Wealth Management
Financial advisors constantly strive to find the perfect balance between serving their existing clients and attracting new ones. Often, they view their core value proposition as managing customized portfolios tailored to each client's unique needs. From this perspective, they believe spending less time constructing bespoke portfolios could negatively impact client relationships. However, a counterintuitive approach suggests the opposite: using model portfolios can create more time for genuinely serving clients.
While it may seem a paradox, spending less time on portfolio construction and more time listening to clients can significantly improve service. Building trust and understanding client needs requires dedicated time for genuine conversations and insightful questions. By freeing time from portfolio management, advisors can focus on building deeper relationships with their clients, focusing on what truly matters most to them.
Moreover, using model portfolios doesn't mean sacrificing portfolio quality. These portfolios are typically managed by professionals with access to a larger team of experts and a more comprehensive range of investment options than most advisors have access to.
Embracing model portfolios as a time-saving tool allows advisors to shift their focus from portfolio construction to client service. This seemingly counterintuitive approach often leads to higher client satisfaction and increased referrals, leading to a more successful practice.
Finsum: Consider how model portfolios can enhance client service for advisors by saving time on portfolio construction and focusing on client relationships.
The cryptocurrency industry stands on the precipice of a potentially pivotal moment, with several applications for crypto-based ETFs awaiting approval by the US Securities and Exchange Commission (SEC). Recent activities suggest the SEC is actively preparing to issue its decisions, potentially within the next few months.
The world's largest asset manager, including BlackRock, has expressed increasing confidence in the SEC's approval of their spot Bitcoin ETF applications, possibly as early as January 2024. While the outcome remains uncertain, the SEC's recent engagements with applicants and its compressed 21-day public comment window indicate a focused and potentially accelerated decision-making process.
These developments have fueled speculation in the market, with some attributing the recent rise in Bitcoin prices to the anticipated SEC decision. Others cite the upcoming Bitcoin halving event in 2024 as a contributing factor.
Regardless of the specific drivers, the next few months will likely greatly impact the cryptocurrency landscape. The SEC's decisions on these ETF applications could have significant implications for investor access, market liquidity, and the overall development of the crypto asset class.
Finsum: Anticipation for SEC's decision on crypto ETFs grows, hinting at major shifts in market access to crypto-based investment vehicles.
Based on the most recent annuity sales data, it's a good bet they are seeking a combination of growth and protection. According to LIMRA, the financial services research and education organization, sales of registered indexed-linked annuities (RILAs) set a record in the third quarter of 2023 at $12.6 billion, up 19% year-over-year.
In a recent posting on the organization's website, Todd Giesing, assistant vice president LIMRA Annuity Research, stated that "Investors still seem focused on the value of protection and growth potential that RILAs offer."
And while RILA sales set a record, the overall annuity market is also having a good year. In the news release for their most recent U.S. Individual Annuity Sales Survey, LIMRA reported that "With economic conditions continuing to be favorable for annuities, total sales increased 11% year-over-year to $89.4 billion in the third quarter of 2023."
One additional highlight from the survey is worth noting. Fixed indexed annuity (FIA) sales were $23.3 billion in the third quarter, up 9% from the prior year's results.
Finsum: LIMRA reports registered indexed-linked annuities sales, reflecting a strong investor preference for investment growth and protection.
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Every industry changes and evolves with time. The financial advice industry is no different as advisors increasingly move towards focusing more on financial planning and serving clients with less emphasis on making investment decisions.
This is now being increasingly handled by asset managers and third parties. Currently, about 10% of advisors use home office model portfolios with minimal modifications. 36% of RIAs and independent broker-dealers are building their own allocations from scratch. Most advisors are taking a blended approach by using these models as a starting point and then offering some customization to suit a clients’ specific needs.
For advisors, the shift makes sense especially as most clients seem to value planning more than performance. Further, it frees up time and energy that can be spent on client service and growing the business. According to Cerulli, advisors who build their own portfolios, spend about 30% of their time on the task.
Another benefit for advisors is that it makes the business more scalable. For advisors who spend considerable time on portfolio management, there is more of a constraint to how many clients can be added. An interesting finding is that firms with large amounts of assets under management are more likely to use model portfolios.
Finsum: Model portfolios are becoming increasingly popular, although most are currently using a blended approach. Here are some of the major benefits to advisors.
According to a report and survey conducted by Cerulli Associates, Invesco, and the Investment & Wealth Institute, most advisors believe that alternative investments can help differentiate their practices from competitors, recruit high net worth clients, and help with consolidating and recruiting assets. Yet, half of the advisors surveyed report an allocation to alternatives that is less than 5% despite self-reporting that the optimal allocation was 13%.
Most decisions to allocate to alternative investments are driven by advisors given that clients are often unaware of these options and their benefits. Many alternative investments are only available to retail investors through advisors such as investing in private markets. This can also help in recruiting clients who may be interested in these types of investments in addition to better returns, income, and diversification for clients.
The survey results also showed that 56% of advisors see increasing allocations to alternatives due to increasing liquidity, and 52% believe that increasing transparency will also lead to more allocations. Some of the drawbacks of the asset class are high levels of complexity and less liquidity that require advisors to spend time in conducting due diligence especially if they are recommending it to clients.
Finsum: According to a report on advisors and their perspectives on alternative investments, most advisors are underexposed to the asset class despite it offering specific benefits to clients and advisors.
For cautious-minded investors, active fixed income could be a much better option than cash. This is according to SPDR Exchange Traded Funds’ Managing Director and Head of Research, Matthew Bartolini, who notes that some of the major advantages of active fixed income are that it offers more flexibility, consistent performance, and can be more tax efficient. Overall, it can help portfolios generate income, dampen volatility, while still retaining exposure to upside opportunities.
Many advisors and investors are already aware of these benefits as active fixed income has taken a large portion of flows relative to its size compared to passive fixed income and equity ETFs. As Bartolini notes, “Active fixed income has been really a consistent engine of support within the active [ETF] construct — not only from flows but also returns.” Another factor in active fixed income’s growth is that it allows investors to take advantage of elevated yields.
Bartolini also believes that future returns will be appetizing for the asset class, although there will be some volatility to stomach. He also believes that cash is less desirable due to the reinvestment risk. His major focus is on constructing portfolios to generate income while properly balancing risk.
Finsum: Active fixed income is seeing major growth in terms of inflows. Here’s why the asset class is well-positioned for the current moment given the combination of elevated yields and an uncertain macro environment.