Displaying items by tag: wealth management

Until very recently, direct indexing was simply not an option for the vast majority of investors.  This is because the strategy is quite tedious to execute and could become cost prohibitive in the previous era when commission-free trading and fractional shares were not available.

This is because the strategy requires creating an actual index within an investors’ portfolio. It’s now feasible and quite easy to do due to technological advances. Additionally, the real alpha in the strategy is created through routine tax loss harvesting. 

This is an automated process where the portfolio is regularly scanned to sell off losing positions. Then, these losses can be used to offset capital gains elsewhere in the portfolio. Proceeds from the sold positions are then reinvested into stocks with similar factor scores to the ones that are sold in order to ensure integrity with the underlying index even if the holdings temporarily deviate. 

Clearly, this strategy wouldn’t be tenable without cheap and/or free trading and fractional shares for smaller sums. In the previous era, the high volume of trades would offset any additional returns. Without fractional trading, smaller sums also would not be able to track the underlying index and not be able to invest in higher-priced stocks that comprise large portions of indices. 

Finsum: Direct indexing’s proliferation is only possible due to 2 specific fintech breakthroughs - commission-free trading and fractional shares. 

LPL continues to add advisors with its recent addition of 4 advisors from Edward Jones who managed $410 million in assets and a Merril Lynch broker, J. Brendan Wood, with $130 million in client assets. 

Wood is launching a solo practice - Wood Wealth Management - through LPL’s employee channel, Linsco. Previously, he had been ranked as one of the top #100 advisors in Massachusetts and worked as part of Foundation Management Group which managed $654 million in assets. 

Linsco was created to appeal to wirehouse brokers who want more independence and want to build a business. It gives more flexibility but doesn’t burden advisors with administrative tasks. In June, another Merril broker with $315 million in assets moved to Linsco as well as the channel now counts 100 advisors in total.

In addition to Merril Lynch, LPL has had success in luring brokers from Edward Jones. 4 brokers and $400 million in assets moved to LPL’s Strategic Wealth Services unit and will operate as Omnia Wealth Group in Elkhorn, Wisconsin. Strategic Wealth Services offers support for marketing, compliance, and administrative tasks for a fee. 

Prior to the latest move, 5 Edward Jones brokers had moved to LPL already this year. LPL is now the largest independent broker-dealer with 21,000 advisors while Edwards Jones is a full-service brokerage with 18,900 brokers. 

Finsum: LPL Financial is the largest independent broker-dealer, and it continues to lure brokers from more established firms like Merril Lynch and Edwards Jones.

In a piece for AdvisorHub, advisor transition company - 3xEquity - shared some lessons for advisors from Twitter’s rebrand. While Twitter has been on a strange journey over the last few years and is now known as X, there are some important takeaways for advisors who are starting with a new firm. 

For one, the most important task is to introduce the new brand to existing clients and stakeholders. With this, it’s important to be consistent with the new branding to ensure there is no confusion among your clients. 

For advisors who are considering moving to a new firm, they should ensure that the new firm’s transition team is sufficient enough to handle the workload in order to ease the move. Additionally, an advisors’ time should be spent communicating with clients rather than handling paperwork or back office functions. 

Re-branding is also another consideration for advisors who are selling their firm, especially as many advisors now are choosing a hybrid phased selling model. With this model, advisors may work as employees and are slowly phased out of the new firm to maximize client retention. This can also lead to confusion among clients so it requires constant communication about the transition process.

Finsum: The transition process can be difficult for advisors who are moving to a new firm. Here are some lessons from Twitter’s re-branding for advisors on what to do and what not to do.

As the summer ends and fall rolls around, it’s natural to expect a surge in market volatility. This is even more relevant this year given that stocks have enjoyed a period of low volatility and gently rising prices throughout most of the summer despite a variety of challenges such as rising rates, stubborn inflation, and pockets of weakness in the economy.

Further, history shows that periods of sharp increase in rates can often trigger stress in parts of the financial system that can have knock-on effects in the real economy. The most recent example is the crisis in regional banks due to an inverted yield curve which could have negative effects on the flow of credit in the economy.

For ETFTrends, Ben Hernandez discusses how direct indexing benefits from these surges in volatility. Direct indexing differs from traditional investing in funds as it allows investors to re-create an index in their portfolio. 

This allows tax losses to be harvested as losing positions can be sold with the proceeds re-invested into stocks with similar factor scores. Then, these losses can be used to offset gains in other parts of the portfolio, leading to a lower tax bill. 

Finsum: Direct indexing has many benefits but the most impactful in terms of alpha is its ability to generate tax savings for clients during volatile markets. 

For ThinkAdvisor, Jeff Berman reviews some takeaways from the “Future of Practice Management: Boosting Business in 2023.” Overall, the majority of advisors are struggling with growth while a slim minority are accounting for the bulk of growth in terms of clients and assets.

In fact between 2016 and 2022, the average annual growth rate of revenue for registered investment advisors (RIA) was 11.3%. However, this was mostly due to the market appreciating rather than advisor-driven growth.  According to research from Charles Schwab, most advisors see growth between 6 and 7% primarily due to referrals, while they lose around 5% every year due to clients taking distributions.

In terms of growth tips, the panel recommends that advisors start using AI tools especially for marketing and back-office purposes to get more effeicinet. Having an organic growth plan is also essential especially given that most advisor growth is solely due to client referrals and asset appreciation. Part of the growth plan is defining your ideal client and figuring out how you can get in front of them on a regular basis. 

Finally, advisors need to think about thier clients holistically, and how their services will improve all aspects of a clients’ life rather than just financial areas. WIth competition from robo-advisors and other technological solutions, advisors need to emphasize the human touch and become a trusted advisor and source of personalized financial advice. 

Finsum: Many advisors are falling short when it comes to growth, solely relying on referrals and asset appreciation. Here are some tips on how to accelerate your practice’s growth trajectory.