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When it comes to financial advisors, many instantly think of managing portfolios and selecting stocks. While many advisors still cling to this model, model portfolios are increasingly gaining favor. For one, portfolio management at the client level is not scalable which means that advisors would eventually be overburdened if the firm keeps growing.

Equally important, it frees up time for them to focus on the activities that actually drive success for their practices - client relations and effective prospecting. Also, most research shows that advisors who actively manage portfolios don’t necessarily generate better returns in the long-term. 

According to research from Cerulli Associates, model portfolios generated better returns than advisor-managed portfolios over multiple timeframes. And, this discrepancy widened during periods when the market experienced a negative quarter as model portfolios outperformed 60% of the time amid these conditions. 

The biggest drawback for advisor-led portfolios is the wide dispersion and variability of performance especially compared to model portfolios which had much steadier performance. Given that model portfolios are leading to better returns for clients with less volatility and also frees up time for advisors to focus on client relations and growing their business, the continued proliferation of model portfolios seems inevitable. 

Finsum: Model portfolios are taking an increasing share of the asset management pie. The benefits for advisors are obvious in terms of growing their business but research is also showing better returns with less volatility.


Generation Z is defined as being born in between the mid 90s and mid 2010s. Older members of this group are starting their careers and beginning their investing journeys. This group is shaped by events like the 2008 financial crisis and the pandemic. They also are the first generation to grow up with the Internet and have a much more intuitive relationship with technology especially when it comes to managing finances.


In a piece for USA Today, Jon Stojan explains why alternative investments are gaining traction with Generation Z. Some of the unconventional options include investing in art, wine, farmland in addition to more known options like cryptocurrencies and precious metals. 


According to a survey from the Lansons Group, only 10% of Americans have invested in alternative assets but 30% of Gen Z investors have done so, highlighting the appeal of alternatives.


The most commonly cited reasons are a potential for high returns, hedging against inflation, and interest in tangible, enduring value. However, there are some drawbacks to these asset classes especially as their performance is unproven through multiple market cycles unlike stocks and bonds. Additionally, they tend to come with higher costs and less liquidity.

Finsum: Alternative investments are gaining traction with Generation Z investors who are looking to invest in asset classes beyond just stocks and bonds. Examples include cryptocurrencies, precious metals, artwork, farmland, and wine.

Friday, 04 August 2023 04:38

A Key Segment that Advisors Can’t Miss

In FinancialPlanning, Victoria Zhuang shares some insights from research regarding a key segment of the population that can help financial advisors successfully grow their practices. In essence, about $72.6 trillion of assets is set to be passed down to heirs through 2045. 


And, this trend is accelerating. This year, $700 billion is forecast to be passed down, and the number is set to double by the next decade. However, many advisors are not positioned for this epic wealth transfer. Only 35% of advisors surveyed indicated that younger investors are a ‘critical priority’ or ‘high but not critical priority’.


In fact, clients under the age of 44 only make up 27% of accounts. Many in this cohort will benefit from the wealth transfer. Advisors should be appealing to this demo by offering specific advice and services regarding estate planning and wealth transfer.


Additional tips to appeal to this niche are to offer more technology like video calls, AI, and/or robo-advisors that would feel more intuitive for Millennials and Generation Z. Firms can also target or recruit younger advisors who may do a better job of connecting with ‘young heirs’.

Finsum: Prospecting ‘young heirs’ could be the key to success for advisors over the next couple of decades given the ‘great wealth transfer’ of $72.6 trillion in assets by 2045. 

For Advisorhub, Jeff Nash shares some thoughts on how financial advisor practices can invest in technology to lure top-notch advisors to their firm. Technology solutions should offer specific benefits such as a quick and easy transition, an increase in efficiencies, automation of routine tasks, regulatory compliance, and an improved client experience.

One of the factors limiting advisor movement is the amount of time and attention that is required to facilitate the move including paperwork, interruptions to operations, and regulatory compliance. So, it’s essential that any practices’ tech stack have an effective onboarding process that minimizes these disruptions and inconveniences.

Another consideration is that advisors’ time during the transition process should be ideally spent on staying in constant touch with clients to ease any concerns and resolve any issues. However, this can be difficult given all the additional challenges of the transition period. 

Many firms are investing in AI to assist with onboarding especially as it can help complete paperwork and address regulatory filings. Overall, AI will help reduce burdens on back and middle office support roles and play a role in client communications and provide more scalability. 

Finsum: Technology can help firms recruit advisors and aid with the onboarding process. Onboarding is stressful for firms and advisors given the regulatory challenges and additional demands but technology and AI can reduce the burden.

Direct indexing has gone from an obscure strategy only utilized by a handful of ultra wealthy investors to one that is accessible to all types of investors. In fact, many see it as the next evolution in passive investing as it captures the major benefits such as low costs and diversification. But, it also has some additional benefits such as tax savings and greater customization. According to a recent Morningstar report, tax management is cited as the number one reason that investors are increasingly choosing direct indexing. .

Currently, there is $260 billion in assets under management that is managed via direct indexing. The most common application is to simply mimic a popular benchmark like the S&P 500 or the Russell 2000. Others will endeavor to create their own index around certain themes such as ESG or companies creating jobs in the US.

Beyond surveys, the arms race in direct indexing also indicates its growing importance. Vanguard made the first acquisition in its history when it bought Just Invest and renamed it Vanguard Personalized Indexing Management. The firm sees it as one of its key growth drivers in the coming decade. Similarly, Blackstone bought Aperio, while Morgan Stanley acquired Parametric Portfolio Associates as part of its Eaton Vance purchase.

Finsum: Direct indexing has many benefits, but tax savings is the most common one cited by advisors and clients in a recent survey.

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