Displaying items by tag: advisors

With interest rates at their highest level in decades and an increasingly cloudy economic outlook, it makes sense that interest in annuities has increased. Used properly, annuities can create a steady income and reduce overall portfolio volatility.

However, Allan Roth in a Barron’s article shares some risks that investors need to consider before investing in an annuity. In terms of simple annuities, there are two main kinds -  single premium immediate annuities and multi year guaranteed annuities. 

He says that a single premium immediate annuity is similar to a pension. Typically, these are bought through an insurance company, and it pays a defined amount every year. The benefits are that it provides cash for the rest of a clients’ life. But, the risk is that the value of this income can be diluted by inflation. This becomes more germane the longer the annuity is relied upon.

The other option is a multiyear guaranteed annuity which provides income for a certain period of time, typically between 5 to 10 years. This functions similarly to a certificate of deposit. Yields  are slightly higher than a CD especially with longer durations. However, the higher yield does come with higher risk as CDs are backed by the FDIC while these annuities are backed by insurance companies which come with higher levels of risk. 

Finsum: Annuities are seeing higher levels of demand due to increasing recession risk and high rates. Yet, there are some risk factors that investors need to consider.

While model portfolios are gaining in popularity, there are some notable detractors such as Lifeworks Advisors CEO Ron Bullis who criticized model portfolios for not providing enough customization for clients. His comments at the WealthStack Conference were covered by Patrick Donachie for WealthManagement. 

Specifically, he believes that the risk scores used by model portfolios are not effective indicators of the actual risk faced by clients which can vary by large amounts. He believes that the industry is falling short on meeting the needs of clients especially in a world of increasingly personalized services that are immediately available. 

Due to the ubiquitousness of smartphones and finance apps, the cost and inconvenience of switching advisors has dramatically declined. This is a major change from the previous decade. And, we saw a taste of this during the collapse of Silicon Valley Bank with $42 billion in customer deposits exiting the bank in days as rumors of a collapse spread. 

Advisors need to start thinking about this new reality as competition for clients could also increase. They need to clarify and understand what is unique about the services they are providing to their clients and need to proactively take steps to grow the relationship with clients. 

Finsum: With technology comes inevitable change, financial advisors need to prepare for a world where clients are much more proactive in switching firms due to digitalization.

In an article for Financial Planning, Erica Carnevalli discussed some best practices for financial advisors looking to bolster their digital marketing. For advisors looking to market their services especially to younger prospects, having an effective online presence is necessary. 

According to Broadridge Financial Solutions, over 40% of advisors have landed clients through social media marketing but only 28% of advisors have an online marketing strategy. Creating your strategy, targeting your ideal client, and ensuring that it aligns with your firms’ value is the first step.

The second step is to find the channel that aligns with your personality. Some options include podcasts, short form videos, or blogging. The key is to make small investments in terms of time and energy at first. Once, something gains traction, then you can double down on that particular approach. Another key is to stay consistent in terms of your output and timing so that you can be a consistent presence on your prospects’ feed.

Finally, advisors need to curate a professional online image that reflects the best version of you. This means keeping your content professional and curating any comments that could detract or distract from your aim.

Finsum: Digital marketing is increasingly necessary for advisors who are looking to grow their practice. Here are some important considerations.

Until the last couple of years, there were limited opportunities for investors to earn a decent income from thier portfolios. Now due to the Fed’s rate hikes, the situation is much different as there are plenty of options for investors. In AdvisorPerspectives, Mike Smith and Mary Erwin of Russell Investments detail some considerations to reduce risk while optimizing for yield. 

During the prior decade when low rates prevailed, many investors were forced to invest in riskier securities in order to generate a decent yield like international bonds, infrastructure bonds, and high-yield bonds. Now, investors can earn similar returns with securities that are much less riskier, but Smith and Erwin believe that investors should continue to have diversified exposure to the asset class given that inflation poses a major threat.

If inflation continues to climb, it reduces the value of these cash flows. Therefore, investors should ensure that their portfolios’ income will grow faster than inflation. Model portfolios can play an important role in this process as it can help build a diversified portfolio and offer exposure to a variety of asset classes with more potential for growth in their income streams.  

Finsum: A major challenge for income investors over the next decade is ensuring that inflation doesn’t eat into their portfolios’ income stream. 

In an article for WealthManagement, Iraklis Kourtidis shared his persepctive on direct indexing and what it precisely means. He says that there are two components to direct indexing. The first is that it helps an investor create a custom and personalized index. The second is that it can help with portfolio management to ensure that it tracks a specific benchmark. 

With direct indexing, investors hold the actual securities themselves in a portfolio rather than an ETF or mutual fund which tracks an index. One advantage of this is that it enables an investor to create their own index. Previously, this wasn’t possible as index investing was only possible through ETFs and mutual funds which follow well-known indexes.

Some investors want the benefits of index investing in terms of diversification and low costs. But, they need greater personalization. One approach is to modify an existing index. Another is to create an index from scratch. 

In terms of portfolio management, there are some additional challenges. For one, index holdings need to be constantly rebalanced especially when tax losses are being harvested to offset gains in other parts of the portfolio or when factor scores change. 

Finsum: There are two parts of direct indexing, and each is crucial for success. One involves constructing a custom index, and the second is portfolio management.