Displaying items by tag: advisors

Model portfolios have been growing at a consistent rate for decades due to increasing adoption by younger advisors and more awareness among investors. Now, they have reached a size at which they are starting to affect markets especially when dealing with more illiquid securities. Currently, they collectively manage $3 trillion in assets under management (AUM).

It’s natural to consider the risks and opportunities as these ripple effects will only grow with model portfolios forecast to exceed $10 trillion in AUM over the next decade. In fact, recent unusual flows into various ETFs are often due to changes in the holdings of model portfolios.

Most model portfolios are constructed with ETFs. They are managed by investment teams of asset managers and can enable advisors to spend less time on portfolio management or security selection and more time on building their business and managing client relations. 

Since 2018, more than 400 model portfolio offerings have been launched. Most research shows that model portfolios tend to outperform advisor-managed portfolios. Ultimately, it’s an acknowledgement that beating the market is nearly impossible and that an advisors’ job is increasingly about financial planning rather than investing. 

Finsum: Model portfolio AUM is already in excess of $3 trillion. Here’s why the category is forecast to exceed $10 trillion over the next decade. 

Ben Hammer, the Head of Client Development for Vanguard, recently spoke to an audience of financial advisors about direct indexing. The asset manager clearly sees it as a major growth avenue especially as most advisors and investors remain unfamiliar with the concept and its benefits.

According to surveys of investors and advisors, the most appealing part of direct indexing is the potential tax savings which is not possible with traditional passive investing. By recreating indexes within an individual investors’ account, losing positions can be sold while stocks with similar factor scores are added in substitution to maintain consistency with the benchmark. Another benefit is customization as investors can adjust a portfolio’s holding based on their own situation, values, or preferences. 

Hammer also stressed that direct indexing wouldn’t be available to a wide swathe of the investing universe because of its cost and complexity. However, these issues have been solved by technology as trading costs have plummeted, while software handles the regular scans for tax loss harvesting opportunities and rebalancing.

Still, direct indexing is probably not necessary for most investors. It can be the perfect solution for those who want more tax savings and customization while retaining the benefits of passive investing. 

Finsum: At a recent conference for financial advisors, Vanguard’s Ben Hammer spoke about the evolution of direct indexing and its growth prospects.

For advisors, there are many benefits to working with high net worth clients. They have more investable assets and also tend to have a better grasp of what constitutes a fruitful advisor-client dynamic. Of course, there is intense competition to land these clients. Here are some tips to increase your chances of success.

The first step is to understand their needs and goals. It’s also important to be aware that these prospects have seen many sales pitches and tend to be quite savvy. Therefore, any approach should be transparent in terms of purpose and intentions. Instead of being vague, it’s more helpful to focus on a specific topic like retirement planning, charitable giving, tax strategies, succession planning, etc, where you can demonstrate your expertise. 

The second step is to remember what makes you and your practice unique and to focus on these differentiators. Having a specialization can help you stand out especially if the client is looking for that particular service. This can also help you come up with a message around your brand which communicates your value. 

The final step is to spend time and energy into making sure that your prospects are aware of your practice whether this is digital or analog. This means defining your ideal prospect and figuring out where they spend time and attention, physically and virtually.. 

Finsum: Getting a high net worth client has many benefits for advisors, but the landscape is quite competitive. Here are some tips to increase your chances of success.

In the wealth management arena, direct indexing is one of the fastest growing areas and presents a unique opportunity for investors and advisors. Demand for these services is likely to grow due to more awareness of the benefits, desire to lower tax bills, lower costs, and easier implementation.

According to Cerulli Associates, direct indexing assets under management (AUM) are likely to grow at a faster rate than traditional categories like ETFs, mutual funds, and SMAs over the next five years and reach over $1 trillion by the end of the decade. Despite these bullish trends, less than 20% of advisors are familiar with the strategy and recommend it to clients. 

For investors, the biggest appeal of direct indexing is the potential to lower the tax bill and use harvested losses to offset gains in other parts of the portfolio. Continued adoption and awareness at the investor and advisor level are likely to be the biggest growth drivers over the next few years.

Direct indexing is a form of passive investing except investors are able to access the increased customization and tax loss harvesting benefits of active investing. This is done by recreating an index in a personal portfolio with appropriate adjustments to account for an individual’s situation or financial goals. 

Finsum: Direct indexing assets under management is on pace to exceed $1 trillion by the end of the decade. Here are some of the major growth drivers.

Picking the right niche can really help an advisor differentiate themselves in a crowded market to create a unique brand. Typically, a niche means that an advisor is focusing on a particular demographic such as a particular profession or demographic. But, it can also refer to advisors who specialize in specific areas such as financial planning or alternative investing.

Specialization can lead to more knowledge and expertise. It’s also likely that prospects will seek an advisor out who has more experience in their area of interest or need. In terms of the best niches, one strategy is to specialize in a particular stage of the planning process.

Nearly everyone’s most important financial goal is to prepare for retirement. Therefore, retirement planning is an evergreen niche for advisors and also where they can be most impactful. This involves becoming well-versed about various retirement plans and options. Ultimately, it’s about helping retirees and prospective retirees have the best quality of life. 

Another possible niche is to focus on younger clients. This would involve being digitally savvy and understanding their needs and goals with a major emphasis on education around personal finances and investing. Many younger clients also stand to inherit money from older generations given the country’s demographic realities.

Finsum: Picking the right niche is an important decision for every advisor. Here are some tips on picking the right niche and some examples.