Wealth Management
Although the advisor recruiting frenzy is certainly slowing down, two trends clearly standout. One is that LPL Financial has been a big winner with its variety of models and offerings for incoming advisors. The second is that Merrill Lynch has been a big loser with several high-profile exits.
This continued this week with two teams leaving Merrill Lynch who collectively manage over $1 billion in assets. The Coutant Group which is led by Kevin and Keith Coutant announced that they are leaving for UBS. The five-person group manages $700 million in assets with lead advisors Keith and Kevein having spent 23 and 20 years at the company, respectively. At UBS, they will be joining Soundview Wealth Management and continue operating in Connecticut.
So far in 2023, UBS has recruited away nearly $4 billion in client assets from Merrill Lynch. Reportedly, the bank has been offering generous packages to brokers including guaranteed back-end bonuses and deals that are in the 400% range.
The other major exit from Merrill was John Foley who managed $340 million in assets and left for RBC. According to reports, the exits are motivated by competitors offering more generous compensation and providing more freedom in terms of product recommendations and client relationships.
Finsum: Merrill Lynch has seen a steady stream of exits from advisors and brokers with large books. The latest are more than $1 billion in assets leaving for UBS and RBC.
‘Higher for longer’ is the main takeaway from the FOMC meeting after the committee decided to hold rates. Members also signaled that another rate hike is likely before year end. Overall, there was a hawkish tilt to Chair Powell’s press conference as 2024 odds saw consensus expectations decline from 3 to 4 rate cuts to 2 to 3 cuts.
FOMC members’ dot plots also show expectations of less easing in 2024. In June, it saw 2024 ending with rates at 4.6%. This was upped to 5.1%. The Fed did acknowledge progress in terms of inflation’s trajectory. Powell remarked that “We’re fairly close, we think, to where we need to get.”
Fixed income weakened after the FOMC with yields on longer-term Treasuries jumping to new highs. Yields on the 10-year reached 4.48% and have broken out above the spring highs. The increase in yields has had negative effects on equities, specifically the financial sector and small caps. However, yields on shorter-term Treasuries haven’t risen above spring highs.
It’s an indication that markets are not expecting terminal rates to move materially higher but it’s adjusting to a longer duration of high rates. For fixed income investors, it likely means that volatility will persist in the short-term.
Finsum: Longer-term Treasury yields are breaking out to new highs following the FOMC meeting. Expectations of meaningful Fed rate cuts in 2024 are being tempered.
With major technological disruption happening in every industry, it’s natural to consider how the financial advisor industry will change over the coming decades. After all, the industry is unrecognizable to how it was a few decades ago. Here are some of the trends that will shape how the industry evolves.
People, especially the younger generation, are increasingly spending more time in the digital world including when it comes to managing their finances. Many in this cohort would rather communicate with their advisors over text, email, or video calls.
Artificial intelligence (AI) presents a threat and opportunity to advisors. AI is being used to augment robo-advisors and give them more interactive capabilities and personalized advice. While this could lead to some market share gains, advisors can also utilize AI to augment their own businesses by improving back-end operations, automating low-level processes, reducing expenses, free up time for client services, and boosting marketing efforts.
Another major opportunity is the massive aging of the population and retirement of the baby boomer population. As this generation passes, trillions in wealth will be passed down to Generation Z and Millennials. Successful advisors will be able to form trust and relationships with older clients and their children.
Finsum: The financial advisor industry is going to face major challenges and opportunities over the next couple of decades. Demographics and technology are two of the most impactful.
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Direct indexing is a new approach to investing which involves recreating an index within an investors’ portfolio which combines the benefits of passive investing in addition to tax loss harvesting capabilities with the potential for increased customization. For these reasons, it’s been growing in popularity especially as it’s become available to a wider swathe of investors.
However, according to a recent report from Hearts & Wallets, a wealth management research firm, most investors remain unfamiliar with the concept. In fact, there is considerable confusion about what it specifically means. Many weren’t able to specifically delineate between ETFs and direct indexing.
Another challenge is that many investors believed that direct indexing was closer in approximation to active investing rather than passive investing and that it would require some sophisticated management. For those who were interested in direct indexing, the potential tax savings were the biggest factor.
One of the conclusions of the report was that the industry should consider renaming ‘direct indexing’ to something that was more definitive. Too many investors who would be good candidates for these products are dismissive due to an incorrect understanding of its function and benefits.
Finsum: Direct indexing is growing in popularity. Yet, a recent report on the category revealed some issues that may impede its future growth.
Financial advisors pour so much time and energy into building their businesses and cultivating high-quality relationships with clients. Yet, they often don’t put in a fraction of the thought when it comes to succession planning even though the implications are massive in terms of maximizing the firm’s value or ensuring that employees remain satisfied and business continues successfully operating.
For ThinkAdvisor, Buckingham Strategic Wealth’s MIchael Kitces shares some advice on successful succession planning. He recommends starting with honest and frequent dialogue between owners and younger advisors who may have expectations about their role in the firm’s future. Older advisors can also choose to transition at their own pace and may give up certain responsibilities while continuing to do the parts of the job they enjoy.
Part of this communication strategy is to be open about uncertainty rather than repeatedly changing plans which can lead to frustration. Another common mistake is to think about every decision as being binary rather than thinking about compromises between valid, competing interests. Finally, remember that succession planning is ultimately about maximizing the value of the firm in the present and setting it up for success in the future.
Finsum: Succession planning is the final major decision that advisors will make in their careers. Here are some ways to maximize your chances of success.
Exxon Mobil recently shared its long-term outlook on how it sees the global energy market evolving. Overall, it sees renewables taking a greater share but that more than half of the world’s energy needs will continue to be met by oil & gas.
It sees energy demand as being intrinsically tied with economic development. By 2050, more than 1.5 billion people will have entered the global middle class which comes with increased consumption of automobiles, air conditioners, refrigerators, etc.
China’s per-capita energy consumption more than pentupled as the country experienced an economic boom. The company sees a similar possibility in Africa over the next couple of decades. In total, it sees global electricity consumption growing by 80% by 2050.
In order to facilitate this, it believes that all types of energy need to play a role including oil & gas. Despite the belief of many that EVs portend a peak in oil demand, ExxonMobil points out that even if every car sold in 2035 is an EV, global oil demand would only drop to 85 million barrels per day which is equivalent to 2010 levels.
Finsum: ExxonMobil shared its outlook for the global energy market till 2050. Overall, the company believes that energy demand will continue rising and that oil & gas will remain integral for the global economy.