Wealth Management
Direct indexing has witnessed a meteoric rise, with investments in direct indexes eclipsing $260 billion by the end of 2022. This method, involving the investment in individual securities comprising an index rather than the index fund itself, offers a distinctive set of advantages.
It not only aims to closely replicate index performance but also holds the potential to significantly enhance tax efficiency. Furthermore, direct indexing provides a level of customization surpassing conventional index funds, making it increasingly attractive for those seeking tailored investment approaches. Direct indexing is gaining momentum, particularly due to its ability to mitigate risk concentration.
Through this strategy, investors can manage individual components for tax purposes more effectively. By liquidating underperforming securities to offset taxable gains elsewhere in their portfolio, investors can potentially reduce tax liabilities and enhance tax efficiency. However, it's essential to navigate this strategy within the confines of the wash sale rule, which prohibits claiming a tax deduction for a sold security if a substantially identical one is purchased within 30 days before or after the sale.
Finsum: More needs to be said about direct indexing reducing risk in the portfolio by selecting and deselecting stocks based on their risk profile.
Amidst higher interest rates, achieving alpha and managing risk in corporate credit necessitates a nuanced approach. Josh Lohmeier of Franklin Templeton Fixed Income unveils a dynamic portfolio construction method adaptable to diverse investor profiles and market conditions.
In the current interest rate landscape, sophisticated techniques are essential for capturing alpha with improved downside protection. Alongside meticulous bottom-up security selection, a systematic quantitative portfolio construction process can potentially yield consistent excess returns uncorrelated with peer benchmarks.
By segmenting the opportunity set based on volatility and strategically positioning along the yield curve, investors can optimize risk allocation and enhance portfolio returns. This adaptable portfolio construction framework offers a repeatable process with consistently positive outcomes, emphasizing the importance of diversification across managers and fixed income portfolios.
Finsum: Quantitative approaches can deliver a more resilient portfolio in times of increased volatility.
Opting to switch broker dealers is typically a last-resort decision, stirring discomfort among advisors. The mere contemplation of change signifies a threshold of considerable discomfort. There are various catalysts for this discomfort, with the top three reasons for advisors to consider such a move descending as follows:
- Advisors increasingly require practice management and marketing aid from broker/dealers as they expand their practices and seek to optimize efficiency.
- Advisors prioritize broker/dealers offering innovative technology solutions such as electronic signatures and paperless office systems.
- Advisors explore broker/dealers offering higher payouts, lower expenses, and more favorable administrative fees to maximize profitability.
Despite the challenges, the landscape of over 500 Independent Broker/Dealers presents ample opportunities for advisors seeking change, with the potential for greener pastures elsewhere.
Finsum: Tech advancements are offering new advisors a plethora of reasons to consider a transition because they can improve both efficiency and client relationships.
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There has been widespread adoption of separately managed accounts starting in the mid 2000s. The rationale for managing fixed income assets in this manner remains pertinent today: transparency, flexibility, transaction cost management, and active management are paramount in fixed-income investing.
SMAs offer tailored portfolio management to meet clients’ fixed-income objectives, including tax management, income production, and specific investment restrictions, setting them apart from pooled vehicles like mutual funds and ETFs. The growth in SMAs for fixed income has been remarkable, with assets in SMA municipal fixed-income investments expanding from $100 billion in 2008 to $718 billion by Q2 2023, according to Citi Research.
The advantages of SMAs, such as enhanced customization and efficiency, have fueled their increasing adoption by investors seeking precise control and personalized solutions in managing their fixed-income portfolios.
Finsum: Tailored financial products deliver a more personalized client experience and SMAs provide an avenue to improved relationships.
Raymond James conducted its annual survey of retired financial advisors to figure out how happy they are and the factors behind their responses. A consistent lesson is that succession planning is essential to feeling content in retirement.
Many advisors recommend getting immediately started with succession planning, even if it is many years down the road. An important step is to identify a successor who you believe can continue effectively serving your clients.
Some steps in this process include surveying your network to identify potential candidates, conducting interviews, and spending time with them to gauge if they are the right fit. It can also be helpful to get input from your firm’s management team.
Once you’ve identified a successor, the next step is to inform your clients. In the survey, 74% of advisors mentioned that communicating with clients was important in preparing for retirement. While these conversations can be initially awkward and uncomfortable, they will ultimately deepen the client-advisor relationship and increase the odds of a successful transition for your clients.
The final step is getting mentally and psychologically prepared for retirement. This can mean planning the final stage of their career, whether it means an immediate exit, a transition period, or a consulting role. Retiring advisors have considerable experience and wisdom that they can still share with their successors, especially during stressful situations.
Finsum: Raymond James conducts an annual survey of retired advisors to find out how many are happy and why. One of the major takeaways is the importance of proactive and effective succession planning.
Emerging market assets often witness significant yet brief fluctuations around Election Day, with their performance linked to the electoral outcome. Historical data suggests that emerging market assets fare better during periods of a unified US government or with a Democratic president. However, this data is limited, spanning only eight presidential election cycles.
To gauge this year's potential impact on emerging markets, it's crucial to analyze key channels of influence, including changes in US macroeconomic variables, trade policy, and geopolitics. The outcome of the US election could significantly affect these factors, influencing emerging market assets. Trump's presidency might lead to faster US economic growth but increase uncertainty in trade and geopolitics, while a Biden presidency could maintain the status quo.
Despite political considerations, long-term portfolio construction should remain impartial, with emerging market assets playing a pivotal role due to their diversification benefits and potential for higher returns.
Finsum: Don’t let political biases crowd out your investment decisions.