Displaying items by tag: advisors

When it comes to financial advisors, many instantly think of managing portfolios and selecting stocks. While many advisors still cling to this model, model portfolios are increasingly gaining favor. For one, portfolio management at the client level is not scalable which means that advisors would eventually be overburdened if the firm keeps growing.

Equally important, it frees up time for them to focus on the activities that actually drive success for their practices - client relations and effective prospecting. Also, most research shows that advisors who actively manage portfolios don’t necessarily generate better returns in the long-term. 

According to research from Cerulli Associates, model portfolios generated better returns than advisor-managed portfolios over multiple timeframes. And, this discrepancy widened during periods when the market experienced a negative quarter as model portfolios outperformed 60% of the time amid these conditions. 

The biggest drawback for advisor-led portfolios is the wide dispersion and variability of performance especially compared to model portfolios which had much steadier performance. Given that model portfolios are leading to better returns for clients with less volatility and also frees up time for advisors to focus on client relations and growing their business, the continued proliferation of model portfolios seems inevitable. 

Finsum: Model portfolios are taking an increasing share of the asset management pie. The benefits for advisors are obvious in terms of growing their business but research is also showing better returns with less volatility.

In FinancialPlanning, Victoria Zhuang shares some insights from research regarding a key segment of the population that can help financial advisors successfully grow their practices. In essence, about $72.6 trillion of assets is set to be passed down to heirs through 2045. 

And, this trend is accelerating. This year, $700 billion is forecast to be passed down, and the number is set to double by the next decade. However, many advisors are not positioned for this epic wealth transfer. Only 35% of advisors surveyed indicated that younger investors are a ‘critical priority’ or ‘high but not critical priority’.

In fact, clients under the age of 44 only make up 27% of accounts. Many in this cohort will benefit from the wealth transfer. Advisors should be appealing to this demo by offering specific advice and services regarding estate planning and wealth transfer.

Additional tips to appeal to this niche are to offer more technology like video calls, AI, and/or robo-advisors that would feel more intuitive for Millennials and Generation Z. Firms can also target or recruit younger advisors who may do a better job of connecting with ‘young heirs’.

Finsum: Prospecting ‘young heirs’ could be the key to success for advisors over the next couple of decades given the ‘great wealth transfer’ of $72.6 trillion in assets by 2045. 

For Advisorhub, Jeff Nash shares some thoughts on how financial advisor practices can invest in technology to lure top-notch advisors to their firm. Technology solutions should offer specific benefits such as a quick and easy transition, an increase in efficiencies, automation of routine tasks, regulatory compliance, and an improved client experience.

One of the factors limiting advisor movement is the amount of time and attention that is required to facilitate the move including paperwork, interruptions to operations, and regulatory compliance. So, it’s essential that any practices’ tech stack have an effective onboarding process that minimizes these disruptions and inconveniences.

Another consideration is that advisors’ time during the transition process should be ideally spent on staying in constant touch with clients to ease any concerns and resolve any issues. However, this can be difficult given all the additional challenges of the transition period. 

Many firms are investing in AI to assist with onboarding especially as it can help complete paperwork and address regulatory filings. Overall, AI will help reduce burdens on back and middle office support roles and play a role in client communications and provide more scalability. 

Finsum: Technology can help firms recruit advisors and aid with the onboarding process. Onboarding is stressful for firms and advisors given the regulatory challenges and additional demands but technology and AI can reduce the burden.

At the VettaFi Fixed Income Symposium, Todd Rosenbluth hosted a conversation between Stephen Laipply, the global co-head of iShares fixed income ETFs and Anmol Sinha, fixed income investment director at Capital Group. The conversation spanned a wide array of topics regarding the advantages of investing in fixed-income through ETFs.

Both also spoke of the recent growth in active fixed income ETF offerings, and why they are bullish on the category going forward. However, they rejected the binary of being an active or a passive investor and instead see a role for both strategies in a portfolio.

Active fixed income ETFs allow investors and advisors to better achieve specific goals such as exposure to a certain segment of the market or take advantage of market inefficiencies. Both are in favor of pairing an active ETF with a passive one to achieve ‘total portfolio exposure’. 

Fixed income ETFs are outpacing equity ETFs in terms of inflows over the last couple of years due to yields at their highest level in decades and a shaky economic outlook. Within the fixed income ETF universe, active strategies are seeing the most growth as they have outperformed amid recent volatility and advisors and wealth managers are becoming increasingly comfortable with the asset class.

Finsum: At the Vettafi Symposium, there was a discussion centered around fixed income ETFs and their future outlook. Regarding active vs passive ETFs, there was agreement that both are complementary rather than competing.

In an article for InvestmentNews, Emile Hallez reports on annuity sales reaching record levels in the first-half of 2023. Demand for these products is due to the highest interest rates in decades, coupled with economic uncertainty with factors like inflation and concerns of a recession. Overall, annuity sales reached $182.9 billion in 2023 which is a 28% increase from the first-half of 2022. 

One of the fastest-growing annuity categories is registered index-linked annuities (RLIA). These have gone from a fraction of the annuity market to becoming one of the most popular in 2023. In 2017, only 4 companies offered these products, while 17 do so currently with others planning their own offerings in the coming months. 

Interestingly, RLIA sales are up 8% compared to the first-half of 2022 but sales of traditional variable annuities are down 25%. RLIAs are different from variable annuities because they offer more protection with some also offering some sort of guaranteed income. 

Recent developments are supportive of continued inflows into these products especially given what’s happening in other asset classes. Equities have enjoyed a surprisingly robust performance, but it’s leading to concerns about valuation. Fixed-income also offers generous yield, but the asset class posted negative returns in 2022 and middling returns in 2023. Therefore, it’s likely that annuities continue to see record inflows in the second-half of the year. 

Finsum: The outlook for annuities is quite strong for the second-half of 2023 given high interest rates, an expensive stock market, and volatility in fixed income.