Wealth Management
Many advisors aspire to work with high net worth clients. However, this is certainly a competitive market since these clients will have more assets and require more sophisticated strategies and advice. Additionally, high net worth clients will be more demanding in terms of time and the type of services provided. And, it will be more difficult to retain these clients as other advisors may look to poach them.
Yet, there are some methods that you can apply to increase your chances of success. The first step is to have a specialized niche such as estate planning or tax management or even focusing on a particular profession such as doctors or lawyers. Offering specific and specialized services and advice is likely to appeal to high net worth clients and increase your chances of referrals.
Once you’ve picked a niche, the next step is to refine your message and brand. In part, this is about figuring out your unique value proposition relative to other advisors. This includes how you do business, and how you communicate with clients. Often, high net worth clients value regular communication, appreciate being offered a variety of options, and want to gain a deeper understanding of the reasoning behind advice offered.
Finsum: Many advisors aspire to work with high net worth clients. Here are some tips to increase your chances of success.
A lot of conventional wisdom regarding investing and wealth management has been questioned over the past couple of years. The best example is the traditional 60/40 portfolio. In the last couple of decades, this mix has been sufficient for returns and diversification.
However, this is clearly not the case in the current environment of high inflation and rates, as both delivered poor returns in 2022. In recent months, long-duration bonds have added to their losses, while equity performance has been mixed. The idea that a portfolio of just bonds and equities can deliver proper diversification is no longer valid.
Given that we have ostensibly entered a new era, advisors and investors have to be willing to rethink their assumptions and challenge conventional wisdom. One potential solution is the use of model portfolios.
Model portfolios can be used to add exposure to more asset classes which are truly non-correlated. These include commodities, foreign currencies, real estate, quant strategies, alternative investments, private credit, etc.
Allocations to these areas can lead to a truly diversified portfolio that can sustain performance in all types of environments with the appropriate level of risk. Additionally, advisors can offer more personalized products for their clients that are suitable for a wide variety of goals and needs.
Finsum: For decades, 60/40 has worked in terms of diversification and returns. This may no longer be the case if we are in a period of entrenched inflation and higher rates.
Financial advisors have so many considerations as they guide their clients into a secure retirement. Increasingly, ‘longevity risk’ is an essential factor since people are living longer lives. Obviously this is a positive, but it does mean that plans need to be appropriately adjusted.
Kelli Hueler, the CEO and founder of Hueler Cos., believes that annuities can often be an effective solution to bridge the gap. She is an advocate for lifetime annuity products and believes the current marketplace is the best it's been in decades.
For some time, there had been a bias against annuities from investors and advisors, but this thinking is being challenged especially as we are in a new economic regime of high interest rates and stubbornly elevated levels of inflation. Therefore, the same strategies that worked from 1980 to 2020 when rates were constantly drifting lower, may no longer work.
In addition to longevity risk, the dearth of pensions is another reason that the demand for annuities should continue to rise. And, possibly the most important factor is that due to high rates, annuities are actually paying out meaningful income streams to owners. While there are many downsides to the current economic environment, one silver lining is that annuities are offering a low-risk, robust value proposition.
Finsum: There are many downsides to the current economic environment, yet one silver lining is that annuities are once again offering healthy income streams to owners.
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A bad ending can ruin a movie or a TV series, just ask any Game of Thrones viewer. The same applies to any business including financial advisory practices. A great run can be marred by a messy and unorganized ending.
However, it’s easy to understand why an advisor laser-focused on building and operating a business may not put the same intensity or focus into succession planning. After all, there are many heavy decisions that have to be made, and each decision has major implications. So, it’s understandable why succession planning can be neglected.
Nevertheless, it’s clear that succession planning is essential. In the same way that financial planning increases the odds that someone can reach their retirement goals, succession planning can help you maximize the value of a practice, smooth the transition for clients, and give employees peace of mind.
While there are many elements to effective succession planning, the biggest ingredient is transparency throughout the process with clients, employees, and other stakeholders. This will prevent anyone from being surprised by the outcome and will also lead to more understanding especially as it’s likely that the succession plan could have multiple iterations depending on circumstances and developments.
Finsum: Succession planning is essential for an advisor but an important key is transparency during the process.
When it comes to making clients happy, there is no substitute for a wide variety of offerings given that everyone has their own unique circumstances, priorities, risk tolerance levels, and goals. Ironically, the recent trend in wealth management over the past couple of decades has been the opposite with the rise of ubiquitous 60/40 portfolios and passive strategies.
However, the introduction and ongoing proliferation of direct indexing is an antidote and presents an opportunity for savvy advisors. In essence, direct indexing allows investors to recreate an index within a separately managed account by owning the actual individual stocks. This is now possible due to technology, lower commissions, and fractionalization of shares.
The major benefit for clients and advisors is that these indexes can be customized as little or as much as clients desire. Thus, it retains the pros of passive investing, while allowing for personalization and the potential to harvest tax losses.
For example, investors who have strong beliefs about climate change may look to eschew companies who are responsible for emissions or the production of fossil fuels. Instead, they may want to overweight stocks with high ESG scores. With direct indexing, an advisor can theoretically create custom products for each client, leading to greater satisfaction and success for both parties.
Finsum: Advisors should get comfortable with direct indexing given that it allows for personalized products that are more likely to appeal to an investor.
One of the consequences of tighter monetary policy is that traditional sources of funding such as banks and public markets have dried up. This void has created an opportunity for private financing.
Pacific Investment Management Co. (PIMCO) is seeking to capitalize on these circumstances. Typically, PIMCO is known as a bond powerhouse but in recent years, its alternative segment has made some impressive strides. It sees opportunities to extend credit to companies in need of capital and has been coming up with creative strategies to facilitate this. This includes lending against assets and across the capital structure in addition to offering equity stakes for investors.
The firm is also increasing the number of portfolio managers who are dedicated to private credit and believes it can achieve private equity-like returns in the current environment. It also sees opportunity in the loan books of banks that are looking to shed risk and are focused on strengthening their balance sheets.
It sees upside opportunity in segments like tourism, airlines, gaming, concerts, theme parks and rental properties. However, it’s looking to reduce exposure to banks given the combination of a slowing economy and an inverted yield curve.
Finsum: PIMCO sees opportunity in private credit given that traditional sources of financing have become more difficult to access.