In a piece for FutureVault, Kristian Borghesan covers some important items that financial advisors need to consider for succession planning. This type of thinking is increasingly important given the boom of M&A in the space in addition to the aging of advisors in the industry.

Advisors want to ensure a smooth transition in their business to the next generation of advisors while ensuring that client satisfaction is not sacrificed. Additionally, both parties need to be aware of regulatory requirements as well as potential impacts on other employees at the firm.

The goal of succession planning is to ensure continuity of the business, retain clients, preserve the value of the practice, and transfer skills and expertise. Advisors and acquirers have a variety of options to choose from when it comes to structuring the transaction. Increasingly, many advisors are choosing to stay on as employees in a limited capacity to ensure a smooth transition. 

So much of the value of a financial advisor practice is due to the clients. Therefore, there needs to be a plan and transition period to ensure that relationships are successfully transferred to the new team. Some recommendations include joint meetings and a slow transition of responsibilities while maintaining active communication with clients during the transition process. 

Finsum: Succession planning is essential for advisors to ensure a smooth transition of their business and maximizing the value of their firm. Here are some important considerations.

In an article for MarketWatch, Jamie Chisholm discusses whether stocks can still rally despite the recent surge in bond yields following a spate of positive economic data. Fixed income enjoyed strong performance for most of the first-half of the year, however the asset class gave up a portion of these gains in June as it became clear that the Fed was not done hiking rates given resilience in inflation data and the jobs market.

However, Chisholm warns that as yields get above these levels, they have a tendency to become a headwind for equities. He cites Mark Newton, the chief technical strategist at Fundstrat, who believes that bonds are due for a bout of strength. He believes this pullback in yields will fuel the next leg higher in equities. 

Newton believes that yields will find resistance at these levels and sees more risk of a breakdown in yields rather than a sustained breakout to new highs. He also believes the market is going in the wrong direction in terms of over-rating the Fed’s hawkishness in response to recent data. As evidence, he cites trader positioning which shows that the bulk of traders are betting on more rate hikes into year-end. 

Finsum: Bond yields are now trading at their 52-week highs following a series of better than expected economic data. Can equities still rally with yields at these levels?

In an article for InvestmentWeek, Jeffrey A. Johnson, the head of Fixed Income at Vanguard,  discusses why there is opportunity for investors in active fixed income funds. He sees attractive valuations coupled with elevated yields. However, he warns that more volatility is likely given that central banks aren’t yet finished raising rates. 

According to Johnson, periods of volatility are when active fixed income really shines. Further, he believes investors can increase their odds of success with active investing by selecting funds with qualified and capable management teams in addition to low costs. 

Over the long-term, most active funds fail to beat their benchmarks. The story isn’t so simple in fixed income given that active managers can take advantage of different durations and credit quality that aren’t available to passive funds. 

Given the challenges of active management, Vanguard recommends a blend of active and passive funds. Although, it favors active management during periods of volatility and uncertainty. In contrast, passive funds offer predictability and lower costs, while active funds offer a higher degree of risk and reward. 

Finsum: According to Vanguard, the outlook for active fixed income funds is improving. The asset class tends to outperform during periods of volatility and economic and monetary uncertainty. 

In a piece for the ETF Database, Todd Rosenbluth examines whether the strong performance of fixed income ETFs will continue in the second-half of the year. In total, the asset class had $200 billion of inflows which represented 49% of all inflows despite fixed income ETFs only accounting for 19% of total assets. 

Given the uncertainty around the economy and monetary policy, it shows that investors are looking to take advantage of higher yields as well as a structural shift towards the asset class. Both stocks and bonds have posted positive returns following a down year in 2022. 

This is despite a headwind from the Fed’s rate hikes which look likely to continue into year-end following a recent spate of positive economic data. Due to this, yields on Treasuries have exceeded their March highs. So far, the strength in the bond market has been contained to the long-end especially following the recent inverting of the curve following a string of better than expected employment data. 

Within the asset class, active fixed income ETFs saw $8 billion of inflows. Active fixed income ETFs have a better track record of outperforming their benchmark due to the ability to buy durations and assets that are unavailable to passive fixed income funds. While only 26% of active equity funds outperformed the S&P 500, 48% of active fixed income funds outperformed their benchmark in 2022.

Finsum: Fixed income ETFs saw a surge of inflows in the first-half of the year due to attractive yields. However, there remains considerable uncertainty in the second-half of the year given the economy and Fed.

In an article for MarketWatch, Brett Arends discusses the tradeoffs of traditional real estate investing vs REITs. While many people have built wealth by buying and renting homes, Arends believes that investing in REITs is a better option for most investors given costs and complications.

Additionally, the upside of real estate ownership is less appealing in an environment of higher borrowing costs. Many real estate investors are making the mistake of looking at returns over the past 30 years and projecting them forward. However, the last 30 years saw interest rates decline by a significant margin which is unlikely to be true over the next 30 years. 

REITs offer exposure to real estate as well and have outperformed home prices by about 3% annually. Currently, home prices remain elevated, while REITs are down 40% over the past year in many cases, leading to attractive yields and compelling value. 

Further, REITs are much more liquid and can be bought and sold instantly through any brokerage. In contrast, real estate transactions have massive costs and take time. Additionally, REITs are inherently more diversified than a real estate investment which means less risk. 

Finsum: Brett Arends discusses why the risk-reward equation currently favors REITs over traditional real estate investing given costs, value, and complexity.