Displaying items by tag: clients

One consequence of the outperformance of alternative assets in recent years is increasing democratization of the asset class. According to BNY Mellon, this trend is being driven by the need for higher long-term returns given longer life expectancies. Many governments, around the world, are changing guidelines to increase access to these investment options. 

Increasing access to alternative investments also fits with many governments’ ESG objectives. In turn, alternative asset managers are also working to structure their products to appeal to a different market.

The bank also recommends considering offering alternatives in retirement plans. Until recently, investing in alternative assets like private equity, private real estate, and hedge funds were limited to institutional and ultra-high net-worth investors. 

In the past couple of years, alternative assets have delivered positive returns in an environment where both fixed income and equities have struggled amid a hawkish Federal Reserve and raging inflation. Ideally, the asset class would lead to more resilient portfolios by reducing volatility and delivering non-correlated returns. 

Some drawbacks are increased complexity, higher costs, and reduced liquidity. The bank also adds that investors need to be educated about alternative investments in order to fully understand these products and take advantage of their benefits. 

Finsum: BNY Mellon sees continued inflows into alternative assets due to strong performance in recent years. It sees increasing democratization of the space and potentially even the inclusion of alternative investments in retirement plans. 

The number of new advisors is not keeping up with retirements and attrition. According to Cerulli, the number of new advisors only increased by 2,706 in the previous years. This is troubling given that the firm projects that nearly 110,000 advisors will be retiring over the next decade. 

This amounts to nearly 38% of all advisors and 41% of total assets. These numbers and trends highlight the need for the industry to do a better job of attracting and retaining fresh talent. The crux of the issue seems to not be recruitment but that there is a 72% rookie failure rate. Some recommendations are growing and nurturing a talent pipeline, better communication of the role and responsibilities of a financial advisor, and a more structured training program which entails ramping up responsibilities.

Ideally, newer advisors would start in roles focused on operations and improving the practice before shifting into a producer role. Cerulli recommends that seniors advisors’ team with new advisors and provide them with experience in engaging with clients and gathering assets before they transition to more independent roles. It notes that many advisors who build successful, long-term careers were the recipients of such mentorship and guidance at the start of their careers. 

Finsum: 2023 was another year of poor recruitment figures for the financial advisor’s industry. Here are some recommendations on improving the success rate of new advisors. 

Artificial Intelligence (AI) is disrupting how businesses operate in multiple ways. Advisors should embrace this technology, because it can help create more efficiency by handling routine tasks, freeing up more time and energy for high-value tasks. It can be particularly valuable in terms of managing the practice.

Some considerations include figuring out which parts of the business can be enhanced with AI and which should remain in the purview of an advisor. Another is that proper training in these tools is necessary in order to ensure that they are being properly used. 

An example of how the technology is already being leveraged to improve practice management is through the use of AI note-taking applications. Prior to this, advisors (or a staff member) would take notes during the meeting which can be distracting and detract from cultivating engagement. These apps can essentially transcribe and summarize the conversation which means advisors can stay in the moment and give full attention to the client.

Then, these summaries and notes from client interactions can be integrated into the customer relationship management (CRM) software. Thus, these notes can be used by the practice to provide a richer experience for clients by methodically following up on all relevant matters. AI can also help discover insights and identify action steps that need to be taken. 

Finsum: AI is the latest disruptive technology that will certainly impact multiple aspects of an advisors’ practice. Here is how it can be used to improve a practice’s operations. 

Interest in alternative assets continues to grow. For many, it’s become a core part of their portfolio along with equities and bonds based on the theory that it can increase diversification, reduce risk, and deliver higher returns in high inflation scenarios. 

In response, asset managers are introducing new products at a fevered pace. Examples include bitcoin ETFs, private credit, and infrastructure funds. Advisors have the task of figuring out which of these products will help their clients and become a part of their allocations. 

Some important considerations are properly explained to clients that many alternative investments mean sacrificing liquidity for a multiyear period and are only justified if investors are willing to hold for the long term. Further, focusing on returns is not the right metric, instead these products are more about dampening portfolio volatility and providing a source of non-correlated returns. 

Therefore, the biggest impediment for more adoption of alternatives is education. Many might not have a deep understanding of these strategies and have varying risk tolerances. Advisors should consider allocations to alternatives on a case-by-case basis and also gradually increase exposure levels to gauge comfort levels. 

Finsum: There is an explosion of alternative investment options available to advisors. Here are some tips on how to navigate this expanding landscape.

Assets under management, tied to model portfolios, are forecast to exceed $10 trillion by 2025. Some reasons for the category’s growth include increasing awareness and comfort among clients, a wider range of options that are enabling customization, and the advantages for financial advisors.

Currently, 70% of model portfolios are asset allocation models. Some advisors choose a hybrid approach with some of the portfolio allocated according to models with some portion remaining discretionary. Another important choice is whether there is an open or closed architecture. With an open architecture, advisors can allocate to a variety of funds, while closed architecture means that funds are from an individual asset manager. 

A growing segment is outcome-oriented models which can help clients achieve a precise goal such as generating income, reducing risk, or minimizing taxes. This is another way that model portfolios can achieve greater customization while still retaining the core benefits for advisors. 

Overall, model portfolios are rapidly gaining traction due to their ability to provide sophisticated solutions for advisors and clients. For advisors, it frees up more time and resources to spend on growing and managing the business while also deepening the relationship with clients. 

Finsum: Model portfolios are forecast to exceed $10 trillion in assets in 2025. Here are some of the reasons the category is growing so fast.