Displaying items by tag: advisors

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. 

Separately managed accounts (SMAs) are ascending in wealth management as they enable advisors to offer clients nearly unlimited options for customization and can lead to more efficient tax management. 

Another feature of SMAs is better economics in terms of aligning goals and incentives between both parties, especially compared to other structures. With SMAs, management fees are based on capital that is deployed rather than committed, which leads to better deal flow and attention from managers. There is also more ability to negotiate fees to incentivize long-term performance and foster more durable relationships. Further, SMAs can be set up to optimize the tax situation of individual clients.   

Overall, SMAs are gaining traction due to more flexibility and choice, which can lead to better outcomes in terms of performance and governance. The SMA agreement can also be adjusted if necessary, rather than having to create an entire new vehicle. 

For investors, SMAs also offer more protection and oversight beyond simply aligning incentives between investors and managers. More active and involved investors may prefer a non-discretionary SMA in which the investor approves each investment before capital is deployed. Additionally, investors get input into matters such as distributions, valuation, expenses, and reporting. 

Finsum: SMAs are rapidly gaining traction. Here are some of the advantages they offer investors and advisors.  

Many investors may be looking to diversify their portfolios given recent gains in equities. While there are many options, leveraged index annuities can reduce portfolio risk while still offering some growth potential.  

Leveraged index annuities are typically bought upfront with a single payment. The interest earned on these products is not taxable until it is withdrawn, which also makes them an effective vehicle for saving.  

These annuities are leveraged to a major market index like the S&P 500. Interest is earned when the underlying index appreciates; however, there is no loss of principal in the event that the index suffers losses. 

The tradeoff is that interest earned on the annuity is capped depending on the terms of the annuity agreement. For instance, the maximum earnable rate of interest could be set at 12%. This means that in a year like 2023, when the S&P 500 was up 24%, the annuity owner’s earned interest would be capped at 12%. On the other hand, the annuity owner would have seen no loss of principal when the S&P 500 was down 19% in the previous year.  

This combination makes leveraged index annuities ideal for investors who want to diversify and de-risk their portfolios while still growing their wealth.

Finsum: Leveraged index annuities are a way for investors to reduce risk and increase diversification while still allowing for appreciation. 

It’s an opportune time for younger financial advisors. Many older advisors are nearing retirement, and we are on the precipice of a generational wealth transfer from baby boomers to millennials. However, this doesn’t negate the significant challenges and obstacles faced by new advisors, given their high failure rates. Here are three tips from established advisors to increase the odds of success.

According to Timothy Smith, the founder and CEO of Aurora Private Wealth, rookie advisors need to get used to rejection. He believes that advisors need to develop intangible qualities like perseverance, determination, and discipline in order to successfully build a practice. Further, advisors should have a genuine desire to help people feel in control of their financial lives.

Tammy Haygood, a private wealth advisor at RBC, is an advocate for not using jargon and believes that advisors should be able to explain concepts in clear and simple language. This can only be achieved by having a comprehensive understanding of the material and concepts. She also insists that authenticity is key in order to build trust and form long-term relationships with clients.

Nate Lenz, the co-founder and CEO of Concurrent, believes that younger advisors should seek out mentors. He sees financial advice as an ‘apprenticeship’ business. With the right mentor, advisors can quickly become competent and knowledgeable in multiple areas, such as planning, investments, closing deals, and client service. In this vein, he strongly believes that younger advisors should prioritize experience over other factors like compensation.

Finsum: There’s a lot of difficulty and struggle for advisors at the beginning of their careers. Here are some tips from established, successful advisors on how rookie advisors can maximize their chances of success. 

Nearly $68 trillion in assets are moving to a younger generations over the next 30 years, wealth management firms catering to high-net-worth individuals (HNWIs) are urged to adapt by integrating digital solutions to complement their bespoke services, rather than replacing them outright. 

HNWIs, distinguished by their substantial asset portfolios, require a tailored approach from wealth managers, particularly given their demand for nuanced portfolio guidance across various asset classes, such as real estate and cryptocurrency. While digital tools are reshaping consumer expectations within financial services, HNWIs continue to prioritize the personal touch and customized service that comprehends their unique preferences and financial complexities. 

However, there exists a gap in consistently delivering such personalized service, with over half of surveyed HNWIs reporting a lack of proactive support from their providers. Despite the surge in digital engagement during the pandemic, HNW clients still value personalized experiences, indicating a need for wealth managers to strike a balance between digital convenience and maintaining a human touch.

Finsum: Most clients want a mix of digital and personal service which advisors can use to leverage further business.