In an article for SmartAsset, Eric Reed discussed how artificial intelligence tools will affect financial advisors. Clearly, it’s hard to definitively predict how the technology will evolve, but it will have the most immediate impact on improving the customer experience. Already, chatbots are capable of engaging with customers, booking appointments, and dealing with administrative issues. For instance, advisors could use a chatbot to immediately respond to customers to low-level inquiries. This would result in more time for advisors to spend on higher-value issues. 

Beyond customer service, AI tools can also be an asset in terms of portfolio construction and research. AI will allow advisors to leverage considerable computing power to discover opportunities in the market and provide more insight to clients. 

For instance, AI can allow advisors to scrape and process massive amounts of data to deliver customized recommendations. This type of analysis can also be applied to a clients’ financial situation, inputting such items like income, spending habits, demographics, and risk tolerance. 

AI tools are bound to disrupt nearly every industry on the planet. Financial advice is no different. As of now, the main benefit is that it will provide additional value to clients, while allowing advisors to focus on higher-value work.

Finsum: AI is a disruptive force, and advisors need to embrace it. Currently, these tools can help with low-level tasks, data analysis, and enable advisors to spend more time on high-value tasks. 

In an article for CNNBusiness, Nicole Goodkind discussed some reasons why the ESG trend may have peaked and examines if it this is a positive development. 

In Q1, total assets under management of ESG funds declined by $163 billion. And, this trend has continued in Q2. This is despite ESG funds modestly outperforming the broader market. 

A major factor is that inflows into energy stocks picked up following the war between Russia and Ukraine. Another is that ESG investing is becoming a political issue with many conservative states looking to ban use of ESG considerations in investment decisions by state-run funds. 

According to Robert Jenkins, the head of global research at Lipper, ESG investing as a seperate entity will likely be phased out. Instead, ESG ratings will simply be another metric to evaluate investments. 

He sees ESG investing evolving into a more mature phase. This phase will be less hype-driven and politically contentious. Instead, the focus will be on standardazing data and ratings so that investors can make better decisions. Overall, it could certainly be positive as it would dissuade companies from ‘greenwashing’ to game ESG ratings, while still allowing investors to include these factors in their decision-making process. 

Finsum: ESG investing may have peaked in terms of popularity especially as it’s become a political target. However, the trend may be moving into a more mature phase.

In an article for ETFTrends, James Comtois laid out the 2 major benefits provided by direct indexing as opposed to investing in index funds. Until recently, direct indexing was only available to ultra high net worth investors. Now, it’s increasingly available to a wider swathe of investors.

Direct indexing allows investors to gain the benefits of index investing such as low costs and diversification but allows for greater customization and reduction of taxes. With direct indexing, tax losses are harvested on an interim basis and can be used to offset gains.

According to Morningstar, about $260 billion has moved into the category as of the end of 2022. And, this trend is only expected to strengthen in 2023. 

According to Morningstar, “Investing directly in the underlying stocks of an index in lieu of a mutual fund or ETF tracking the same benchmark allows for individually tailored tax management.” Another factor cited is that it allows investors to modify indexes based on their specific values to account for environmental, social, or governance factors. Additionally, investors can prioritize any specific factor they want to emphasize such as value or growth. 

Finsum: Direct indexing has seen massive growth over the last couple of years as it’s become increasingly available to a wider clientele. Two major benefits are a lower tax bill and increased customization. 

Jonathan Brasse discussed a recent white paper from Swiss alternatives group, Partners Group, about why private markets are poised to grow faster than public ones over the next decade in an article for PEREnews.

In essence, Partners Group notes the changing landscape for private markets, and how they are playing a larger role in financing the ‘real economy’. Since 2016, funding on private markets has exceeded that of public markets. Last year, about $400 billion was raised on public markets, while more than $1 trillion was raised in private markets.

Another change is that companies raising on private markets are generally healthier and more profitable than ones listing on public exchanges. These trends are also evident in the real estate market.

Fundraising for real estate in private markets has been steadily growing, while the number of real estate IPOs has dwindled. In terms of future returns, real estate listed on private markets has a better chance to be renewed, repurposed, and transformed, while such expenditures are less common on the public side given the pressures of quarterly earnings and shorter time horizons of public investors. 

Finsum: Private markets have been overtaking public markets in terms of funding. This trend is also happening in real estate markets.

In an article for InvestmentNews, Jeff Benjamin reported on Morningstar’s decision to allow competing model portfolios from other asset managers on its proprietary platform for wealth advisors. 

So far, model portfolios from BlackRock, T. Rowe Price and Clark Capital are being introduced to the platform which was launched a year ago. In a statement, Morningstar Wealth president Daniel Needham noted, “This is an important milestone in the strategic evolution of the U.S. Wealth platform.” 

It’s expected that model portfolios from other asset managers like Fidelity will also be added over the coming weeks. Morningstar sees the addition of more model portfolios as a way to help advisors scale their businesses given the decline in the number of advisors, while the demand for advice continues to increase. 

The company believes that advisors need to outsource portfolio management in order to better serve clients. Additionally, asset managers operating model portfolios have significantly more resources than advisors. 

Surveys show that advisors spend about 18% of their time on managing investments. However, investment performance is not the biggest factor when it comes to client retention. Therefore, integrating model portfolios into their practices can lead to more success for advisors. 

Finsum: Morningstar is introducing model portfolios from asset managers onto its platform. It sees model portfolios as important tools to help advisors grow their practices.