Wealth Management
UBS conducted a poll of wealthy clients, working with a specialized portfolio advisory group. In response, it has increased its recommendation for exposure to alternative asset classes such as private equity, private debt, real estate, structured products, and hedge funds from 16% to 22%. Endowments and large single-family offices have already increased allocation to private markets, but wealthy investors are making up ground.
This is due to an increase in the number of options which allow clients to immediately invest in private markets with lower amounts and less restrictions on withdrawals. According to Daniel Scansaroli, the head of portfolio strategy in UBS’ CIO Americas office, “The concept of investing in private markets is not new to our clients, but the accessibility of the market has changed in the last couple of years with what many of the private sponsors are calling a democratization.”
Currently, the firm recommends an allocation of 30% to private markets, 30% to bonds, and 40% to stocks and believes this is the new benchmark. It favors this over the traditional 60/40 portfolio as it would have generated an incremental 1.4% in incremental returns even after accounting for fees.
It believes that private markets offer more opportunity than public markets due to the ‘illiquidity premium’, assuming that investors can remain patient. Over multiple timeframes, private equity, venture capital, private credit, and real estate have shown to outperform the S&P 500.
Finsum: UBS conducted a survey of its wealthy clients and found that they are looking to increase their allocation to private investments.
A major consideration for many firms is the aging of financial advisors. It’s estimated that over the next 5 years, 25% of advisors will be approaching retirement age. This demographic reality means that recruiting will be a greater challenge and of even more importance.
Similar to financial planning, effective recruiting means setting clear goals and identifying what your firm needs. This will ensure that your decisions and actions are in alignment with the long-term vision.
When looking at which groups to target, some common pools to consider are interns and recent college graduates, emerging advisors, and paraplanners. In terms of finding the best candidates, it can be helpful to do some research on competitors to see what they are offering recruits in addition to understanding what prospective hires value.
Many may not be familiar with the various opportunities and career paths of an advisor. Nor will they be familiar with how an advisor can have a meaningful impact on their clients’ lives so having some personal examples of helping clients and building relationships will be particularly useful. Many candidates also will want some visibility around how the business works, and how the progression will work in terms of professional development, compensation, responsibilities, and partnership opportunities.
Finsum: A major challenge for the financial advisor industry is that 25% of advisors are approaching retirement age. This means that effective recruiting is of greater importance and value.
The October CPI report may have marked an inflection point for the Fed’s hiking cycle which is leading to inflows into fixed income ETFs. According to Andres Rincon, the Head of ETF Sales and Strategy at TD Securities, this is being driven by advisors, retail investors, and institutions with fixed income accounting for two-thirds of total ETF flows.
The short-end accounts for 40% of these flows as investors look to take advantage of high rates with increased demand for Treasuries, HISA ETFs, money market ETFs, and ultra short-term bond ETFs. However, the very long-end is also attracting interest to provide a hedge against a decline in rates and the overall market. Rincon also noted a surge in demand for fixed income products from TD’s direct indexing channel which had been absent during the period of zero percent rates.
Another trend that is supportive of fixed income ETF inflows is the conversion of popular mutual funds into ETF offerings. This is due to demand from institutions and advisors and advantages to the ETF structure in terms of liquidity and transparency. This is leading to more growth for the total ETF market as well.
Finsum: Andres Rincon, the Head of ETF Sales and Strategy at TD Securities, notes that fixed income ETFs are seeing significant inflows due to a variety of reasons.
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Being a financial advisor certainly has its challenges due to the unique nature of the industry. One aspect of this is the difficulty of differentiating your offerings and services from your competitors especially when it comes to attracting new clients.
This means that an effective marketing strategy is essential to long-term success. It can help in building a solid pipeline of prospects and increasing your conversion rate. There are many well-trodden templates that advisors can follow such as building a website or a newsletter. However, your marketing strategy can be more creative and go beyond these generic ideas.
Additionally, it can result in more chances of success if it’s something you enjoy, can be consistent with, and reflect your personality which will lead to a more authentic connection with prospects.
Some of the more outside-of-the-box ideas include sharing ideas on online forums or message boards. Here, the key is not to make a hard sell but instead show your expertise. It can be valuable in building SEO visibility while creating a more genuine connection than other marketing channels.
Some other ideas to consider are direct mail marketing, hosting a client appreciation event, or sharing quizzes or polls on social media. The commonality of these marketing ideas is that you can experiment with different approaches, show off what makes you unique, and target your ideal clients.
Finsum: Marketing is more important for financial advisors than most industries given that it can be difficult to easily differentiate services and offerings. Here are some out-of-the-box ideas to consider.
Virtus Investment Partners recently launched a new actively managed fixed income ETF that primarily invests in high-quality, short-duration debt from multiple sectors. The Virtus Newfleet Short Duration Core Plus Bond ETF (SDCP) intends to provide high levels of returns and income while limiting variance in net asset value.
SDCP will also selectively invest in securities that are below investment-grade if yields are sufficiently attractive. It aims to achieve these goals through prudent risk management, a disciplined investment process, and finding opportunities in undervalued parts of the market. The fund will target securities with a duration between 1 and 3 years and will charge 35 basis points.
SDCP’s subadvisors is Newfleet Asset Management which has considerable expertise in all parts of the fixed income market including newer, more niche, and out-of-favor sectors. It believes active sector rotation and risk management are keys to portfolio construction.
Overall, SDCP’s launch is a continuation of a major theme in 2023 - the growth of fixed income ETFs. According to Todd Rosenbluth, the head of Research at VettaFI, fixed income ETFs comprise only 20% of the total market but account for 40% of inflows so far this year.
Finsum: Virtus is launching a new short-duration focused active fixed income ETF with Newfleet Asset Management as an advisor.
Consumers are increasingly seeking greater personalization. According to a McKinsey report, "The value of getting personalization right—or wrong—is multiplying," 71% of consumers stated that they expect personalized experiences. It stands to reason that this expectation would extend to their investment portfolios, which are arguably more consequential than everyday consumer purchases.
For financial advisors, this signals a shift towards accommodating clients who demand more than what mutual funds and exchange-traded funds (ETFs) can offer. Separately managed accounts (SMAs) are a viable solution to meet this demand for customization. SMAs allow investors to personalize their investment strategy to fit their unique objectives, risk appetite, and financial situations—something that generic investment vehicles cannot always match.
In addition, the expertise offered by investment managers in SMAs is invaluable. Their insights are critical for asset allocation, security selection, and risk management. As the trend towards customization grows, SMAs may well become a cornerstone of investment portfolios, offering the personal touch that today's investors increasingly expect.
Finsum: Separately Managed Accounts may emerge as the solution of choice to fulfill investors' growing preference for personalization.