Wealth Management
In an article for WealthProfessional, Noelle Boughton covers Caldwell SEcurities’ strategy to support older financial advisors in their succession planning. This is due to the aging nature of the workforce in addition to the firm’s desire to maximize retention during the transition process. Senior advisors work with junior advisors in handling clients and then slowly phase out of the business with fewer responsibilities every year.
While junior advisors are focused on growing their business and adding clients, senior advisors are thinking about their retirement and maximizing the value of their practice. Many shops will have advisors sell their business to a junior advisor and then quickly move on.
Caldwell Securities sees an opportunity by having a more formal and longer transition period that caters to the needs and ambitions of both junior and senior advisors. It’s also a value add for clients as they initially work with both advisors before the junior advisor slowly takes the lead.
Senior advisors can be satisfied that their clients will continue to be satisfied and that they are being handed to someone who is caring, capable, and competent. They can also continue to draw a paycheck in addition to selling their business while easing into retirement.
Finsum: The financial advisor industry is aging with a big chunk expected to retire over the next decade. Here is how Caldwell Securities is handling this matter.
In an article for Vettafi, Ben Hernandez discusses why intermediate-term Treasuries could be the best option for fixed income investors given the current market environment. In recent months, long-term Treasuries have considerably weakened as it’s become increasingly clear that the Federal Reserve is not close to pivoting in terms of its rate policy.
This is primarily due to the economy continuing to avoid a recession, while data like the jobs market and consumer spending continue to indicate the economy is expanding. At the same time, the short-end offers generous yields but would underperform in the event that the Fed cuts rates. Another factor is that there is going to be high levels of Treasury supply hitting the market later this year as the government looks to fund its deficit.
Given that both ends of the curve have high levels of risk and uncertainty, investors should consider intermediate-term Treasuries to take advantage of elevated yields while reducing duration risk.
Historically, these periods of ‘pause’ when the Fed is deliberating its next policy move tend to be volatile. This is even more the case this year given the runup in yields and uncertainty in political and macro arenas.
Finsum: Intermediate-term Treasuries could be the best option for investors given the risks and uncertainty surrounding the short and long-end.
In an article for AdvisorHub, Lisa Fu covers Prudential moving $50 billion in client assets from Fidelity’s custody to LPL. As a result, starting late in 2024, 2,600 Prudential brokers will start using LPL as their broker-dealer instead of Fidelity.
It continues to indicate that LPL is focused on growing its broker-dealer business in addition to having the largest network of advisors in the country. The deal is expected to result in around $125 million in costs for LPL but is expected to contribute $60 million in accretive earnings when the transition is completed.
LPL is boosting its broker-dealer business at the same time that many asset managers are outsourcing these functions to reduce costs. Currently, LPL’s custody unit has $230 billion in assets and has agreements with nearly 1,000 institutions. The firm sees an ultimate opportunity of $5 trillion in custodial assets.
Fidelity’s agreement with Prudential had an early termination clause which was triggered with the decision to move. It’s expected to be between $6 million and $8 million. Some other perks that Fidelity provided included revenue sharing, research, and preferred pricing.
Finsum: LPL Financial is growing its custodial business and recently landed $50 billion in client assets from Prudential who is shifting away from Fidelity.
More...
In recent weeks, fixed income drifted lower due to concerns about Fed Chair Jerome Powell’s upcoming Jackson Hole speech, where he was expected to strike a hawkish tone given the economy continuing to expand at a moderate pace and inflation remaining well above desired levels.
Powell did lean hawkish in his remarks but not enough to fuel further selling in bonds. Notably, he warned that the FOMC was prepared ‘to raise rates further’. However, he did temper this with constructive comments on the economy’s resilience and inflation’s path lower. Equity markets experienced strength following the remarks as the speech was less hawkish than expected.
The ultimate takeaway is that the Fed is still hawkish, considers inflation too high, and further hikes are on the table if necessary, but it’s less hawkish than a few months ago. Additionally, it sees the resilience of the economy and progress on the inflation front as reason to remain patient in its current stance which delays the idea that rate cuts are going to happen anytime soon.
Thus, it’s not surprising to see odds for a rate hike later this year edge lower in addition to the odds of a rate cut in the first half of 2023. So far, the ‘higher for longer’ camp continues to be correct which is leading to weakness on the long-end and creating attractive opportunities on the short-end.
Finsum: Fed Chair Jerome Powell gave his much awaited speech at Jackson Hole. He struck a relatively hawkish tone which was broadly in line with expectations.
In an article for SmartAsset, Patrick Villanova CEPF covers a recent note from Schwab which discusses why this is a favorable time to purchase an annuity. It’s not entirely a contrarian position given that annuity sales hit record highs during the first-half of 2023 which saw a 28% increase from strong sales in the first-half of 2022.
Annuity sales tend to spike during periods of economic uncertainty and attractive rates. The last time there was a similar spike in sales was during the 2008 financial crisis. Currently, there is considerable uncertainty about the economic and monetary outlook while rates are at their highest level in decades. These purchases would perform especially well if inflation and rates return back to levels that were commonly experienced over the past couple of decades, while they would underperform if current conditions persist.
Currently, most fixed annuities are paying yielding between 6.5% and 7%, adjusting for various factors. In contrast, the yield on a high-quality corporate bond ETF is about 5%. However, the corporate bond ETF provides more upside in the event that bonds strengthen especially if rates normalize but have more downside if rates stay elevated or rise further.
Finsum: Annuity sales are at record levels in 2023 and offer more yield than corporate bonds. Here’s why they continue to remain a good buy according to Schwab.
Most advisors and investors are familiar with the benefits of diversification when it comes to asset classes. However, there‘s less understanding about the importance of risk factor diversification. In ETF Trends, Scott Welch CFA of Wisdom Tree Investments shares the importance of this concept, and why advisors need to intuitively understand it.
There are some parallels between asset class and risk factor performance and diversification. Both are nearly impossible to forecast especially on shorter timeframes. But over a longer period of time, certain conjectures can be made with confidence. For instance, there tends to be mean-reversion over longer time periods.
Last year exemplified the risks of not being sufficiently diversified in terms of factor risk, growth was crushed, while value outperformed for the first time in decades. Yet, this has nearly completely inverted in the first-half of 2023 due to the rollicking bull market in stocks linked to artificial intelligence. Thus, this demonstrates the importance of factor diversification and rebalancing, similar to what is done for asset classes.
Currently, one risk for investors overexposed to growth factors is valuations that are historically elevated. In contrast, value factor stocks are quite cheap from an absolute and relative basis. Thus, it could favor some rotation from growth to value once again.
Finsum: Asset class diversification is an elementary part of portfolio management and construction. Another important concept is risk factor diversification.