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Artificial Intelligence (AI) is disrupting how businesses operate in multiple ways. Advisors should embrace this technology, because it can help create more efficiency by handling routine tasks, freeing up more time and energy for high-value tasks. It can be particularly valuable in terms of managing the practice.


Some considerations include figuring out which parts of the business can be enhanced with AI and which should remain in the purview of an advisor. Another is that proper training in these tools is necessary in order to ensure that they are being properly used. 


An example of how the technology is already being leveraged to improve practice management is through the use of AI note-taking applications. Prior to this, advisors (or a staff member) would take notes during the meeting which can be distracting and detract from cultivating engagement. These apps can essentially transcribe and summarize the conversation which means advisors can stay in the moment and give full attention to the client.


Then, these summaries and notes from client interactions can be integrated into the customer relationship management (CRM) software. Thus, these notes can be used by the practice to provide a richer experience for clients by methodically following up on all relevant matters. AI can also help discover insights and identify action steps that need to be taken. 

Finsum: AI is the latest disruptive technology that will certainly impact multiple aspects of an advisors’ practice. Here is how it can be used to improve a practice’s operations. 


Monday, 12 February 2024 05:20

Vanguard’s Outlook for Active Fixed Income

In 2023, yields started where they ended, although there was considerable volatility in between. Notably, yields dropped sharply following the collapse of Silicon Valley Bank in the spring amid concerns that it would spark a greater crisis. And, yields spiked in autumn with the 10-year Treasury yield exceeding 5% following an uptick in inflation.


In hindsight, this marked the bottom for fixed income as the Bloomberg U.S. Aggregate Index gained nearly 10% between the end of October and the new year. Looking ahead, Vanguard believes this strong performance will continue in 2024. 


In terms of its outlook, it sees inflation ending the year just above the Fed’s 2% target. It believes the Fed will ease policy, although they don’t see rates returning to the same lows as the previous cycle. It also sees the yield curve steepening as short-term rates fall further. 


The firm also acknowledges some risks to its outlook such as the economy continuing to be bumpy even within the context of a slowdown which could lead to false signals. Credit spreads have remained tight which means that there is greater risk in the event of a recession. High deficits mean that Treasury supply will be plentiful, adding upwards pressure to yields. Finally, inflation could re-ignite especially given geopolitical risks and prevent the Fed from easing even if the economy warranted it. 

Finsum: Many active fixed income funds are being launched with a specialized focus on a particular niche. These funds have outperformed amid the volatility in the fixed income market. 



The US economy added 353,000 jobs in January which was well above analysts’ consensus estimate of a 185,000 increase. The positive news for the labor market continued as the November and December reports were also revised higher by a cumulative amount of 126,000. Average hourly earnings also surprised to the upside, coming in at 0.6% monthly and 4.6% annually vs expectations of 0.3% and 4.1%, respectively.

In response, stocks rallied, while bonds declined. The yield on the 10-year Treasury jumped 15 basis points with the curve slightly inverting as short-term Treasuries saw steeper losses. This isn’t too surprising as the strong labor market reduces concerns that the Fed is risking a recession by not cutting soon enough. Additionally, the central bank also pays close attention to wages as a major input into its inflation forecast.


Thus for fixed income, the report was negative in two ways. It implies that ‘higher for longer’ remains the status quo in terms of monetary policy especially as this was also the major takeaway from the recent FOMC meeting. The Fed’s stance would change if there was a sudden deterioration in economic conditions, or if inflation continues to move lower. The report makes it clear that neither scenario is close to fruition which means that this period of data-dependency and ‘higher for longer’ will continue.  

Finsum: The January jobs report blew past expectations in terms of jobs added and wages. In response, bonds dropped as the results reduce the odds of the Fed cutting rates at upcoming meetings. 


Retirees have many options when it comes to generating income from their portfolios. Each approach comes with its own tradeoffs in terms of yields, risk, and liquidity. In recent years, fixed indexed annuities have become increasingly popular as they generate higher returns than traditional investments, while offering protection during periods of poor market performance.


Fixed indexed annuities are issued by insurance companies. It provides a guaranteed return while also earning additional interest based on the performance of a specific index such as the S&P 500. Like most annuities, they also allow for tax-free compounding. 


One of the major advantages of a fixed indexed annuity is that it reduces the downside risk of a decline in markets which can be more damaging to retirees. Research shows that these products deliver strong returns over long periods of time, although they do underperform during booms. 


If an investors’ goals are to generate more income while reducing the overall risk in the portfolio, then a fixed indexed annuity is a prudent option. When determining whether a fixed indexed annuity is the right choice, a major factor is what it will be replacing in the portfolio. 

Finsum: A fixed indexed annuity can help investors generate more income from their portfolios while also reducing risk. Downsides are less liquidity and underperformance during periods of strong market performance. 


Friday, 09 February 2024 05:39

Powell Warns of Commercial Real Estate Risks

The crisis in commercial real estate (CRE) is starting to have knock-on effects on banks according to Federal Reserve Chair Jerome Powell. In an interview with 60 Minutes, he remarked, “It feels like a problem we’ll be working on for years… it’s a sizable problem.” He added that most of the negative impact would be concentrated on smaller or regional banks who have greater exposure to CRE.


Already, the Fed stepped in following the collapse of Silicon Valley Bank in June of last year to prevent further damage that could impact the broader economy. In addition to this stress, banks are dealing with an inverted yield curve which has made lending less profitable, and it has led to the uncomfortable position of paying out high rates on deposits while holding loans made at much lower rates in the past. 


Ultimately, the crux of the problem is that demand for office space has declined due to more companies adopting remote work or hybrid arrangements. According to estimates, there could be 1 billion square feet of unused office space by the next decade. Another cause for concern is that over the next few years, loans will mature and need to be refinanced in a much more difficult environment. Given these bleak fundamentals, it’s inevitable that lenders will take losses.

Finsum: In a 60 Minutes interview, Fed Chair Jerome Powell warned that weakness in commercial real estate was starting to impact the banking sector. Already, the Fed intervened last year to prevent contagion following the collapse of Silicon Valley Bank. 

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