Displaying items by tag: customization

Model portfolios serve as pre-designed recipes for building portfolios, offering advisors a time-saving way to manage investments while focusing on financial planning and client relationships. They are often composed of mutual funds and ETFs, with a growing preference for active ETFs due to their cost-efficiency and flexibility. 

Popular providers include BlackRock, Vanguard, and American Funds, offering core allocations like 60/40, income-focused, and all-equity models. These portfolios appeal to advisors for their scalability and customization options, such as incorporating funds from multiple asset managers to diversify perspectives. 

While they are typically low-cost and tax-optimized, a drawback is their relative lack of transparency compared to mutual funds or ETFs. Investors should ask their advisors about the track record, due diligence, and success metrics of any model portfolio being recommended.

Finsum: We love the use of model portfolios to create customized and thematic strategies for tailored solutions to clients problems. 

Recent research from FTSE Russell reveals that direct indexing is on the verge of rapid growth among U.S. investment advisors. Currently, only 21% of advisors are using direct indexing, but nearly half plan to adopt it in the next 1 to 5 years. 

This method enables advisors to craft highly personalized portfolios for clients, addressing both tax efficiency and the need for customization. Direct indexing is particularly valuable in managing concentration risk, especially in large-cap equities, where certain companies dominate traditional indexes. 

With the rise of fractional share ownership, building tailored portfolios has become more accessible for investors with smaller amounts of capital. As the benefits of direct indexing—such as tax advantages and diversification—become more widely known, its adoption among advisors is expected to accelerate. 

Finsum: The expanding technology and investment solutions in this space position direct indexing to become a key tool for advisors seeking innovative ways to serve their clients.

Separately managed accounts (SMAs) are quietly transforming asset management, offering a personalized alternative to mutual funds and ETFs. With 30% growth over the past two years, SMAs are projected to reach $3.6 trillion by 2027, driven by tax advantages and lower investment minimums. 

Unlike mutual funds, SMA investors hold individual securities, allowing for tailored portfolios based on specific preferences. Customizations, such as tax optimization and covered call strategies, can enhance returns for certain investors.

While fees may be higher, SMAs offer flexibility and control, especially for high-net-worth individuals. As technology evolves, the accessibility and customization options of SMAs are expanding rapidly.

Finsum: We have seen how the technology has really lowered the fees of these more customizable asset classes and we expect this trend to continue. 

The asset management industry is seeing a significant shift towards Separately Managed Accounts (SMAs), with assets growing by 30% over the past two years, according to Cerulli Associates. This growth is expected to continue, with projections suggesting SMAs will reach $3.6 trillion in assets by 2027, up from $2.4 trillion today. 

SMAs offer tax advantages and personalization options that are appealing to investors, allowing them to hold individual securities and tailor portfolios to their specific needs. SMAs are particularly useful for strategies that benefit from direct ownership of securities, such as tax-loss harvesting and options overlays, which can enhance after-tax returns and generate additional income. 

The rapid innovation in this space means that SMAs are becoming an increasingly attractive option for investors looking for a personalized approach to asset management.

Finsum: We expect the SMA boom to continue with trends in both demographics and wealth management in the US, so familiarity is key.

According to Cerulli, wealth management firms vying for high-net-worth clients should increase their focus on personalization and private markets. With traditional wealth management, it’s increasingly challenging for advisors to differentiate their services. Additionally, it doesn’t fully meet the needs of clients, especially given unprecedented amounts of uncertainty in terms of the economy, monetary policy, and geopolitics.

A consequence of this uncertainty is unpredictability in terms of return and risk in terms of major asset classes, highlighting the need for effective asset allocation. The report also showed that direct indexing is utilized by 55% of advisors who are looking to provide active management and customization to clients. 

The firm also projects growth for separately managed accounts given high net worth investors’ growing demand for customization and private market investments. As a result, these trends underscore the need for effective account aggregation and performance reporting. 

This enables the alignment of solutions across different areas such as financial planning, investing strategy, banking, estate planning, etc. Equally important, this type of comprehensive reporting and consolidation eases the transition to having higher allocations to alternative investments. 

Finsum: Cerulli conducted a survey of advisors and high-net-worth clients. The findings highlight the importance of providing access to private markets and personalized services.