Displaying items by tag: advisors

The Center for Retirement Research at Boston College recently completed a study which investigated why annuities are under owned despite the benefits it provides for retirees. The findings are particularly interesting for financial advisors given this wide gap and persistent challenge. 

The study queried investors with more than $100,000 in financial assets who are in or near retirement. About half of the respondents indicated some willingness to buy an annuity at current rates, while only 12% actually are invested in one. 

Interestingly, the study also found that a lack of liquidity or the inability to pass on an annuity as an asset to heirs were not cited as reasons to not purchase an annuity. Instead, the major factor was a lack of knowledge of the product and how to buy one. Some who were more familiar with the product had a negative perception of hidden costs and performance issues.

According to the authors of the study, the reluctance to buy one stems mostly from psychological reasons. Advisors should endeavor to provide more detailed knowledge about these products including the mechanics of how they work in order to increase comfort levels. Then, they should share an action plan of how to actually buy an annuity. 

Finsum: Most retirees acknowledge the benefits of owning an annuity and self-report a desire to invest in one. Yet only 12% of retirees own an annuity despite the benefits. Some research on this gap came up with some interesting findings. 

Cerulli Associates is forecasting that total assets under management in separately managed accounts (SMAs) will exceed $2 trillion in assets this year. 2023 saw asset growth of 12%, and the firm sees a 15% increase this year. It identifies growth in standalone SMAs in addition to unified managed accounts (UMAs) as key drivers of this trend.   

According to Scott Smith, the director of advice relationships at Cerulli, SMAs allow for more customization of portfolios to achieve specific aims such as tax management or value-aligned investing. He also acknowledges that technology has made SMAs accessible and practical for a much wider swathe of the investing universe. 

Previously, an SMA would be too complicated and costly due to tax and regulatory requirements to make sense for smaller accounts. A decade ago, SMAs were only available for clients with millions to invest. Now, they are available to clients with minimums of $100,000 in some cases. 

The growth of these accounts comes at the expense of traditional brokerages. A key difference is that advisors who use SMAs receive compensation from clients’ portfolio values rather than trading commissions which can create bad incentives. 

Finsum: Separately managed accounts are forecast to exceed $2 trillion in client assets this year. These are typically fee-based and allow for more personalization than investing through a brokerage where revenue is generated through trading commissions.

The most common reasons to choose a tax-deferred annuity are that it allows for accumulation while also ensuring security. Since taxes are delayed till retirement, there is more compounding to augment returns. Upon retirement, the annuity payouts begin. The downside is that these vehicles can underperform during periods when market returns are robust. Additionally, inflation above historical averages would also erode the purchasing power of annuity payouts. 

In contrast to tax-deferred annuities, immediate annuities involve a single lump-sum payment and then payments begin, typically, within a year of purchase. Deferred annuities work differently. After the purchase of the annuity, regular contributions are made. The value of the account grows due to these contributions and earned interest. 

Once the deferred annuity buyer is ready for payments, typically during retirement, the annuity seller begins making payments depending on the terms of the annuity and the total amount of funds accumulated in the account. 

Ordinarily, earned interest is taxed. This is not the case with a tax-deferred annuity. The result is more compounding and principal growth. However, taxes do have to be paid on income received from the annuity or on the accumulated interest, depending on the structure of the specific annuity. 

Finsum: Tax-deferred annuities offer certain advantages such as more accumulation and security. But there are also some disadvantages such as underperformance vs the broader market and inflation eroding the purchasing power of payouts.

According to a new research report from Cerulli Associates, financial advisors are retiring at a pace, faster than they can be replaced. The firm estimates that 109,000 financial advisors in the US will retire over the next decade. This is about 38% of all advisors in the US, representing about 42% of total assets. Overall, the industry needs to do a better job of investing in training programs and giving younger advisors more opportunities in client-facing and asset-gathering roles.

The report highlighted another trend as older, established advisors will continue to move into RIAs given more control and the ability to sell their practice. Currently, advisors over the age of 55, manage 56.7% of total assets, despite accounting for 42% of advisors. 

RIAs and independent broker-dealers saw headcount growth of 856 and 685, respectively, in the first 9 months of 2023. In contrast, wirehouses lost 612 advisors. This has been the case since 2008, and Cerulli forecasts that the share of advisors at wirehouses will go from 15.1% to 13.4% over the next 5 years.  

In contrast, RIAs are where growth is happening as most broker-dealers now offer some sort of RIA platform to entice recruits. There has also been consolidation, driven by private equity, with a total of 321 deals in 2023. 

Finsum: Cerulli issued a new report which revealed that nearly 40% of advisors will be retiring over the next decade. 

Marketing is essential to an advisors’ long-term success as it is how you connect with prospects. Ultimately, it requires experimentation to figure out the best approach for your practice. But, it’s useful to learn from other advisors and identify what works for them as a starting point when constructing your own marketing plan.

While there are many methods, some commonalities between effective marketing strategies is that it effectively captures the attention of your target audience. It also communicates what makes you unique and what value you provide to clients. It should establish your credibility in your prospects’ mind. Finally, the end goal of marketing is to capture leads that can eventually be converted into clients. 

Email marketing allows you to share information and promote your business to people who have signed up for your email list. You can offer an incentive for people to join such as an e-book or a free workshop. This can be quite effective as it allows you to build a relationship and establish credibility by speaking about topics that address potential pain points.

By going straight to a persons’ inbox, there is an opportunity for a deeper connection than other mediums. Over time, some portion of readers may elect for an in-person consultation or phone call once your value proposition becomes clear. 

Finsum: Email marketing can be a quite effective marketing strategy. It allows advisors to establish credibility and start a relationship with clients in a low-pressure manner. Over time, some portion of readers can be converted into clients.