Direct indexing is gaining adherents at a rapid pace as it proliferates from solely high net worth investors to investors with much smaller sums and is now available through most wealth management platforms. Direct indexing allows investors to capture the benefits of index investing such as low costs and diversification but allows more personalization. Its most well known benefit is that it can help lower taxes due to its unique ability to harvest tax losses which can offset gains in other parts of the portfolio. 

Another is that it allows customization of indexes because many investors may want to reduce exposure to a certain stock or sector. This can be because they have substantial exposure to the stock or industry through their other holdings or because of personal preferences. 

The latter is a reflection of the rise of values-based investing which is increasingly popular among younger investors. This entails making investments that align with one’s own personal values. For instance, an investor may choose not to include fossil fuel companies in their index because of concerns around the environment. These holdings are then replaced with a different stocks that have similar factor scores. 

Prior to direct indexing, investors with strong values would be limited in terms of investment options. Now, they are able to essentially create their own fund that aligns with their values. 

Finsum: One of the major benefits of direct indexing is that investors can customize their holdings to align with their personal values. 

In an article for WealthProfessional, Noelle Boughton covers Caldwell SEcurities’ strategy to support older financial advisors in their succession planning. This is due to the aging nature of the workforce in addition to the firm’s desire to maximize retention during the transition process. Senior advisors work with junior advisors in handling clients and then slowly phase out of the business with fewer responsibilities every year.

While junior advisors are focused on growing their business and adding clients, senior advisors are thinking about their retirement and maximizing the value of their practice. Many shops will have advisors sell their business to a junior advisor and then quickly move on. 

Caldwell Securities sees an opportunity by having a more formal and longer transition period that caters to the needs and ambitions of both junior and senior advisors. It’s also a value add for clients as they initially work with both advisors before the junior advisor slowly takes the lead. 

Senior advisors can be satisfied that their clients will continue to be satisfied and that they are being handed to someone who is caring, capable, and competent. They can also continue to draw a paycheck in addition to selling their business while easing into retirement.  

Finsum: The financial advisor industry is aging with a big chunk expected to retire over the next decade. Here is how Caldwell Securities is handling this matter.

In an article for Vettafi, Ben Hernandez discusses why intermediate-term Treasuries could be the best option for fixed income investors given the current market environment. In recent months, long-term Treasuries have considerably weakened as it’s become increasingly clear that the Federal Reserve is not close to pivoting in terms of its rate policy.

This is primarily due to the economy continuing to avoid a recession, while data like the jobs market and consumer spending continue to indicate the economy is expanding. At the same time, the short-end offers generous yields but would underperform in the event that the Fed cuts rates. Another factor is that there is going to be high levels of Treasury supply hitting the market later this year as the government looks to fund its deficit.

Given that both ends of the curve have high levels of risk and uncertainty, investors should consider intermediate-term Treasuries to take advantage of elevated yields while reducing duration risk. 

Historically, these periods of ‘pause’ when the Fed is deliberating its next policy move tend to be volatile. This is even more the case this year given the runup in yields and uncertainty in political and macro arenas. 

Finsum: Intermediate-term Treasuries could be the best option for investors given the risks and uncertainty surrounding the short and long-end. 

One of the biggest long-term issues affecting the energy sector is the growth of electric vehicles. According to the IEA, 50% of new vehicles sold will be EVs by 2030 with EV sales completely displacing traditional internal combustion engines (ICE) by 2050. 

In Q2 of 2023, there was a new record in terms of sales in the US with nearly 300,000 EVs bought which comprises about 7% of the total sold. A big contributing factor is the Inflation Relief Act which offered subsidies for up to $7,500 for select EVs with many states offering additional subsidies.  

Of course, this has major implications for gasoline demand which is a major component of crude oil use. And, it’s one reason why many are betting that global oil demand is peaking and set to decline over the coming decades.

This narrative is even affecting the supply side as many producers are using excess cash flow to pay off debt, distribute dividends, and strengthen their balance sheet rather than invest in new production. However, if this narrative turns out to be preemptive or incorrect, then there is likely going to be major upside for the energy sector.

Finsum: EV sales hit new record highs in Q2 of 2023 in part due to subsidies from the Inflation Relief Act. Whether EV sales keep rising is a major storyline in the energy market. 

In an article for AdvisorHub, Lisa Fu covers Prudential moving $50 billion in client assets from Fidelity’s custody to LPL. As a result, starting late in 2024, 2,600 Prudential brokers will start using LPL as their broker-dealer instead of Fidelity.

It continues to indicate that LPL is focused on growing its broker-dealer business in addition to having the largest network of advisors in the country. The deal is expected to result in around $125 million in costs for LPL but is expected to contribute $60 million in accretive earnings when the transition is completed. 

LPL is boosting its broker-dealer business at the same time that many asset managers are outsourcing these functions to reduce costs. Currently, LPL’s custody unit has $230 billion in assets and has agreements with nearly 1,000 institutions. The firm sees an ultimate opportunity of $5 trillion in custodial assets. 

Fidelity’s agreement with Prudential had an early termination clause which was triggered with the decision to move. It’s expected to be between $6 million and $8 million. Some other perks that Fidelity provided included revenue sharing, research, and preferred pricing. 

Finsum: LPL Financial is growing its custodial business and recently landed $50 billion in client assets from Prudential who is shifting away from Fidelity.