According to recent SEC filings from LPL Financial and Cambridge Investment Research, it’s clear that M&A activity remains robust. Lately, it’s the independent broker-dealers that have been the most aggressive in terms of dealmaking. 

For instance, LPL Financial revealed that it made 19 acquisitions in 2023 using its ‘liquidity and succession’ program for a total of $190 million although this could rise as high as $297 million depending if certain criteria is met. Currently, LPL is a leading broker-dealer with over 21,000 advisors. 

Previously, broker-dealers offered succession plans for retiring financial advisors. A new development is that these broker-dealers are buying up their own advisors’ books. The most notable recent example is LPL buying one of its own branches, Financial Resources Group Investment Services which managed $40 billion in assets. 

The catalyst for this trend is the entry of private equity buyers into the marketplace which is increasing pressure on independent broker-dealers to retain the books of their existing advisors. According to Carolyn Armitage, an industry consultant, “Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that’s a more diversified way to earn money on those assets.”

Finsum: The M&A market for financial advisors’ practices remains heated. Private equity buyers are a new force and willing to pay large multiples. It’s forcing independent broker-dealers like LPL to be aggressive in order to ensure that existing advisors’ assets don’t migrate to a different platform. 

Recent bond market volatility has caused discomfort for fixed-income investors, but it presents an opportunity for active management to potentially enhance returns. 

Despite efforts by the U.S. Federal Reserve to tighten monetary policy and curb inflation, uncertainty remains as to the future direction of interest rates. This uncertainty has led to fluctuations in bond yields, creating both challenges and opportunities for investors. 

By focusing on quality and liquidity, particularly in areas such as agency mortgage-backed securities, active managers can navigate these challenges effectively. As the market evolves, active management offers the flexibility to capitalize on changing conditions and uncover pockets of opportunity, potentially outperforming despite ongoing uncertainty.

Finsum: Macro uncertainty is giving active managers an upper handed in bond markets, and it could lead to additional alpha. 

Direct indexing, increasingly popular among investors, particularly benefits those with concentrated company stock positions by allowing them to replicate index performance while retaining control over individual securities. 

This strategy, once reserved for the ultra-wealthy, has become accessible and affordable for investors at all levels due to recent technological advancements. Through customization based on preferences and goals, direct indexing offers diversification and risk management, crucial for those with concentrated stock holdings. 

Tax efficiency through strategies like tax-loss harvesting further enhances its appeal, maximizing future value potential for investors. With its ability to reduce risk and enhance performance, direct indexing presents a compelling option for investors looking to protect and grow their assets.

Finsum: It used to be infeasible to use direct indexing, but technology improvements are giving smaller investors the edges in tax and diversification that was reserved for the ultra wealthy.

Boston-based wealth management firm NDVR has introduced a cutting-edge solution allowing financial advisors to efficiently manage and optimize client portfolios. The updated NDVR Portfolio Lab streamlines portfolio construction and management, catering to RIAs, family offices, and high-net-worth individuals. 

Through advanced technology, advisors can tailor investment strategies and asset allocations to meet each client's unique needs and goals, while also providing outcome forecasting for more personalized portfolio adjustments. The platform's household wealth optimization feature enables the creation of diversified portfolios across various account types with automatic deployment, alongside capabilities for optimizing tax-advantaged account distributions and providing actionable insights through "what-if" scenarios. 

NDVR offers a range of strategies, including custom indexing and tax-advantaged fixed income solutions, aiming to empower advisors to enhance client outcomes and foster long-term relationships with innovative portfolio solutions.

Finsum: Tailoring solutions that meet clients’ needs will allow for better portfolio optimization and construction.

Human capital is the ability to use your skills and experience to generate income. Younger people have ample time to improve their human capital and earn paychecks to fund their lifestyle. However, as we age, the time and opportunities we have to develop and utilize our human capital decline.

People know that if they suffer an investment loss early in their career, they can make up for that loss by working longer or searching for a higher-paying job. Yet, this ability decreases as we near retirement. Whether we realize it or not, declining human capital makes us less risk-tolerant with our financial capital.

For retirees, most, if not all, of their income must come from their portfolio rather than paychecks, which often causes them to be overly protective of their financial capital and invest it more conservatively than they need to.

One solution to helping them take more investment risk while still feeling that their financial capital is protected is a fixed indexed annuity. These products typically provide downside protection, a steady income, and participation in a portion of the market gains of the underlying equity index.

Finsum: As human capital decreases, investors become more protective of their financial assets, but that doesn’t mean they can’t participate in equity growth. Find out how in this article.