Displaying items by tag: clients

It’s often remarked that demographics are destiny. Like most developed countries, the US has an aging population with about 10,000 Americans reaching retirement age every day. And over the next decade, more than 20% of the workforce will reach retirement as well.

The issue is even more stark for the financial advisor industry with the average advisor in the 50s. For advisors in this age group, it’s necessary to start thinking about succession planning for multiple reasons. 

For one, a successful exit requires the same type of planning and intention that an advisor helps clients with in order to reach their financial goals. Second, proper succession planning can ensure that you will maximize the value of your practice when you are ready to retire. Finally, it’s an important signal to prospective and current clients that you are committed to their success even if you may no longer be an active part of it. 

The first step is a continuity plan which details what happens to the practice in the event of a death or disability. The second step is to investigate various options. Recently, a popular option for smaller firms is to sell but then continue to work as an employee for a couple of years to ensure a smooth transition. 

Regardless of what you choose, it’s important to keep your clients updated about succession and continuity plans. Ideally, you can meet with your clients and their new advisor multiple times before the final transition. 

Finsum: The financial advisor industry is approaching a demographic cliff. For a variety of reasons, it’s important for advisors to start succession planning. 

LPL is partnering with MSCI to add direct indexing capabilities to its suite of model portfolios. Advisors will be able to access these features through custom indexed separately managed accounts. Direct indexing is a growth market for advisors due to its ability to provide tax savings in down years, a slight increase in returns, and more personalization.

The company made the announcement at its Focus 2023 event. LPL is currently the largest independent broker-dealer in the United States with nearly 20,000 advisors and over $1.1 trillion in assets. 

Rob Pettman, executive VP of Wealth Management Solutions said that “Investors want the ability to customize their investment strategy in order to achieve a range of goals, including reducing overall tax burden and/or avoiding a particular sector or security.”

The new offering will have a $100,000 minimum and include models for large-caps, small-caps, mid-caps, and international stocks. They will have the MSCI USA and EAFE indices as the basis for these portfolios. 

There will also be an option for automatic tax-loss harvesting which can be optimized according to each client’s portfolio. Overall, the firm believes that direct indexing will also help with attracting and retaining clients especially with nearly all of LPL’s competitors offering direct indexing. 

Finsum: LPL joined the model portfolio race and is partnering with MSCI to offer a variety of options and capabilities. 

Building a high-caliber team is required for advisors looking to build and scale their own practices which can often include hiring and leading other financial advisors. In InvestmentExecutive, Todd Humber shares some tips for leading a team of advisors. 

Communication is key, especially providing a forum for open discussion of ideas and understanding their needs and concerns. An effective advisor is always taking in information and then providing feedback which is shaped by their expertise and experience. This process should be nurtured as this feedback can be used to make better decisions.

Leaders should try to create a culture where everyone feels important and connected to organizational goals. This can be re-affirmed with regular one-on-one conversations with each team member to ensure that they agree and are aligned with the overall vision. These conversations should be a way for members to express any disagreement or share negative feedback. 

In general, advisors respond better when they are given latitude to accomplish their objectives. This also will help them grow even if it involves the occasional mistake. Leaders should ensure that they learn lessons and apply them in the future while not reducing their desire to take initiative and ownership. 

Finsum: Leading a team of advisors is not a simple task. It requires processing constant feedback from advisors while ensuring that their actions are aligned with organizational goals.

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.