Wealth Management
As custodians in the independent advisor market undergo mergers and consolidations, advisors are increasingly finding it challenging to secure a stable home for their clients' assets. Many advisors are opting to use multiple custodians to mitigate risk and increase efficiency, akin to diversification in investment portfolios.
However, frequent changes in custodial arrangements add layers of complexity and concern. This instability can lead to tedious processes like transferring accounts. The landscape is further complicated by the rise of niche custodians and specialized services targeting specific needs, such as real estate or gold investments.
The trend of using multiple custodians is driven by the need for diverse capabilities and the ever-evolving market dynamics, including mergers, competition, and new technologies.
Finsum: Getting a fuller picture of the technology and services offered by different custodians is a huge benefit.
In the past five years, direct indexing has become a valuable tool for advisors to personalize client portfolios, addressing unique tax and asset allocation needs. Between April 1 and May 1, 2024, FTSE Russell partnered with RIA Channel to conduct a survey of over 600 advisors from various firms...[Read More]
SEI has expanded its suite of Separately Managed Accounts (SMAs) and Unified Managed Accounts (UMAs) by introducing new strategies focused on direct indexing and factor-based investments. These additions include fixed income strategies, such as the Systematic U.S. Aggregate Bond Core and the Systematic Municipal Bond Core, as well as equity options like the Systematic U.S. Dividend Yield Core and the U.S. Dividend Yield Multi-Factor SMA.
These offerings aim to help advisors serve mass-affluent, high-net-worth, and ultra-high-net-worth clients with tailored solutions that offer flexibility and tax optimization.
The move comes as UMAs gain popularity, with assets growing at an annual rate of 34% over the past five years, according to Cerulli. SEI’s expansion aligns with broader industry trends, as other major players like Envestnet and Dimensional.
Finsum: An SMA makes a lot of sense for direct indexing options given the tax implications.
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The asset management industry is seeing a significant shift towards Separately Managed Accounts (SMAs), with assets growing by 30% over the past two years, according to Cerulli Associates. This growth is expected to continue, with projections suggesting SMAs will reach $3.6 trillion in assets by 2027, up from $2.4 trillion today.
SMAs offer tax advantages and personalization options that are appealing to investors, allowing them to hold individual securities and tailor portfolios to their specific needs. SMAs are particularly useful for strategies that benefit from direct ownership of securities, such as tax-loss harvesting and options overlays, which can enhance after-tax returns and generate additional income.
The rapid innovation in this space means that SMAs are becoming an increasingly attractive option for investors looking for a personalized approach to asset management.
Finsum: We expect the SMA boom to continue with trends in both demographics and wealth management in the US, so familiarity is key.
Investors remain concerned about how inflation could affect their portfolios. Despite the Federal Reserve's efforts, inflation remains elevated, making it a good time to consider adding inflation hedges to your investments. Here are three top inflation hedges to protect your portfolio:
- TIPS (Treasury Inflation-Protected Securities): These U.S. government bonds adjust their interest rates with inflation, providing a reliable safeguard for bond investments.
- Floating-rate bonds: These bonds adjust their payouts with rising interest rates, offering protection against inflation. You can access them through ETFs or mutual funds for added diversification.
- Real estate: Investing in a house with a fixed-rate mortgage can hedge against inflation. If a house directly isn’t possible SFR or REITs are great options.
Avoid long-term fixed-rate bonds and cash savings as they lose value in real terms during high inflation.
Finsum: Inflation still remains above the official Fed target and with a potential slew of cuts coming, inflation could spark again.
Investors concerned about exchange-traded funds (ETFs) with options overlays limiting returns should consider the benefits these strategies offer. According to Tony Rochte, Morgan Stanley’s global head of ETFs, options serve as a hedge against significant losses, offering downside protection even if upside gains are capped.
This approach encourages investors to re-enter the broad-based equity market, reducing their exposure to fixed-income products. Alison Doyle, Nasdaq’s head of ETP listings, highlighted the growing popularity of active ETFs, with over 75% of all ETF launches in 2023 being active.
Among these, a significant portion included options-embedded strategies, providing additional risk management tools. This trend shows a shift from traditional fixed-income investments to risk assets.
Finsum: With stocks and bonds becoming more correlated, investors should consider outside strategies like overlays to hedge.