Displaying items by tag: advisors

Advisors have to offer personalized solutions for their clients’ financial needs. Of course, this presents an inherent conflict for any advisor who wants to grow their practice as these efforts are often not scalable. 

Unified managed accounts (UMA) are a potential solution for advisors to offer low-cost and customized solutions by outsourcing these functions from professional asset managers. UMAs provide an open structure for advisors to toggle between managed account programs, asset allocations, portfolio management, and trading in order to become more efficient and increase the speed of implementation. 

Advisors can leverage UMAs to reduce complexity and provide more holistic advice for clients while freeing up time and energy to focus on business development. In contrast to mutual funds or ETFs, UMAs and separately managed accounts (SMA) provide more customization and tax efficiencies. However, SMAs often lead to more administrative burdens since each account generates its own statements, tax documents, and portfolio management needs. 

In contrast, UMAs offer access to multiple strategies in a single account while enabling tax savings through tax-loss harvesting. There is more efficiency given that there is less paperwork while also providing a more holistic view of a clients’ financial situation. 

Finsum: UMAs can lead to more efficiencies for advisors, leading to less paperwork and tax complications. It also leads to a more holistic view of a clients’ finances. 

According to a study of retirement accounts by Fidelity, most older Americans are too heavily invested in the stock market. This is a potential risk especially in the event of a market downturn. 

One posssible solution is for investors to increase their allocation to fixed indexed annuities. These are annuities that guarantee the principal but offer more growth potential than traditional fixed-rate annuities. They are best suited for investors with a time horizon of longer than 5 years. They are less risky than equities but offer higher returns than most types of annuities.

Fixed indexed annuities follow a market index such as the S&P 500 or Dow Jones Industrial Average and interest is deposited based on annual gains of the underlying index. However when the index declines, there is no loss of principal or of previously accrued interest. 

Of course, there is no free lunch. The drawback is that most fixed indexed annuities have some sort of formula which limits the amount of gains that are captured. There is also a maximum rate of interest which limits the amount of total gains that can be captured. For instance, some have a maximum rate of interest of 12% which means that the annuity would only see a gain of 12% even if the underlying index was up 20%.  

Finsum: Fixed indexed annuities are one potential way that older investors can reduce portfolio risk and boost diversification. 

Blackrock is one of the leading providers of model portfolios. Currently, the asset manager is overweight megacap tech stocks. It sees strong earnings momentum and growth upside in addition to resilient balance sheets. These companies are more insulated from high rates as they aren’t reliant on bond markets for financing. 

The stock market rally in 2023 has been defined by a handful of stocks, powering the indexes higher. In contrast, smaller stocks and the broader market have struggled. Many analysts have cited this divergence as one reason to question the durability of recent stock market gains. 

YTD, the Nasdaq 100 is nearly 40% higher due to strong gains from companies like Nvidia, Meta, and Tesla. In contrast, the S&P 500 is up 14%. Currently, Blackrock’s model portfolios have about $100 billion tracking these stocks. This is particularly significant as the entire model portfolio asset base is estimated to be $4.2 billion. 

According to Tushar Yadava, a strategist with Blackrock’s Multi-Asset Strategies & Solutions group, Blackrock has been mostly overweight equities this year, although the firm did briefly go underweight in the spring of this year, following the regional banking crisis. Earlier in the year, it anticipated that the stock market rally would eventually broaden out, but this hasn’t happened yet.

Finsum: Blackrock is overweight megacap tech in its model portfolios as it favors companies with earnings momentum and strong balance sheets. 

New financial advisors face some daunting challenges such as learning the industry, getting their licenses, and building a book of business. Last year, headcount in the industry only grew by 2,579 advisors with a failure rate of more than 72% for rookie advisors. 

This highlights the succession crisis that is facing the industry. Over the next decade, it’s estimated that 37% of all advisors, representing 39% of total assets, will be retiring. And among this group, 26% have no succession plan in place. While this is a major challenge for the industry, it’s an opportunity for savvy advisors.

For firms, some strategies to improve rookie advisor retention is through a structured training program. Firms will have to invest in developing and retaining their own in-house talent rather than the previous growth model of recruiting advisors from competitors. 

Another constraint for firms looking to boost their recruitment efforts is that currently most new advisor recruiting is through word-of-mouth referrals. However, these types of informal methods will certainly overlook many qualified candidates outside of these networks. Therefore, firms must be more proactive in educating young people about this potential career path. 

Finsum: The financial advisor industry is facing a challenge as many senior advisors are nearing retirement, while recruitment of new advisors has been lacking.

The most effective form of prospecting is asking clients for referrals, yet 88% of financial advisors fail to do so. The simple reason is that most advisors feel too uncomfortable and don’t want to affect their existing relationship with clients. 

However, this fear must be overcome if an advisor is serious about growth. According to Brett Van Bortel, the director of consulting services at Invesco Global Consulting, the reluctance is counterintuitive as more than 85% of new business comes from referrals from existing clients. 

Van Bortel recommends advisors frame their request as an opportunity for the clients to help their friends and family with high-quality financial advice rather than as a favor for the advisor. The same principle applies to establishing fruitful relationships with centers of influence who often refer high net worth clients with complex issues. 

Centers of influence include other professionals like lawyers and CPAs. According to DeVoe & Co., 17% of new clients and 23% of new assets come from these referrals. They are looking for expertise and help in solving a problem. It can often take a long time to develop these relationships and build enough trust, but these efforts can yield steady long-term returns.

Finsum: A key source of growth for financial advisors is client referrals. Yet, many advisors are reluctant to ask their clients for referrals.