Wealth Management
Wealth managers, unite!
Or some such thing.
A wider swath of them is jumping into alternative – and often less liquid, assets, according to investmentnews.com. The strategy’s come at the cost of traditional asset classes, from which they’ve retreated.
Investors in or approaching retirement are eyeing alternatives in light of the one two punch of a volatile stock market and steepling inflation.
Among wealth managers globally, inflation is their top headache, according to a recently released Mercer survey. In the upcoming two years, investment returns were expected to be lower than they’ve experienced in recent years among nearly half of the respondents.
“It is encouraging to see the majority of wealth managers embracing and investing in illiquid and other alternative asset classes, citing yield and return potential. With traditional asset classes unlikely to generate the same level of returns in the next few years as they did in the past, it is critical that wealth managers’ client portfolios are positioned to seize the widest range of investment opportunities,” Gregg Sommer, partner and US financial intermediaries leader at Mercer, said in a statement.
While the stock market’s works wonders when it comes to feeding the bottom line, among some investors, alternative investments could be an ideal fit the portfolio as well, according to fool.com.
Some of the most popular type to consider:
- Real estate
- Crowdfunding
- Peer-to-peer lending
- Commodities
- Hedge fund investing
- Cryptocurrency
- Art
JPMorgan’s Chief Market Strategist Marko Kolanovic is trimming risk exposure in the bank’s model portfolio due to uncertainty in central-bank policy and a rise in geopolitical tensions. It’s a notable move for one of the most bullish strategists this year. Kolanovic cut the size of the company’s equity-overweight allocations and bond-underweight allocations. Equity overweight is the expectation for stocks to outperform their peers, while bond underweight is the outlook for bonds to underperform their peers. In a research note on Monday, Kolanovic’s team wrote, “Recent developments on these fronts — namely, the increasingly hawkish rhetoric from central banks, and escalation of the war in Ukraine — are likely to delay the economic and market recovery.” This follows Kolanovic’s comment earlier this month that the company’s year-end S&P 500 target of 4,800 may not be realized. However, he is hoping that bearish sentiment could limit further declines, while Asian economic growth could help support a global recovery.
Finsum: Uncertainty in the Fed’s central-bank policy and a rise in geopolitical tensions led JPMorgan’s Chief Market Strategist to trim risk in the firm’s model portfolio.
The resounding takeaway from a recent FINRA conference call is that the regulatory body is taking a “no one-size-fits-all” approach to Reg BI compliance. FINRA explained that it is moving away from good faith efforts reviews and into “deeper dives” on how firms comply with Form CRS and the Reg. BI Care, Compliance, Disclosure, and Conflicts of Interest obligations. The conference call focused on FINRA’s expectations during exams and the types of violations that its exam teams will refer to their enforcement colleagues. FINRA mentioned several common violations that it will refer to its Department of Enforcement, including the failure to recognize the applicability of Reg BI and Form CRS deficiencies related to incorrectly answering the disciplinary history question. It also indicated that firms that were previously cited for Reg BI CRS deficiencies, and made no efforts to correct findings, are more likely to be referred to Enforcement. The overall message for firms is that they should document the steps they have taken to further Reg. BI and Form CRS compliance. This could be the difference between an exam deficiency or an enforcement action.
Finsum: In a recent conference call, FINRA’s explained that there is no one size fits all approach to Reg BI compliance and firms shoulddocument the steps they have taken to make sure they’re compliant.
More...
eToro, an Israeli social investor network, recently announced the launch of ESG-Leaders, a portfolio that offers retail investors long-term exposure to companies leading the way in ESG best practices. The portfolio is created by identifying companies with some of the highest ESG scores in their sectors. The portfolio will also take into consideration factors such as market capitalization, liquidity, and sell-side analyst ratings. The 11 sectors covered include consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, materials, real estate, telecommunication services, and utilities. Some names currently in the portfolio are Colgate-Palmolive, NVIDIA, Costco, and Union Pacific. The initial investment for the portfolio starts at $500. The portfolio launch follows the introduction of ESG scores for over 2,700 stocks on eToro's platform. ESG scores, which are powered by ESG Book, combine up-to-date market news, NGO signals, and company-reported information that enable users to consider ESG factors when creating portfolios. Investors can keep track of stock developments on eToro’s social feed.
Finsum: Following the launch of ESG scores on the eToro platform, investors can now access an ESG -Leader’s portfolio of stocks with the highest scores.
According to a Bank of America Private Bank study, younger, wealthy investors are turning to alternative investments. Bank of America polled 1,052 high-net-worth investors with at least $3 million in investable assets from May to June 2022. The study revealed that 75% of high-net-worth investors between the ages of 21 and 42 don’t expect above-average returns from traditional stocks and bonds, with 80% of these young investors flocking to alternative investments. In fact, younger investors are allocating three times more to alternative assets and half as much to stocks than other generations. Alternative investments can include hedge funds, private equity, real estate, commodities, and structured products. The move to alternatives has most likely been triggered by concerns over losses in the stock and bond markets. There has also been an increase in advisors turning to alternative investments, according to a survey from Cerulli Associates. Based on that study, the top reasons for increased alternative allocations include reducing exposure to public markets, volatility dampening, and downside risk protection.
Finsum: Both young, wealthy investors and advisors are turning to alternative investments due to stock and bond losses and the need for downside protection.
According to a new report from Cerulli Associates, more advisors will be adopting the use of model portfolios to better serve their clients and free up time to develop their businesses. In the latest Cerulli Edge—U.S. Advisor Edition, 4Q 2022 Issue, the firm noted that the industry’s steady transition toward a financial planning-oriented service model will be a major fact in the increased adoption of model portfolios. Cerulli expects advisors to increase planning offerings over the next year, with 82% of advisor clients receiving targeted or comprehensive financial planning services by 2023. The report also noted that insourcers, or those who either customize portfolios on a client-by-client basis or use practice-level resources to build a series of custom models, spend 18.5% (practice models) and 29.5% (customizer) of their time focused on investment management. If those advisors use model portfolios, it will allow them to reduce their time commitment to less than 10%. The report also notes that advisors that outsource their portfolio construction have clients, on average, that are roughly half the size of those that insource their portfolio construction. Cerulli also found a correlation between model users and younger and smaller advisory practices.
Finsum: A recent Cerulli report predicts an increase in demand for model portfolio outsourcing as the industry transitions to a financial planning service model.