Many investors are hopeful that inflation will continue moving lower which will provide relief for fixed income and equities as the Fed could start loosening monetary policy. However, KKR does not believe it’s likely. Instead, they believe we are in the midst of a ‘regime change’ in terms of the macroeconomic landscape which will require investors to adopt new portfolio management strategies.

In essence, they see inflation being structurally higher due to factors such as entrenched fiscal deficits, labor shortages, energy transitions, and increased geopolitical risk. With these conditions, stocks and bonds are more correlated as evidenced by the last 2 years. The firm believes that investors need to increase their allocation to real assets with recurring yields as a source of diversification, given the increase in bond market volatility. 

Rather than the traditional real assets such as REITs, TIPs, and precious metals, they find value in real assets that have collateral-based cash flows like private real estate to provide positive returns while dampening portfolio risk. 

Even if their outlook on inflation proves to be incorrect, KKR believes that real assets should outperform given that they remain bullish on economic growth and see Q4 and 2024 GDP coming in above expectations. 

Finsum: KKR is bullish on real assets including private real estate as it believes inflation is going to remain structurally high and that bonds are not providing sufficient diversification.

Model portfolios can help many financial advisors save time and focus more energy on their clients. They are based on the research, experience, and work done by asset managers and have been shown to offer better performance with less volatility during periods of market turmoil. 

The category is rapidly expanding with 18% growth over the last 5 years and expectations that total assets will exceed $10 trillion over the next 5 years. These offerings can also be customized according to every client’s circumstances. 

In terms of the best way to introduce model portfolios to clients, WisdomTree’s research shows that the best results are with smaller and tax-exempt accounts, where there may be less hesitancy when it comes to trying a new approach. 

The research also indicates that younger clients who are more open to risk will be quicker to embrace model portfolios. In contrast, clients who are closer to retirement age are less likely to change course. However, more than 50% were willing to use model portfolios if properly explained. 

The research also suggests that clients will be more willing to use model portfolios if the experience and credentials of the asset manager are emphasized.

Finsum: Model portfolios offer many benefits to advisors. The primary one is it frees up more time for client service. 

Succession planning is increasingly important with the heightened pace of M&A activity and the ‘greying’ of the industry. It can ensure the smooth transfer of clients, assets, and responsibilities when an advisor retires. 

The process entails identifying who is best qualified to be your successor, ensuring clients concerns are addressed, and regulations are followed. The goal is to ensure that the business continues operating without interruption while preserving the value of the practice.

In terms of identifying potential successors, it’s important to determine whether there is the right alignment with the firm’s values, vision, and approach towards clients in addition to the proper experience, knowledge, and skills. They must also possess some leadership ability as they will have to make important decisions and lead the firm. Finally, these attributes can be developed through mentoring and guidance. 

Another element is maximizing client satisfaction and retention through the process. This can be done by introducing the new advisor to clients well in advance and working in tandem for some period before fully shifting responsibilities. It’s also important to stay in regular communication with all stakeholders during the process including clients, employees, and other partners. 

Finsum: Succession planning is increasingly important due to the ‘greying’ of the industry and increase in M&A activity. Here are some important considerations.

The breakout in long-term yields has resulted in bonds turning negative on the year. Bonds could rally if the Fed does cut rates next year as anticipated by the market, but the rally would most likely be contained in the short-duration securities according to Blackrock’s Jeffrey Rosenberg. This would be a change from the long end as typically the best place to hedge against equities.

Rosenberg believes that the combination of higher Treasury supply and quantitative tightening will lead to upward pressure on long-term rates. The yield curve has become historically inverted which means that bonds would rally the hardest at the short end in the event of a rate cut. However, many passive benchmarks are overweight toward intermediate and long-term durations.

It’s also clear that there is a different relationship between stocks and bonds in a high rate, high inflation world. This has meant that fixed income is less effective as a source of diversification. However, this is most true with long-duration bonds. Short-duration bonds continue to work to diversify against equities especially as the Fed is likely to remain vigilant against longer-term inflation expectations rising even if it shifts on policy. 

Finsum: Blackrock’s Jeffrey Rosenberg details his outlook for active fixed income. He favors short-duration bonds given elevated volatility and the inverted yield curve. 

The era of employee-funded retirement began decades ago with the rise of 401(k) plans. Ever since, employers and service providers have been looking for ways to increase participant savings rates within these plans. Research conducted by Empower sheds light on a key to making this happen.

The study found that "engaged 401(k) plan participants are saving at significantly higher rates than that of unengaged participants, demonstrating that getting people involved in their retirement planning is a key component of driving better outcomes."

One way to engage participants is to provide them with access to in-person advice. Yet, not all plan advisors are equipped to deliver advice to all the participants within the plans they advise. Here's where fiduciary support from the plan's recordkeeper can be invaluable.

While partnering with recordkeepers capable of participant-level advice, plan advisors can selectively choose which participants for whom they are best suited to provide advice. The recordkeeper's advice program is an ideal solution for the remaining participants – usually those with smaller account balances or less complex questions.

Fiduciary services such as participant advice are integral to engaging participants, boosting savings rates, and helping them invest wisely. By partnering with the right recordkeepers, plan advisors can enhance the quality and efficiency of these services, benefiting all involved parties.

Finsum: An Empower study shows that engaged 401(k) plan participants save at a higher rate than unengaged participants underscoring the importance of finding ways to get involved in their retirement planning.