Displaying items by tag: personalization

There has been widespread adoption of separately managed accounts starting in the mid  2000s. The rationale for managing fixed income assets in this manner remains pertinent today: transparency, flexibility, transaction cost management, and active management are paramount in fixed-income investing. 

SMAs offer tailored portfolio management to meet clients’ fixed-income objectives, including tax management, income production, and specific investment restrictions, setting them apart from pooled vehicles like mutual funds and ETFs. The growth in SMAs for fixed income has been remarkable, with assets in SMA municipal fixed-income investments expanding from $100 billion in 2008 to $718 billion by Q2 2023, according to Citi Research. 

The advantages of SMAs, such as enhanced customization and efficiency, have fueled their increasing adoption by investors seeking precise control and personalized solutions in managing their fixed-income portfolios.

Finsum: Tailored financial products deliver a more personalized client experience and SMAs provide an avenue to improved relationships.

Many financial advisors are understandably uneasy about artificial intelligence (AI). Like any new technology, there will be considerable opportunities for those who can properly leverage and implement it. 

However, it’s also important to understand its limitations, as it lacks human intuition and the ability to understand and respond to a client's deeper, emotional needs. Instead, AI can be thought of as a way to enhance an advisors' capabilities and can be quite useful in areas such as fraud detection, estate planning, and tax strategies. Additionally, many advisors are already using technology that has elements of AI, especially for making forecasts and future projections. 

AI excels at tasks that require pattern recognition, optimization, and identifying trends. This means that it has applications in multiple areas such as prospecting, marketing, and planning. For example, estate planning is an area where AI is having a positive impact, as documents can be more quickly and easily understood by advisors and clients. It can also be used to streamline the process of updating documents based on notes taken from previous client interactions. 

Overall, AI is like previous technologies in that it can potentially help advisors gain more leverage, increase productivity, and result in more time spent on value-added activities. With financial advice, it can be particularly useful in terms of increasing responsiveness and personalization on a larger scale. 

Finsum: Artificial intelligence will affect nearly every industry and change how businesses operate. Here is how financial advisors should be thinking about this technology. 

Over the last year, there has been an increase in the accessibility and availability of direct indexing solutions. Still, the category continues to be dominated by high net worth or ultra high net worth investors. According to Anton Honikman, the CEO of MyVest, there is about $400 billion managed by direct indexing strategies. He anticipates that the next stage of growth for direct indexing will depend on younger and less affluent investors. 

Initially, the primary advantage of direct indexing was that it allowed investors to extract tax alpha. He forecasts that as direct indexing becomes democratized over the next few years, providers and advisors will have to make some adjustments.

He notes that custodians will have to offer fractional share support for the technology to work for smaller investors, as implemented by Schwab and Fidelity, which now offer direct indexing to investors with lower minimums. 

Typically, there is some premium involved with direct indexing over investing in low-cost ETFs. Given the increase in ETF options over the last couple of years, he believes that it marginally erodes the use case of direct indexing for many investors. Over the longer term, he sees the direct indexing premium compressing in order to remain viable vs. a portfolio of low-cost, targeted ETFs. Further, he believes that the next wave of direct indexing will be driven by younger investors who want to align their portfolios with their values rather than optimize their tax situation. 

Finsum: At one time, direct indexing was only available to high or ultra high net worth investors. As it becomes democratized, here are some considerations for providers and advisors. 

Have you ever wondered exactly what stocks and bonds make up your mutual fund? While diversification and professional management are huge benefits, you may want a timelier picture of your investments than these vehicles allow. This is where separately managed accounts (SMAs) offer a distinct advantage.

Unlike mutual funds, SMAs provide direct ownership of the underlying securities in your portfolio. This transparency lets you see exactly what you're invested in, empowering you to adjust more quickly if desired.

For instance, making informed and timely decisions is particularly useful when aligning your values to your portfolio. SMAs, with their immediate transparency and ability to customize holdings, allow for quicker adjustments if needed.

On the other hand, mutual funds typically update their holdings lists every quarter, which may be too much of a delay for your liking. And, by the time you see that report, the fund may have already bought or sold securities. With an SMA, you and your advisor have real-time access to your holdings, enabling you to stay on top of your investments and adjust as market conditions or your personal preferences evolve.

Finsum: The timely transparency of separately managed accounts is important to investors seeking to align their portfolio to their values.

A major trend in wealth management is personalization. Due to new technology, financial advisors are now able to offer customized products and solutions without sacrificing scalability. It can help clients reach their financial goals while also creating a stronger relationship between advisors and clients.  

A survey conducted of high net worth investors by PwC showed that 66% are interested in more personalization, while 46% are looking to change or add new advisors within the next couple of years. For advisors, offering personalized solutions will be increasingly important in terms of recruiting and retaining clients.   

Personalization is also impacting model portfolios. Until recently, most model portfolios were built around the traditional portfolio, combining stocks and bonds, which limited customization. Now, there are more options to customize model portfolios including by factors, themes, and values. 

According to research from MSCI, wealth managers can allocate to these strategies without worry that it would have an adverse impact on a portfolio in terms of returns or diversification. Further, these model portfolios are customized but still retain their core benefits. For advisors, this means spending less time on investment management and more time on client service, financial planning, and growing the business.

Finsum: Personalization is a major trend in wealth management. Now, model portfolios can be customized which is bringing a variety of benefits for advisors and clients without an adverse impact on returns or diversification.