Displaying items by tag: technology

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: It’s 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. 

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. 

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 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. 

Many financial advisors are understandably uneasy about artificial intelligence (AI). Like any new technology, there will be considerable opportunities for those who can properly leverage and implement it. 

However, it’s also important to understand its limitations, as it lacks human intuition and the ability to understand and respond to a client's deeper, emotional needs. Instead, AI can be thought of as a way to enhance an advisors' capabilities and can be quite useful in areas such as fraud detection, estate planning, and tax strategies. Additionally, many advisors are already using technology that has elements of AI, especially for making forecasts and future projections. 

AI excels at tasks that require pattern recognition, optimization, and identifying trends. This means that it has applications in multiple areas such as prospecting, marketing, and planning. For example, estate planning is an area where AI is having a positive impact, as documents can be more quickly and easily understood by advisors and clients. It can also be used to streamline the process of updating documents based on notes taken from previous client interactions. 

Overall, AI is like previous technologies in that it can potentially help advisors gain more leverage, increase productivity, and result in more time spent on value-added activities. With financial advice, it can be particularly useful in terms of increasing responsiveness and personalization on a larger scale. 

Finsum: Artificial intelligence will affect nearly every industry and change how businesses operate. Here is how financial advisors should be thinking about this technology.