings of its rate hike cycle. Futures markets are already looking ahead at rate cuts by the end of the year or Q1 of next year. And, inflation data continues to moderate and move in the right direction which is also supportive of asset prices. 

It’s also surprising that the market seems unconcerned about the debt ceiling deadline and a potential default, although there has been chatter about positive progress from negotiations between Republicans and Democrats. Surprisingly, the regional bank crisis is having little spillover impacts on the market or economy. In fact, the S&P 500 is 3% higher than from when the crisis began, while the Vix is nearly 10% lower. 

Finsum: One mystery for market participants is that volatility remains depressed despite ongoing struggles for regional banks and a looming debt ceiling deadline.