Displaying items by tag: advisors

In an article for Financial Planning, Victoria Zhuang discussed the brisk pace of recruitment for financial advisors in the second-half of 2022 despite a volatile and challenging market environment. 

According to Diamond Consultants, there was a 12% increase in the number of experienced brokers who switched firms. This is a contrast to the typical pattern of advisor movement and recruitment slowing down in volatile conditions. 

In the first half of 2022, 4,249 experienced brokers switched firms which increased to 4,757 advisors moving in the second-half of the year. In total, more than 9,000 experienced advisors moved which was slightly more than 3% of overall advisors in the US. 

In addition, transition deals were much more generous in the past, indicating that the wealth management industry remains competitive and ambitious in terms of recruitment and growth. This is also reflected in the generous deals offered to entice movement with many signing deals paying more than 300% of 12-month revenue. Another noticeable trend is gains made by independent broker dealers, while the big banks continue to see outflows of experienced brokers to these smaller firms. 

Finsum: 2022 was a banner year for the recruitment of experienced advisors. This is in contrast to the typical pattern of muted recruitment during shaky markets.

A recent blog post by the UBS Chief Investment Office analyzed the performance of active fixed income managers in 2022. Given the rise in rates and challenging macro environment, it’s not surprising that there was a large dispersion in returns which rewarded active managers who were able to successfully navigate the turbulence. 

Another factor contributing to this dispersion was the outperformance of short duration bonds as compared to longer duration ones. Similarly, floating rate bonds also outperformed vs fixed rate. In municipal and corporate debt, higher quality outperformed lower quality. 

As a result, many active fixed income managers were able to outperform their benchmarks. However, there are some challenges when it comes to assessing active manager performance. Fro one, fixed income indices’ individual holdings are often illiquid and don’t reflect transaction costs. 

With these caveats in mind, there are still some important takeaways to consider. Active managers tend to perform better in less efficient markets, where there is more opportunity for alpha. Additionally, active managers tended to outperform when they had more flexibility to take advantage of various drivers of potential outperformance. 

Finsum: Active fixed income managers outperform vs passive indices in 2022. Here are some reasons why.

In an article for Vettafi, James Comtois discussed some considerations of using direct indexing to build a portfolio. Direct indexing differs from investing in index funds, because the investor is directly owning the securities. It allows for greater customization to account for an investors’ desired factors, values, tax benefits, and concentrated positions.

The trend has accelerated in recent years, as it’s increasingly available to smaller investors. Between 2015 and 2021, direct indexing’s assets under management tripled. Yet, there are some complicating factors that need to be considered for clients and advisors.

An example is the frequency of tax-loss harvesting. Various providers of direct indexing differ in terms of conducting these turnovers on a daily, monthly, or quarterly basis. According to Vanguard, the higher the frequency of these scans, the greater the returns with a difference between 20 basis points to 100 basis points of alpha. 

Another consideration is the possibility of tracking errors. Vanguard estimates that tracking errors can lead to slippage between 75 and 275 basis points. As customization increases, the risk of tracking errors also increases. Therefore, investors need to weigh these downsides against the potential benefits.

Finsum: Direct indexing continues to gain in popularity due to it allowing for increased customization and tax benefits. Yet, there are some downsides to consider.

In an article for SmartAsset, Wola Odeniran shared some lessons for advisors from working with high net-worth clients. 

The first lesson is that nearly everyone needs an estate plan regardless of their financial status. Many instinctively think that such planning is only necessary for wealthier individuals and families. However, estate planning is the foundation for attaining financial security. It can also help advisors build trust and differentiate themselves from competitors. 

The second lesson is that it is always helpful and valuable to get outside advice. Many high net-worth clients are very successful in their fields, yet they are willing to hire and defer to advisors. Advisors can use this as an example when explaining to potential clients about the benefits of working together. 

The third lesson is that index funds can be a foundation for portfolios. Many high net-worth investors stick to indexing given the low costs and forced diversification. However, these are a good fit for any portfolio regardless of net worth, yet many clients fail to take advantage of index funds. 

The final lesson is that money without financial planning does not lead to happiness. Many high net-worth clients see their wealth disappear due to a lack of planning, while those with fewer assets are able to live peacefully in retirement with little financial stress. 

Finsum: Here are some lessons that financial advisors can learn from high net-worth clients to improve their practice and convert prospects into clients.

In an article for Kiplinger, Martin Nuss discussed the benefits of owning annuities. First, it’s important to distinguish between the many types of annuities. For example, savings-oriented deferred annuities offer tax benefits and guaranteed principal. In contrast, income-based annuities function similar to private pensions and provide guaranteed retirement income. 

A pressing concern for future retirees is that social security benefits are not going to be sufficient to meet most people’s retirement needs. And, this is before accounting for the aging population and shortfall between revenue and expenditures. 

Annuities are a great solution, because it lets you save and grow money without worrying about taxes. While younger investors have risk tolerance and are willing to stomach the risk required to generate strong returns, older investors have to be more mindful of risk. Therefore, there is more demand for less volatile investments like annuities. 

For investors with less risk tolerance, fixed-rate annuities are a good choice. They function like tax-deferred bank CDs, albeit with higher returns. Annuities aren’t federally insured but tend to be offered through reputable insurance companies. Fixed-indexed annuities are ideal for retirees who are looking for short-term cash flow, while they wait for their pension or social security payments to begin. 

Finsum: Annuities can offer so much value to investors to help them reach their financial goals. Yet, it can be difficult given the variety of offerings.