Wealth Management
Until recently, customized portfolios were only available to high net worth individuals. But, this is now changing due to the advent of direct indexing which is giving these tools to a much wider swathe of investors according to an article from Michelle Lodge.
Direct indexing allows investors to have more control over their money while still allowing them to benefit from the positives of indexing such as diversification, tax efficiency, and low costs. This will allow their investments to better reflect their life situations, values, and convictions.
It’s particularly useful for those with outsized exposure to a company or an industry or those with a large base of taxable assets. For instance, a tech employee with a large number of shares and stock options could use direct indexing to purchase the S&P 500 but reduce exposure to technology stocks.
According to BlackDiamond Wealth CIO Ken Nutall, “We have two main use cases: clients who have an old portfolio of appreciated assets but want to migrate to another strategy of tax efficiently, or [those who] work at a bank and don’t want any more bank exposure in their portfolio.”
Finsum: Direct indexing is one of the fastest growing areas of wealth management. It gives investors the benefits of index investing, while allowing customization to help clients achieve their financial goals..
Over the last two months, there has been a 15% increase in the asset base of biodiversity funds according to an article by Natasha White of Bloomberg. This is a relatively new segment of the ESG market which saw a 150% increase in the number of funds last year.
Overall, biodiversity is a fraction of the overall ESG market with combined assets of $2.9 billion. To compare, the overall ESG market is estimated to have $41 trillion in assets. The largest biodiversity funds are from Northern Trust, Axa Investment Managers, and Lombard Odier. All three are based in Europe, where there is a more defined regulatory environment.
One catalyst for the asset class was the agreement at the COP15 summit in December of last year, where the Global Biodiversity Framework was signed by nearly 200 nations, with the intent to mobilize $200 billion annually to preserve and maintain biodiversity.
A challenge for the nascent fund class is the lack of standardized data on biodiversity which means there is disagreement on best practices and assessing impact. A larger issue is that many experts believe that the tradeoff between earning financial returns and maximizing biodiversity is too steep and thus can only be attained through public policy.
Finsum: Biodiversity funds have seen a 15% increase in assets over the last two months and a sharp boom in formation over the last couple of years. While there is agreement on the importance of preserving biodiversity, there are doubts whether it can be attained while generating positive returns for investors.
There is no magic solution when it comes to growing your client base as a financial advisor. Instead, you should adopt a variety of strategies which include understanding your strengths as a financial advisor, defining your ideal client, developing a branding strategy, and pursuing effective partnerships.
Rebecca Lake, CEPF, wrote an article for SmartAsset on how to expand your client base. First, she counsels that advisors should not make the mistake of sacrificing quality of service in the pursuit of adding more clients. Advisors should always ensure that they are providing adequate attention and services to clients to ensure retention and loyalty.
Next, advisors should get clear and specific on their ideal target client in order to construct an effective marketing plan. They should also consider the ideal type and mix of services that would appeal to this audience.
Another source of client growth is by leveraging your existing client base and asking for referrals. This can be highly effective as people are more willing to trust personal recommendations, but the request must be made tactfully. Finally, branding is an essential element to differentiate yourself from other financial advisors. Once you settle on your brand, keep it consistent.
Finsum: Financial advisors can grow their client base by picking a specific niche, developing a consistent brand, form partnerships with other professionals, and targeting your ideal client.
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There is no question that investing in low-cost mutual funds or exchange-traded funds that mirror a benchmark index is a popular strategy to potentially reduce the impact of fees on a portfolio. In fact, many of these passive index strategies have often outperformed more costly actively managed funds. However, while tax efficient, they are unable to fully take advantage of short-term market volatility, according to Neale Ellis and Matthew Michaels of Fidelis Capital. On the other hand, direct indexing has become an attractive alternative to a portfolio of low-cost funds and ETFs, and unlike owning a mutual fund or ETF, an investor directly owns a basket of individual stocks that tracks a designated benchmark index. The strategy also allows greater flexibility during periods of volatility to selectively harvest losses while still closely tracking the benchmark. This is due to the fact that individual equities tend to see much higher volatility than a diversified mutual fund or ETF. This increases the opportunity for tax loss harvesting. Realizing losses in a portfolio can offset capital gains, which creates tax savings. Failing to harvest those losses during periods of short-term volatility could lead to lower results, essentially leaving money on the table.
Finsum:While passive index ETFs are tax efficient, they are unable to fully take advantage of short-term market volatility, which is something that direct indexing can do.
Investors have been expressing a growing interest in addressing ESG issues with the filing of a record number of shareholder resolutions to be considered this proxy season. According to As You Sow, the Sustainable Investment Institute and Proxy Impact in the Proxy Preview 2023 report, investors filed 542 shareholder resolutions concerning ESG issues in 2022 that they want public companies to take into consideration. The organization said that the leading concerns were climate change, corporate political influence, racial justice, and reproductive and worker rights. Many of these will be voted on at spring and summer corporate annual general meetings. While politicians are arguing over the merits of ESG investing, “Investors have shown long-term support for companies adopting for net-zero greenhouse gas goals and reporting on the management of climate risks and opportunities,” according to Michael Passoff, CEO of Proxy Impact and co-author of Proxy Preview 2023. He also added that “Shareholder resolutions have always been at the forefront of these efforts — first by educating companies and investors about climate risk and solutions, and more recently by calling for quantitative metrics on greenhouse gas emissions reduction targets, alignment with science-based targets, and incorporating climate-risk mitigation into executive compensation packages and company-wide business strategies.”
Finsum:Investors continue to show a growing interest in addressing ESG issues with the filing of a record 542 shareholder resolutions concerning ESG issues in 2022 that they want public companies to take into consideration.
In a recent article on WealthManagement, Charles L Ratner interviewed a baby boomer couple on how they interview investment advisors. One of the many things they consider when choosing an advisor is their website. A great website can help advisors attract new clients, but a bad website can turn off prospects. The first thing they mentioned looking for is “Who they are, their credentials, and their experience.” They noted that they began to see gaps between the advisor’s credentials and experience. They also said that an advisor’s clientele was the most important thing because they wanted to know that they would be playing to the advisor’s strengths and getting their fair share of attention and service. The couple also wanted to know what the firm does and who does what. They liked websites that clearly delineate an advisor’s services for each type of client. In addition, they wanted to know how their portfolios would be personalized. Pricing was also another topic. The couple said, “We realized early on that we were gravitating to the advisors who structured their fees in a way that allowed us to pick and choose the services that are of interest to us.” Another big plus for them was the strength, soundness, and continuity of their firm. They wanted to know that they will be with a strong firm today and tomorrow.
Finsum:A baby boomer couple interviewed on WealthManagement noted the things they looked for in an advisor website such as experience and credentials, clientele, who does what at a firm, personalization, pricing, and continuity.