Wealth Management
In an article for InvestmentNews, Emile Hallez reports on annuity sales reaching record levels in the first-half of 2023. Demand for these products is due to the highest interest rates in decades, coupled with economic uncertainty with factors like inflation and concerns of a recession. Overall, annuity sales reached $182.9 billion in 2023 which is a 28% increase from the first-half of 2022.
One of the fastest-growing annuity categories is registered index-linked annuities (RLIA). These have gone from a fraction of the annuity market to becoming one of the most popular in 2023. In 2017, only 4 companies offered these products, while 17 do so currently with others planning their own offerings in the coming months.
Interestingly, RLIA sales are up 8% compared to the first-half of 2022 but sales of traditional variable annuities are down 25%. RLIAs are different from variable annuities because they offer more protection with some also offering some sort of guaranteed income.
Recent developments are supportive of continued inflows into these products especially given what’s happening in other asset classes. Equities have enjoyed a surprisingly robust performance, but it’s leading to concerns about valuation. Fixed-income also offers generous yield, but the asset class posted negative returns in 2022 and middling returns in 2023. Therefore, it’s likely that annuities continue to see record inflows in the second-half of the year.
Finsum: The outlook for annuities is quite strong for the second-half of 2023 given high interest rates, an expensive stock market, and volatility in fixed income.
Many advisors and wealth managers are switching to model portfolios and taking a more hands-off approach when it comes to constructing and managing clients’ portfolios. The upside of this is clear as it gives advisors more time to spend on client relationships and building their business. According to surveys, about 35% of an advisors’ time is spent on managing and researching investments.
Yet, it doesn’t make sense as an advisors’ ultimate success depends on retaining and recruiting clients and helping them reach their financial goals rather than the incremental gains that can be theoretically achieved by spending more time researching investment ideas.
According to Cerulli Associates and covered by Kenneth Corbin in Barron’s, many large brokerage firms are also embracing model portfolios and encouraging brokers to spend more time with clients. Cerulli’s research shows that in down years for the market, 60% of advisor portfolios underperform the market, undercutting the rationale for more active management.
68% of brokerage firms are now moving away from advisor-constructed portfolios. In the future, they see advisors serving more as ‘holistic financial planners’ rather than stock-pickers or portfolio managers. Over long periods of time, model portfolios outperform most advisor-generated portfolios with much less risk or concerns about compliance or conflicts of interest.
Finsum: Large brokerage firms are encouraging advisors to embrace model portfolios especially given lackluster returns of many advisor-built portfolios and the extra time and energy it gives for client service.
At the latest FOMC meeting, Fed Chair Jerome Powell made some headlines when he struck a dovish tone despite resuming its normal schedule of quarter-point rate hikes. He also slightly upped his assessment of the economy declaring it growing at a ‘moderate’ pace while it has been described as growing at a ‘modest’ pace previously.
In terms of fixed income, the asset class initially saw a decent rally due to many investors interpreting Powell’s dovishness as an indication that the Fed is in the final stages of its hiking campaign. But, these gains were quickly given back with yields spiking higher following the stronger than expected GDP print which came in at 2.4% vs expectations of 1.6%.
Following this print, odds of the Fed cutting rates in the first-half of 2024 declined, and many market forecasters pushed back or revised thier prediction of a recession as well. With the economy robust despite higher rates, it’s likley that rates stay elevated for longer. Adding to the weakness was unemployment claims coming in lower than expected, adding to evidence that the labor market is re-accelerating following a period of softness.
As a result, Treasury yields spiked hihger and are now approaching their 52-week highs.
Finsum: Fixed-income enjoyed a nice rally following the dovish FOMC meeting. But, the asset class weakened following a stronger than expected GDP print and lower than expected unemployment claims.
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The cultivation of talent’s come a long way. Baby.
At its center: succession planning, according to sigmaassessmentsystems.com.
SIGMA – with the intent of providing organizational leaders with a snapshot of what’s unfolding today in succession planning – produced a report on where things stood this year. Several emerging trends were revealed:
Most organizations are focused on recruiting and retaining staff.
Many organizations recognize that they must keep up with industry innovation.
Many leaders are committed to improving customer experience.
A significant number or organizations want to transform their brand and culture
Interestingly, new financial advisors are setting a high rate of bolting from the industry, according to a Cerulli Associates report, reported financial-planning.com.
The importance of new talent in wealth management is further stoked given the fact financial advisors, who oversee trillions of dollars of assets, are riding into the sunset.
Yet, those making their maiden voyage into the profession aren’t exactly being received with a steaming mocha latte and scone, according to Cerulli, which reported that while 13,169 of new trainees left the industry in the rearview mirror, offsetting the more than 18,000 it picked up,
For SmartAsset, Rebecca Lake CEFP shares some tips for financial advisors when it comes to hiring new employees and building a team. This is usually an indication that an advisors’ business is growing and that she is ready to offload some responsibilities. Often, many advisors wait too long to hire someone given the time and cost involved, however hiring the right people is paramount to helping your practice succeed.
Lake recommends implementing a team structure with small groups working together and responsibilities clearly defined and distributed. This can help people focus on their strengths and gain more expertise with their tasks. For instance, a member can be in charge of outreach to new clients to ensure the practice has a steady pipeline of prospects.
Depending on the size of the firm, teams can be organized differently with 3 common approaches - vertical, horizontal, or hybrid. A vertical team structure allows the advisor to focus on meeting clients and managing portfolios, while other employees provide support and handle other tasks. This is the way that most practices are set up.
In order to find the best structure for your firm, Lake suggests making it consistent with how your firm is currently organized. For example at a small practice with a sole advisor, a vertical approach is ideal. She also suggests defining key roles for each member, outlining team goals, and selecting appropriate members for each team based on skills, personality, and experience.
Finsum: Growing a financial advisor practice requires going beyond just client outreach and portfolio management. It requires setting up efficient and scalable systems.
For ETFTrends, Tom Lydon explains how direct indexing can aid advisors with retaining and recruiting clients. Both of these are integral to growth for any thriving advisor practice while unsatisfactory performance in these areas can compromise success. So, advisors need to apply constant effort in these areas.
With direct indexing, advisors can forge a stronger connection with clients especially those who are more knowledgeable and self-educated. This group is more likely to appreciate the benefits especially in regards to tax savings and greater customization while retaining the benefits of passive investing.
Direct indexing achieves this because clients will own the actual components of an index in their own separately managed account. However, the components of the index can be adjusted based on the needs or desires of the client. For instance, a client who is passionate about the environment may want to exclude fossil fuel companies from their holdings. These can be replaced with different stocks that have similar factor scores in order to continue tracking the benchmark.
In terms of retention and recruitment, direct indexing leads to more conversations about a clients’ values, tax situation, and financial position. By optimizing these factors, advisors can add more value for clients and increase their chances of reaching their financial goals. These qualitative benefits are on top of the additional 1 to 2% of alpha that direct indexing adds to portfolios.
Finsum: Direct indexing has many benefits for clients. But an underrated one for advisors is that it can assist with client recruitment and retention.