In the shifting world of financial advice, the imminent retirement of over a third of advisors within the next decade poses a significant challenge. This shift is driven by the aging demographic of current advisors, with nearly 60% of RIA assets managed by those aged 55 and older. 

To navigate this transition successfully, firms need to focus on recruitment, targeting younger demographics, and modernizing engagement models to mitigate the impact of a declining advisor pool. Succession planning is vital for retiring advisors to secure their financial future, boost their firm's appeal, and mentor the next generation. Clear guidance and succession planning is key to attracting new talent.

Recruiting and retaining young advisors is essential, as they bring fresh perspectives and technological savvy, crucial for engaging younger investor demographics like Millennials and Gen Z. These new advisors can also help bridge the gap between clients and existing advisors as their values can be more aligned. 

Finsum: Its time to start thinking about recruiting and transitioning or succession planning as an opportunity to expand business in addition to providing a pathway to the future. 

The first five months of 2024 have featured above-average volatility for fixed income due to inflation continuing to run hot and increased uncertainty about the Fed’s next move. Despite these headwinds, institutional investors have been increasing their allocations to long-duration Treasuries and high-quality, corporate bonds.

One factor is that there is increasing confidence that inflation and the economy will cool in the second half of the year, following a string of soft data. As a result, allocators seem comfortable adding long-duration bonds to lock in yields at these levels. Many seem intent on front-running the rally in fixed income that would be triggered by the prospect of Fed dovishness. According to Gershon Distenfeld of AllianceBernstein, “History shows pretty consistently that yields rally hard starting three to four months before the Fed actually starts cutting.” 

For investors who believe in this thesis, Vanguard has three long-duration bond ETFs. The Vanguard Long-Term Bond ETF is composed of US government, investment-grade corporate, and investment-grade international bonds with maturities greater than 10 years. For those who prefer sticking solely to bonds, the Vanguard Long-Term Treasury ETF tracks the Bloomberg US Long Treasury Bond Index, which is composed of bonds with maturities greater than 10 years old. 

Many allocators are adding duration exposure via high-quality corporates given higher yields vs. Treasuries. These borrowers would also benefit from rate cuts, which would reduce financing costs and boost margins. The Vanguard Long-Term Corporate Bond ETF tracks the Bloomberg US 10+ Year Corporate Bond Index, which is comprised of US investment-grade, fixed-rate debt issued by industrial, financial, and utilities with maturities greater than 10 years. 

Finsum: Interest is starting to pick up in long-duration bonds following softer than expected economic and inflation data, which is leading to more optimism that the Fed will cut rates later this year.

Value investing has underperformed over the last 15 years. Flows have followed this performance, with allocators favoring growth strategies. As a result, the number of practitioners of pure value investing has dwindled, especially in the US. Further, many are questioning, whether, it’s still a viable strategy.

There was some optimism that a period of higher interest rates and economic growth would revitalize value stocks especially following the speculative surge of many growth stocks in 2021. However, this turned out to be fleeting as the boom in artificial intelligence (AI) in 2023 sent many growth stocks to new, all-time highs, undoing value’s brief period of outperformance. 

However, the story is much different from an international perspective, where value stocks have been outperforming for a meaningful period. This lends credence to the argument that value’s underperformance is more about the US and technological disruptions than a change in how markets operate. Disruptive technologies like cloud computing and artificial intelligence have allowed a handful of companies in the US to grow to unprecedented scale, which has distorted the growth vs. value dynamic. 

History also shows that markets adapt to these technologies quite rapidly. Over time, margins and profits compress. The long-term benefits of the technology will be realized by the companies that are able to successfully implement the technology to operate more efficiently. 

Finsum: Value investing has underperformed by a significant degree over the past couple of decades. Yet, it’s a different story from an international perspective. 

Traditionally, fixed income is where financial advisors look to reduce portfolio risk. This is no longer the case in the post-pandemic period, as the bond market has experienced major volatility, which is becoming the norm in a high-rate, high-inflation regime.

Given these conditions, investors may be better off with fixed index annuities (FIAs). Like bonds, FIAs produce income; however, a key difference is that FIAs guarantee an income stream for life as opposed to a fixed period. Another advantage of FIAs is that they have higher earnings potential than bonds, given that many are designed to earn interest based on the performance of an external index like the S&P 500. In contrast, fixed income has significantly underperformed over the last 5 years and failed to beat inflation.

Over long periods of time, costs matter when it comes to long-term investing. Most bond investments have fees that range between 0.5% and 2%. In contrast, FIAs tend to have much lower fees, on average. 

In terms of risk, FIA offers full protection of the principal investment. This means that it can be more effective than fixed income to hedge equities, especially in the current environment. Overall, FIAs can be more effective than fixed income, especially for investors who are in or nearing retirement. 

Finsum: Advisors should consider fixed indexed annuities (FIAs) as an alternative to fixed income, especially in the current environment. FIAs offer lower costs, more downside protection, and greater potential for appreciation.

The nature of being a financial advisor has shifted significantly over the past decade. It’s gone from being centered around selecting investments and managing portfolios to financial planning and client service. Model portfolios have been ascending along with this evolution and are forecast to exceed $1 trillion in assets over the next decade.

According to surveys, clients invested in model portfolios are more likely to have higher levels of trust with their financial advisors and believe that volatility is an opportunity to grow assets. Additionally, they are more likely to be interested in other services offered by an advisor. They can also help in terms of aligning the interests of advisors, the firm, and clients. They also free up time and energy for advisors to spend on factors that ultimately drive success for advisors, like client service and prospecting. 

Another benefit is that model portfolios provide an extra layer of due diligence, with 77% of advisors saying that they help with managing risk. In essence, it gives clients access to a higher quality of investment management and a more comprehensive relationship with an advisor.

Models also mean that advisors’ services become more scalable, enabling growth and expansion. In recent years, models have expanded to include offerings from third parties and a wider array strategies, which means there are possibilities for endless customization to fit clients’ unique needs and goals.

Finsum: Model portfolios bring the promise of a win-win for clients and advisors. Clients invested in model portfolios report higher levels of confidence with their advisor and don’t fear volatility. For advisors, they offer the ability to decrease time spent on investment management and focus more on client service and prospecting.

According to Lindsay Rosner, the managing director of multi-sector fixed income investments at Goldman Sachs, fixed income is presenting investors with an attractive opportunity to lock in high yields without compromising on quality. There are some challenges given divergences in central bank policy around the world and increasing uncertainty about the timing and direction of the Fed’s next move. Overall, the firm believes that the status quo of ‘higher for longer’ is likely to prevail.

A major factor is inflation, and the economy proving to be more resilient than expected. As a result, the market is now expecting two quarter-point rate cuts before the end of the year, compared to expectations of 150 basis points in cuts entering the year. The next Fed decision is on July 29. Prior to that meeting, there will be considerable amounts of inflation and labor market data, which could impact its thinking, although the current expectation is for it to hold rates steady.

With rates at these levels, there is increased risk that consumer spending is affected or that a higher cost of capital begins to impact corporate profitability and hiring. This risk increases the attractiveness of fixed income, especially as many investors are looking to rebalance given strong equity performance. Rosner sees opportunity in higher-quality areas such as investment-grade corporate bonds and structured products with AAA or AA ratings, especially given an impressive carry differential over Treasuries.

Finsum: Goldman Sachs sees opportunity in higher-quality segments of the fixed-income market. It believes investors should lock in yields at these levels, given the risk that high rates will eventually sour the economic outlook. 

Goldman Sachs has raised $21 billion for private credit investments, its largest fund yet in this asset class. 

Fresh capital, borrowed funds, co-investments, and SMAs are all a part of the how the firm has secured its newest private lending channel. This initiative is crucial for Goldman to demonstrate its ability to attract substantial external funds, focusing on steady fees instead of occasional large revenues. 

High-net-worth individuals and institutional investors alike are increasing their allocations to alternatives, viewing private credit as a valuable investment. With plans to double its private credit assets to $300 billion in five years, Goldman is leveraging its extensive experience while other banks form partnerships to enter this market.

Finsum: Alternatives are a good way to hedge against the mainstream macro volatility problems looming on traditional portfolios

Summer tends to be slower on Broadway, even more so this year with some theaters being renovated and a lighter schedule for Shakespeare in the Park. However, there are some intriguing new shows that will be opening this summer.

The most highly anticipated is “Oh, Mary!” which is scheduled to open in late June at the Lyceum Theater. The play stars Cole Escola as an ahistorical, comedic Mary Todd Lincoln, who is resentful of her husband for thwarting her stage ambitions even during the Civil War. Conrad Ricamora plays Abe Lincoln. The play was highly lauded during its opening run for its humor and uniqueness. Now, it’s moving into a bigger theater with a larger production budget.

Maggie Siff of Billions and Sons of Anarchy stars in “Breaking the Story,” which is set to open on the Second Stage on June 4. Siff stars as a former war correspondent who is struggling to make the transition back to civilian life. During its preview run, the play received acclaim for its acting performances and its portrayal of internal conflict.

On a lighter note, Cats is returning to Broadway, albeit with a twist. “Cats: The Jellicle Ball” will open at the Perelman Theater on June 13 and is brought by directors Zhailon Levingston and Bill Rauch. The musical is set within the world of New York ballroom dancing and features club music and runway choreography. It will be interesting to see if this can recapture the magic of the original or come off as a tired sequel.

Finsum: This year’s summer season is especially slow on Broadway. However, there are a couple of interesting shows opening in the coming months, including “Oh! Mary” and “Breaking the Story”.

Traditionally reserved for the wealthy, direct indexing has become more widely accessible thanks to technological advancements. This investment strategy involves owning the individual stocks in an index such as the S&P 500, which allows investors to sell off underperforming stocks to generate tax losses—a technique known as tax-loss harvesting.

 According to Frec, a direct-indexing startup, a simulated S&P 500-based portfolio could boost after-tax annual returns by more than 2% over a decade, compared to an ETF, assuming a tax rate of 42.3% and excluding advisory fees. 

Firms like Charles Schwab, Vanguard, and Fidelity now offer direct-indexing services with various account minimums and fee structures, lowering the entry barrier for average investors. With the market for direct indexing expected to reach $825 billion in assets by 2026, this approach is set to become increasingly popular among a broader range of investors.

Finsum: Computing power has drastically driven down the costs of Direct Indexing allowing more investors to gain its tax alpha. 

As one of the leading asset managers, BlackRock, shook the market his week when, through regulatory filings, it disclosed that its income funds are invested in its own Bitcoin ETFs. The two important funds were the Strategic Income Opportunities Fund (BSIIX) and Strategic Global Bond Fund (MAWIX),  which acquired $3.56 million and $485,000 worth of iShares Bitcoin Trust (IBIT) respectively. 

These investments are a minor part of the $37.4 billion and $776.4 million portfolios of BSIIX and MAWIX, respectively. As of May 24, the iShares Bitcoin Trust held about $19.61 billion in Bitcoin, which trails the Grayscale Bitcoin Trust (GBTC).  

Globally, spot Bitcoin ETFs hold over 1 million Bitcoin, valued at more than $68 billion, which is nearly 5.10% of Bitcoin's circulating supply of over 19.7 million BTC. Since their launch in January, over 600 investment firms, including major institutions like Morgan Stanley, JPMorgan, and Wells Fargo, have invested in spot Bitcoin ETFs, with Millennium Management being the largest accumulator at $1.9 billion.

Finsum: While this fund cannibalism isn’t new, it’s definitely something to be aware of when looking at income funds.