Displaying items by tag: advisors

At Morgan Stanley’s annual US Financials, Payments & Commercial Real Estate conference, CEO James Gorman said that the bank is no longer relying on financial advisors recruiting for growth. 

Gorman sees future growth coming from the ‘funnels’ that Morgan Stanley has built which it sees as key to the next $1 trillion in assets it aims to bring over the next 3 years. After a fevered pace of advisor recruiting, the company is seeing minimal movement other than small teams coming and going. 

As part of the changing landscape, Morgan Stanley will only be recruiting high-quality teams with substantial assets. This does affect the marketplace given that Morgan Stanley has been one of the most aggressive in terms of recruiting over the past couple of years. 

Overall, the bank is moving towards a more holistic, comprehensive strategy when it comes to acquiring assets. In the first quarter, it added $110 billion in new assets. $28 billion came from workplace channels, $20 billion came from advisors hired away from struggling regional banks, and the majority of the remainder came from existing brokers. 

In the future, Gorman sees the workplace channel as being its most significant source of growth, especially given that the cost of luring advisors continues to increase. 

Finsum: Morgan Stanley has been a leader in advisor recruiting. But, this is changing as evidenced by CEO James Gorman’s recent comments.

In an article for Dividend.com, Aaron Levitt discussed why active fixed income funds have outperformed passive fixed income funds. 

The majority of active equity funds underperform their industry benchmarks. Therefore, it’s not surprising that these have dominated in terms of inflows. 

But, it’s a different story in fixed income. Recent research from JPMorgan shows that active fixed income has outperformed passive. Some of the reasons for this is that passive funds are overweight with firms and entities that have the most debt. 

Active funds have wider latitude and can find opportunities in various parts of the market. They also are able to take positions in different parts of the capital structure. The absence of passive funds in these spaces also leads to more favorable valuations. Many active funds are also able to take advantage of foreign debt and high-yield fixed income. 

As a result, inflows into active fixed income have been growing at a faster pace than inflows into passive fixed income. More inflows into active fixed income should also lead to increased liquidity in many parts of the fixed income space.

Overall, active funds have failed to outperform passive ones in the equity space but have done so in fixed income.

Finsum: Recent research shows that active fixed income has outperformed passive fixed income. This is contrary to many investors’ expectations given the outperformance of passive equity funds vs active equity funds.

For RIAIntel, Holly Deaton discussed the findings of a research study which showed that often advisors are getting in their own way when it comes to growing their practice and effectively serving their clients.

In 2022, about 20% of financial advisors saw a decline in assets under management according to a study from Janus Henderson. The research also showed that many advisors are not being aggressive enough when it comes to asking existing or potential clients for new business due to the fear of being seen as too pushy. 

However, advisors need to move past these fears if they want to successfully grow their business. And, most advisors struggle with adding new clients and growing assets under management. In contrast, successful firms have a culture of growth and consistently take proactive steps to ensure a robust pipeline of future clients. 

In addition to these factors holding back advisors, only 30% of advisors have a business plan in place, while only 25% have marketing material that is targeted towards their ideal client. This is despite 93% of advisors agreeing that a business and marketing plan are essential to growth. 

Overall, advisors need to do a better job of aligning their actions with their goals. And, the key to accomplish this is overcoming psychological hurdles of appearing too pushy and spending less time on client service and portfolio management.

Finsum: Many financial advisors are falling short of reaching their business goals due to some psychological hurdles. For instance, advisors agree that it’s important to have a business plan but only a minority actually do.

In an article for Vettafi’s ETFDataBase, James Comtois reviews how direct indexing can solve complex financial problems for clients. The strategy is quite powerful as it blends the best parts of index investing with active management, however it’s only appropriate for a small group of investors.

One is high net-worth investors who are looking to reduce their tax bill. This is because direct indexing can be used to harvest tax losses with regular rebalancing. It also allows investors to capitalize on volatile markets. Frequent rebalancing is estimated to add between 20 and 100 basis points of alpha.

Another benefit is for clients with strong preferences. For instance, some investors may feel strongly about not investing in ‘vice’ stocks, so these stocks can be eliminated, while stocks with similar factors scores can be added. This is because with direct indexing, investors actually own the individual holdings rather than buying an ETF or a mutual fund.

Similarly, direct indexing can allow for diversification that goes beyond the index. For example, someone with a business in the tech industry may want to diversify their investments and holdings away from technology stocks. This level of customization is not possible with traditional index investing. 

Finsum: Direct indexing is quite powerful and growing in popularity. But, it’s only appropriate for a select group of investors with specific needs and goals. 

In the Financial Times, David Thorpe covered comments from John Roe, the head of multi-asset investing at Legal and General Investment Management, about why investors need to move past the 60/40 portfolio. Until recently, the 60/40 model portfolio was considered the gold standard based on the notion that stocks and bonds are inversely correlated.

According to Roe, this concept doesn’t work in higher-rate and higher inflation environments like the 70s. He added that "The idea is that if a real recession happens, then equities fall in value but bonds rise in value because the expectation is that inflation would be falling. But the reality is that in the 70s and the 80s, when we had a recession but inflation was also quite high, that inverse correlation didn’t always happen.”

He advises investors to also have a healthy allocation to more asset classes including real estate, alternatives, and emerging markets. These investments would outperform if inflation proves to be entrenched. As 2022 demonstrated, both stocks and bonds are liable to underperform when inflation surprises to the upside. 

Finsum: The 60/40 portfolio has been considered the gold standard for investors. However, this is being reconsidered especially as it has shown to underperform in periods of higher inflation.