Wealth Management
In a piece for AdvisorHub, Karmen Alexander covers the latest developments in First Republic’s wealth management unit following the regional bank’s bankruptcy. The majority of the beleaguered bank’s assets were acquired by JPMorgan, but many of its financial advisors are choosing to move to new firms.
Overall, the general trend seems to be that the advisors with the most assets are moving to an independent model. One exception is Mark Alibrandi and Stephen Alibrandi who are joining UBS’ Private WEalth Management unit, taking an estimated $1.5 billion in assets and a total of $5.1 million in annual production. Both Alibrandis had been with First Republic for over a decade and were ranked #8 by Forbers for best wealth advisors in Massachusetts.
This move came on the heels of Shannon McAllister also exiting First Republic for UBS with around $1.3 million in assets earlier in June. While UBS is recruiting brokers in the New England area away from First Republic, NewEdge Wealth, a hybrid brokerage and advisory firm, was successful in recruiting John Froley in California. Froley was ranked as the #62 advisor in California by Forbes and has $309 million in assets under management.
Finsum: First Republic was acquired by JPMorgan. Yet, many of the companies’ wealth advisors are leaving the bank for greener pastures.
In Bloomberg, Garfield Reynolds covers the weakness in bond markets following a flurry of better than expected economic news which is making clear that a recession is not imminent. Between March and June, bonds were in the midst of a spectacular rally due to inflation slowing, increasing signs that a recession was likely in the second-half of the year, and financial stress caused by the failure of regional banks.
Yet, these gains have been quickly wiped away in the past month amid strength in the labor market and consumption. Also, it’s now apparent that the Fed’s hiking cycle is not over. Consequently, a global index of government bond yields have hit their highest level since September 2008 which precipitated the Great Recession. Adding to bond woes is the consensus expectation that Treasury yields had peaked.
It’s also impressive that despite weakness in regional banks, there has been no contagion effect in terms of tighter credit which could potentially add to recessionary impulses. However, some market participants are wary that further weakness in bonds could result in strains to the banking system and result in a ‘deposit flight’ to Treasuries.
Finsum: Fixed income has been in a brutal bear market over the past month as the market’s consensus about a bond bull market, slowing economy, and the Fed being finished in terms of rate hikes have proven to be false.
In an article for Morningstar, Sheryl Rowling discusses a conundrum facing many financial advisors - how to grow their practices without compromising on providing personalized attention to clients. After all, client service is the foundation for any successful practice and sacrificing this in the pursuit of growth can lead to higher rates of turnover and dissatisfied clients.
One recommendation is to set up systems to ensure constant communication with clients. For instance, many advisors commit to responding to any client inquiries within 24 hours with the type of communication customized to client preference. Additionally, advisors can create a quarterly piece of content like an email newsletter or a letter, providing general updates on a client’s financial plan and keep them updated about financial markets and other important information.
Another recommendation is to invest in creating an effective online presence. While this requires an upfront investment in terms of time and money, it will create longer-term efficiency in terms of marketing and client recruitment. Thus, growth can be achieved without compromising on service.
Hiring an assistant or operations person who either specializes in back office tasks, marketing, or customer service can also be helpful and lead to additional time savings. Many advisors continue to wear many hats and don’t spend enough time on the tasks that move the needle for their firm. By hiring for specialized roles, advisors will have more time to focus on the key tasks that drive success whether it's more personal time with clients, portfolio management, or generating leads.
Finsum: Every financial advisor faces a similar challenge. They want to grow their practice but not compromise on client service which is integral to long-term success.
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In an article for InvestmentNews, Gregg Greenberg discusses findings from Cerulli Edge’s latest report on the asset and wealth management industry. One of the most alarming takeaways is that there is a trickle of new advisors entering the industry with the vast majority failing to stick.
Overall, more are exiting the industry via retirement or quitting than entering. Last year, the number of advisors increased by only 2,579. And, the failure rate for newer advisors was 72%.
Due to these findings, Cerulli made some recommendations on how practices can attract fresh talent to the industry. Most new advisors enter the industry through referrals while lacking any sort of experience in financial services.
Thus, it’s imperative that firms have a structured training program that allows new advisors to learn the industry to gain confidence and experience. One of the barriers that new advisors face is the challenge of building their own client book. Thus, an effective training program should equip advisors with the skills and knowledge to successfully build their own book. It should also come with a natural progression from operational and support roles into production and portfolio management especially as compensation is tied to the latter two categories.
Finsum: The Financial advisor industry is facing a long-term challenge with a lack of new entrants into the field, a high failure rate, and a looming wave of retirements.
In an article for Wealth Management, Iraklis Kourtidis discusses how the investment industry needs to evolve in order to reduce risk and improve returns. Essentially, it tends to look at the past to make assumptions about the future, specifically regarding correlations between asset classes.
He believes that too much time and energy is spent on discussing how investments have performed in the past which doesn’t make sense in a world with efficient markets. Instead, investors and advisors need to pay more attention to the future. And, this is even more important with the advent of direct indexing.
Kourtidis believes there are better questions to ask with direct indexing such as will these investments adhere closely to my values? Another is will this strategy properly weigh the tradeoffs between tracking errors, tax efficiency, and personal values? Finally, investors and advisors need to determine whether the additional cost and effort of direct indexing will yield better results than a traditional approach, specifically in terms of tax benefits?
These are forward-looking questions that do have answers unlike questions about the market’s direction, monetary policy, or portfolio returns. Overall, direct indexing means that investors need to consider a different set of questions.
Finsum: Direct indexing creates an entirely different set of opportunities and challenges for investors and advisors. Here are some things they need to consider that they wouldn’t with traditional investin
Yields on Treasuries shot higher following the June ADP private sector jobs report which came in much stronger than expected at 497,000 vs 228,000. This is a continuation of a trend in recent months, showing that economic growth and the labor market are defying consensus predictions of a recession.
In fact, many analysts now believe that the economy could be re-accelerating which has major implications for fixed income and equities. Immediately following the report, odds increased for rate hikes at the next 2 FOMC meetings, and odds for a cut in the first quarter of 2024 sharply declined.
Higher yields and tighter monetary policy are certainly headwinds for equities and fixed income. Additionally, one of the catalysts for the recent rally in equities has been expectations of an imminent Fed pivot given weakening inflation and a softening labor market. Yet, data over the last month have made it clear that the Fed still has more work to do to achieve its objectives.
It’s also interesting to note that yields on shorter-term Treasuries are now approaching their highs from early March. Further, the decline from March into May following the collapse of Silicon Valley Bank and distress at other regional banks has been entirely reversed.
Finsum: Fixed income weakened following the ADP jobs report which showed that private sector hiring was twice as strong as expected. Ultimately, the report likely means that rates will go higher and stay elevated for longer than expected.