At the DeVoe and Company annual M&A+ Succession Summit, LPL Financial announced an expansion of its liquidity and succession offerings for unaffiliated advisors. The program was initially started last year for LPL advisors who are eyeing retirement but still a decade away from actual retirement.

In essence, the program is designed to allow advisors to receive market value for their firm immediately, but they are required to commit for a period of time to support the next generation of advisors who would be groomed to take over the business. As an intermediary, LPL would buy 100% of the practice while the chosen successors would run the firm while participating in a 10-year ‘successor advisor’ program before fully taking over. 

This strikes a balance as it gives the current generation liquidity and full value for their business, while also setting up the next generation of advisors who may not necessarily have the capital to acquire a practice. According to LPL Executive VP of Strategic Business Development Jeremy Holly, “They’re not having to come out of pocket or take down a bunch of debt to take over. And the principal seller doesn’t have to take a steep discount to sell their practice to that next generation.”

Finsum: LPL Financial introduced a new program for succession planning. Current advisors would be able to sell to LPL but remain with the firm while the next generation is trained to takeover. 

The outlook for the financial markets and economy is quite murky given several uncertainties such as a slowing economy, high interest rates, inflation, trouble in the banking sector, and geopolitical risk. Adding to these woes has been the poor performance of bonds. Typically, they are a safe haven during periods of uncertainty and volatility. Yet, they have suffered losses and failed to provide sufficient diversification over the last couple of years.

Thus, many are looking at other asset classes to meet these needs such as fixed-indexed annuities. The rates on these annuities are tied to the performance of an index such as the S&P 500 with much less risk. They combine the security of a fixed annuity while having some upside like an index annuity.

Most fixed-indexed annuities are structured to provide 100% protection of the principal which is especially advantageous during a market downturn. In some ways, these are more secure than bank deposits given that there is a 100% financial reserve requirement for annuity issuers while banks have much lower reserve requirements on deposits.

However, there are some downsides to fixed-indexed annuities. Relative to bonds, there is much less liquidity, as most have some sort of limits on how much of the principal can be withdrawn without incurring a penalty. There are also higher fees than simply investing in a fixed income fund. 

Finsum: Fixed-indexed annuities may be a better fit for many investors than traditional bonds especially in the current environment. 

Choosing the right broker-dealer is a pivotal decision for any advisor, and while the three P's — payouts, products, and platforms — often take precedence, overlooking cultural fit could be a critical mistake. Cultural fit transcends the more tangible aspects of a broker-dealer, offering a sustainable competitive edge that cannot be easily replicated.

Compensation differences and the allure of superior products or platforms might seem enticing initially, but they tend to level out over time. Culture, on the other hand, is ingrained. It's the ethos of the company, the collective behavior, and the beliefs that characterize the organization. According to James L. Heskett, Professor Emeritus at Harvard Business School, culture is not just a peripheral factor; it can "account for 20-30% of the differential in corporate performance when compared with 'culturally unremarkable' competitors."

The disruption caused by moving broker-dealers can be significant. It affects relationships, routines, and can even impact client perception. That's why ensuring a broker-dealer aligns with your values, work style, and vision for client service is vital. A broker-dealer with a compatible culture can provide a supportive environment, fostering growth and satisfaction that pure financial incentives cannot match.

Finsum: Ensuring cultural fit is essential when selecting a broker-dealer for advisors— it's the strategic edge that impacts performance and satisfaction.

Financial advisors increasingly recognize the significant growth opportunities that rollovers from 401(k) plans represent. With more than $10 trillion invested in participant accounts, these plans offer advisors a considerable potential stream of new assets under management (AUM) in the coming years.

This potential is especially pronounced for advisory organizations that provide both plan advice and wealth management services. The recent trend of advisor consolidation and the push for firms to diversify their offerings means these organizations are in a prime position to attract rollovers from these retirement plans.

However, it's worth noting that some advisors have account minimums that may exclude smaller rollovers or prefer not to take on new accounts with low balances. Additionally, plan sponsors often prefer that all participants, not just those with larger balances, have the opportunity for rollover assistance.

This is where collaboration with record keepers comes into play. A successful example of such a partnership was recently highlighted on planadviser.com, featuring an interview with Ed Murphy, CEO of Empower. The article pointed out Empower's quarter-over-quarter growth in rollover capture. According to Murphy, this success was attributed to the firm's capability to service average accounts of around $100,000, which third-party wealth managers often overlook.

In essence, strategic partnerships in rollover capture can be a win-win, enhancing service provision to all participants while providing potential wealth management AUM growth for financial advisors and record keepers alike.

Finsum: Partnering with 401(k) record keepers on rollover capture offers advisors a win-win proposition.

One of the major benefits of direct indexing is that tax losses can be harvested during up and down years. This option is not available to clients who are invested in indices. This is because clients will own the actual components of an index in their account rather than an ETF or a mutual fund. With regular scans, losing positions can be sold to harvest tax losses which can then be used to offset gains in the future or other parts of the portfolio.

This is because some components of the index will be in the red even in up years. These positions are sold and then other stocks with similar factor scores are added to ensure the benchmark continues to be tracked. 

According to Vanguard, “Because investors directly own the individual securities in their direct indexing portfolios, you can harvest losses for them even in years when the index is up. You can use these losses to offset your clients’ capital gains, and help them keep more of what their portfolios earn.” Overall, it believes that the strategy can add between 1% and 2% in annual returns in after-tax alpha for clients with large capital gains in addition to helping optimize short and long-term holding periods to minimize capital gains taxes. 

Finsum: Direct indexing has several benefits for investors such as tax-loss harvesting. While many are familiar with its application during down years, less are aware that it can be used to add alpha even in up years.