Wealth Management
Succession planning is increasing in importance given the aging of the industry. Succession planning is essentially a plan for the business beyond an advisors’ involvement. It’s also a contingency plan in the event of an unforeseen event. Currently, less than 30% of advisors have a firm succession plan in place. Here are some options when it comes to succession planning.
The first option is an internal transfer of clients and assets to the next generation. It requires both parties to agree upon a value for the practice. The drawback is that often there’s a large gap in this assessment. However, the upside is that the transition for clients has much less friction.
The next option is to sell the practice to an aggregator or integrator. These firms specialize in acquiring RIAs and are often funded by private equity. Typically, this involves giving up control of the business, meaning that the successor has less upside and control due to ownership being diluted.
Another option is to sell directly to a strategic buyer, which is often another financial institution or financial advisor practice. This entails some sort of transition period to merge operations, employees, and clients. It requires carefully choosing a successor and ensuring that the culture of the two firms can mesh.
Finsum: Succession planning is increasingly important for clients. Here are some of the most common types of succession plans.
Despite the pain and volatility of higher interest rates, fixed income issuance is continuing to expand at a healthy clip. Skeptics who are calling for the “death of bonds” are incorrect as the market continues to function well despite the bear market.
In 2022, global bond issuance was down by 20%. However, this is mostly attributed to above-average issuance during the period of extremely easy monetary policy in 2020 and 2021.
Now, fixed income sales are normalizing and forecasted to exceed $6 trillion by year-end. And issuance is set to increase even more next year. Over the next couple of years, trillions in corporate debt will need to be refinanced which will be the major driver of new issues.
On the demand side, interest in the asset class has surged due to yields at attractive levels while the economic outlook remains muddled. Many institutions are forced buyers of fixed income securities due to regulatory reasons. Additionally, proceeds from fixed income investments are also often re-invested.
Currently, the global bond market is worth $140 trillion which means that even with 2% yields, it would generate nearly $3 trillion in payments. Of course, this figure is much higher given that most yields are much higher, but it’s an indication of the bond market’s staying power.
Finsum: Fixed income deals with considerable volatility and looks set for its second straight losing year. Yet, the bond market continues to operate fine with minimal systemic risk.
For a financial advisors practice to grow and thrive, there must be a continuous flow of new leads. Many advisors waste significant amounts of time and energy pursuing ineffective lead generation strategies. Instead, advisors need to refine their strategy to ensure that they are getting results on their efforts to create a pipeline of prospects. Here are some tips to increase your chances of success.
You can establish trust with prospects by offering them something that is free and useful. This can include information in the form of content or directly answering questions around specific topics. This can take the form of blog posts, podcasts, or webinars.
Social media can also be a powerful tool to connect with prospects and share your message. However, it can often be inefficient so it’s important to ensure that you are spending time on the same platforms as your target client. It can also mean doing research on the right keywords to increase the visibility of your content.
Another source of leads is through your existing clients. Person to person recommendations remain the best source of warm prospects. You can simply ask them if they know anyone who is looking for help with their finances.
Finsum: Many advisors aspire to work with high-net-worth clients. Here are some tips to increase your chances of success.
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One of the reasons that direct indexing has been gaining in popularity is its ability to harvest tax losses in portfolios with regular scans and rebalancing. This technology can also be used to harvest taxable gains on assets that have appreciated considerably over a long period of time by raising the cost basis of securities. This will ultimately lead to a lower capital gains tax bill.
This strategy entails selling shares that are owned on a low-cost basis and then rebuying at a higher cost basis. Unlike tax loss harvesting, there is no wash rule which prevents the same shares from being rebought. It can be most effective when there is an offsetting capital gains loss in another part of the portfolio.
Investors have not readily embraced this strategy as it conflicts with human nature and the desire not to sell a winning position. Advisors have an opportunity to serve their clients by explaining the benefits.
However, they need to identify these opportunities with the right technology and holistic perspective. The best chance of gaining this perspective is with a unified management account. It can also aid recruitment as many potential clients are looking for advisors who have a firm grasp on technology and innovative solutions to reduce capital gains taxes.
Finsum: Direct indexing can help advisors and investors with harvesting tax gains in addition to tax losses. This entails selling winning positions and then rebuying at higher levels to lower future capital gains tax bills.
Raymond James CEO Paul Reilly was optimistic about efforts to close broker recruitment deals before year-end on its recent earnings call. In total, Raymond James only added 31 brokers in its Private Client Group, while it lost 24 brokers in its independent channel.
The firm saw a 15% increase in assets to $1.3 trillion, although net new assets declined to $14.2 billion from $20.2 billion. Its Private Client Group segment saw a 29% increase in profit and a 13% jump in revenue.
Earlier this month, Raymond James completed a deal for a group of 27 advisors managing $3 billion in assets away from Cetera Investment Services. The company also set aside $55 million for an SEC probe into off-channel communications. Similarly, rival firms like Stifel and Ameriprise also revealed similar amounts it was setting aside.
Ameriprise also shared Raymond James’ optimistic assessment of recruiting despite a seasonal slowdown on its earnings call. It added 64 brokers but saw total headcount decline by 2%. But the company believes trends are positive and that there should be more additions into year-end.
Ameriprise saw a 13% increase in revenue and a 23% increase in pretax profits. Assets increased by 15% to $816 billion while net new additions dropped 20% to $8.9 billion from $11.2 billion.
Finsum: Raymond James and Ameriprise both noted a seasonal slowdown in recruitment but believe that activity should pick up into year-end.
Despite considerable volatility in 2023, fixed income inflows have been quite robust. According to an annual ETF investor study by Schwab Asset Management, adoption among Millennials is one factor.
According to Schwab, younger investors have a larger portion of their portfolios in fixed income relative to older generations. This is quite contrary to expectations as younger investors typically tend to favor riskier investments. Even Millennials with no fixed income investments, indicated an interest in learning more about the asset class.
According to David Botset, the head of equity product management and innovation at Schwab Asset Management, “Millennials actually indicated that they have a larger percentage of their portfolio in fixed income than older generations, which was quite surprising and not what you would expect.”
The survey was conducted across 2,200 individual investors between the ages of 25 and 75 with a minimum of $25,000 of investable assets. The differences in fixed income allocations between the generations is notable. Millennials had about 45% of their portfolio in fixed income, while baby boomers had 31%, and GEneration X had 37%.
While about 45% of Gen X investors and 40% of baby boomers plan to invest in a fixed income ETF in 2024, 51% of millennials plan to do so. It’s a validation that the surge of inflows into fixed income ETFs and boom in new issues will only continue.
Finsum: Charles Schwab conducted a survey of individual investors. One of the most notable findings was that fixed income ETFs are more popular among younger investors than older ones.