Displaying items by tag: client management

Financial advisors constantly strive to find the perfect balance between serving their existing clients and attracting new ones. Often, they view their core value proposition as managing customized portfolios tailored to each client's unique needs. From this perspective, they believe spending less time constructing bespoke portfolios could negatively impact client relationships. However, a counterintuitive approach suggests the opposite: using model portfolios can create more time for genuinely serving clients.

While it may seem a paradox, spending less time on portfolio construction and more time listening to clients can significantly improve service. Building trust and understanding client needs requires dedicated time for genuine conversations and insightful questions. By freeing time from portfolio management, advisors can focus on building deeper relationships with their clients, focusing on what truly matters most to them.

Moreover, using model portfolios doesn't mean sacrificing portfolio quality. These portfolios are typically managed by professionals with access to a larger team of experts and a more comprehensive range of investment options than most advisors have access to.

Embracing model portfolios as a time-saving tool allows advisors to shift their focus from portfolio construction to client service. This seemingly counterintuitive approach often leads to higher client satisfaction and increased referrals, leading to a more successful practice.

Finsum: Consider how model portfolios can enhance client service for advisors by saving time on portfolio construction and focusing on client relationships.

According to a new report, advisors may be missing out if they are reluctant to target next-gen investors. Research from Fidelity Institutional Insights found that investors under the age of 40 are inheriting more than $540 billion in the United States every year, 30% of the total wealth transferred. In addition, data from Cerulli Associates shows that the demographic will control three-quarters of $84 trillion in inherited wealth by 2045. The Fidelity report is a wake-up call for advisors that shy away from young clients due to higher debt, fewer assets, and generational differences. Fidelity Investment’s vice president of practice management and consulting, Anand Sekhar, said the revenue-weighted age of the average Fidelity advisor’s client is 65. According to Sekhar that creates a huge problem for advisors in the future. With older client rosters, advisors could see widespread drawdowns and not enough clients to take their place. Making matters worse is that only 13% of advisors are engaging with clients’ children and grandchildren, which puts billions currently managed at risk. Fidelity’s data suggests that if firms can reduce the revenue-weighted age of clients by just seven years, from 69 to 62, it can increase a firm’s growth tenfold. The research also suggests that establishing those relationships now could produce greater returns as investors under 40 are investing earlier than their parents and are willing to pay for advice.

Finsum:With the average revenue age of clients nearing 70, many firms could see soon see massive withdrawals with no clients waiting in the wings, which is why advisors need to start engaging with clients’ children and grandchildren now. 

According to research reported in the latest edition of Cerulli Edge, the demand for financial planning increases with market volatility. Cerulli said that investors experiencing market volatility for the first time are more open to receiving advisor guidance. The report noted that eighteen percent of investors working with an advisor do not have a financial plan in place, but they do consider one important. In light of that figure, Cerulli recommends that advisors consider re-introducing their financial planning services, especially during periods of high market volatility, since some clients may not be aware of their planning offerings. The research noted that advisors who offer financial planning find that their clients are better positioned to stay the course and remain calm when market performance declines, which enables advisors to develop stronger client relationships. Scott Smith, Director of Advice Relationships at Cerulli Associates, said the following, “Financial planning shifts the focus to progress made toward achieving goals rather than investment performance. This frames volatility in the context of a bigger picture, which helps clients feel prepared when market shocks arise.”

Finsum:Based on a new Cerulli research report, clients are better positioned to stay the course during market volatility if their advisors offer financial planning.

The resounding takeaway from a recent FINRA conference call is that the regulatory body is taking a “no one-size-fits-all” approach to Reg BI compliance. FINRA explained that it is moving away from good faith efforts reviews and into “deeper dives” on how firms comply with Form CRS and the Reg. BI Care, Compliance, Disclosure, and Conflicts of Interest obligations. The conference call focused on FINRA’s expectations during exams and the types of violations that its exam teams will refer to their enforcement colleagues. FINRA mentioned several common violations that it will refer to its Department of Enforcement, including the failure to recognize the applicability of Reg BI and Form CRS deficiencies related to incorrectly answering the disciplinary history question. It also indicated that firms that were previously cited for Reg BI CRS deficiencies, and made no efforts to correct findings, are more likely to be referred to Enforcement. The overall message for firms is that they should document the steps they have taken to further Reg. BI and Form CRS compliance. This could be the difference between an exam deficiency or an enforcement action.

Finsum: In a recent conference call, FINRA’s explained that there is no one size fits all approach to Reg BI compliance and firms shoulddocument the steps they have taken to make sure they’re compliant.

According to a new report from Cerulli Associates, more advisors will be adopting the use of model portfolios to better serve their clients and free up time to develop their businesses. In the latest Cerulli Edge—U.S. Advisor Edition, 4Q 2022 Issue, the firm noted that the industry’s steady transition toward a financial planning-oriented service model will be a major fact in the increased adoption of model portfolios. Cerulli expects advisors to increase planning offerings over the next year, with 82% of advisor clients receiving targeted or comprehensive financial planning services by 2023. The report also noted that insourcers, or those who either customize portfolios on a client-by-client basis or use practice-level resources to build a series of custom models, spend 18.5% (practice models) and 29.5% (customizer) of their time focused on investment management. If those advisors use model portfolios, it will allow them to reduce their time commitment to less than 10%. The report also notes that advisors that outsource their portfolio construction have clients, on average, that are roughly half the size of those that insource their portfolio construction. Cerulli also found a correlation between model users and younger and smaller advisory practices.

Finsum: A recent Cerulli report predicts an increase in demand for model portfolio outsourcing as the industry transitions to a financial planning service model.