Wealth Management
Plan advisors and DC recordkeepers are keenly aware of the opportunity presented by the massive movement of dollars from 401(k) plans into rollover accounts. Research firm Cerulli estimates that over $400 billion were rolled into IRAs (from 401(k) plans) with the assistance of advisors in 2021 alone.
This flow of funds is expected to continue, and advisors see it as a way to grow their wealth management businesses. While the opportunity is enormous, a key data point offers a clue to capitalizing on the trend. Cerulli’s report revealed that “of advisor-intermediated rollover assets, 86% take place through an existing advisor.”
Associate Director, Shawn O’Brien emphasized the importance of relationship-building efforts. “For wealth managers looking to capture rollovers from DC plans, this data underscores the importance of establishing and nurturing relationships with participants earlier in their careers, years before potential rollover events.”
While the implication of this research is clear, not all advisors are set up to engage with every participant. More frequently, advisors are seeking “coopetition” with recordkeepers whereby participants needing rollover assistance are segmented; plan advisors helping a select group of participants – often those with larger account balances – and the recordkeepers serving the remaining participants.
This collaborative approach ensures that each participant receives the optimal solution, transforming the dynamic between advisor and recordkeeper from competitors to partners.
Finsum: Partnering with 401(k) recordkeepers to capture rollovers helps plan advisors capitalize on this huge wealth management opportunity.
In a recent J.D. Power study on financial advisor satisfaction, findings reveal advisors are facing challenges in effectively managing their practice tasks. The study highlights that "nearly one-third (28%) of financial advisors say they do not have enough time to spend with clients."
Further, the report states that "Advisors falling into this category spend an average of 41% more time each month than their peers on non-value-added tasks, such as compliance and administrative duties."
Broker-dealers and custodians are constantly exploring ways to reduce these administrative burdens in hopes of retaining existing advisors and recruiting new ones. However, the study underscores another essential factor driving advisor satisfaction: culture.
One significant takeaway from the report is the motivation behind advisors' loyalty to their firms. Among employee advisors, the predominant reasons they gave for their long-term commitment are "a strong culture and company leadership."
Culture can mean different things to different people, but most agree it's about purpose, values, how we communicate, and our work environment. Given how these factors play a significant role in our daily happiness, it's no wonder why advisors regarded culture so highly in the report.
Finsum: A study from J.D. Power highlights challenges faced by financial advisors, emphasizing the importance of culture in advisor retention and satisfaction.
Following the recent selloff in the bond market which has pushed yields on the 10-year Treasury above 5%, Michael Contopolous of Bernstein Advisors compiled some of the best opportunities that he’s noticing in fixed income.
The first is Treasury Inflation-Protected Securities (TIPS) which are offering a real yield of 2.5%. This is the highest level since 2007 and in the 25th percentile of real yields since TIPS were introduced in 1997. In contrast to most fixed income securities, TIPS would see an increase in returns if inflation expectations were to rise.
Currently, the spread between the 10Y and 2Y Treasuries is inverted. If the economy experiences an acceleration or a sharp turn lower, it’s likely that the curve will steepen. Thus, fixed income investors can consider a steeper curve. It can have a bullish or bearish tilt depending on an investors’ economic outlook.
Another area of opportunity is preferred securities which are priced much lower than corporate bonds following the regional bank crisis earlier this year. There's a particular opportunity in the preferred share of banks which could rally if the yield curve steepens, or earnings start to grow again.
Finsum: Fixed income is seeing renewed interest following the recent selloff. Here are 3 opportunities to consider.
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According to Travis Spence, the head of ETF distribution at JPMorgan Asset Management, future growth in the ETF industry will be driven by active strategies that will be the main source of innovation in the space.
Currently, active funds only account for 5% of the total market but account for 25% of inflows. Some of the reasons that investors are favoring active ETFs is greater transparency, liquidity, and pricing. Thus, he believes that more active strategies will be accessible through ETFs in the coming years. And he sees growth in the US and internationally, although adoption has been slower in the latter.
In fixed income, he believes that active managers have some advantages due to greater inefficiencies in the market and increased difficulty and constraints of tracking a fixed income benchmark. Additionally, many market cap-based indices are overrepresented with indebted companies.
He added that, “It is easy to see why an active approach to fixed income makes sense. Even passive ETFs are arguably active due to the availability of bonds. Having an active approach in fixed income, where you do not automatically hold the most indebted issuers, fully integrate ESG and actively manage turnover and transaction costs, can offer an attractive solution for investors.”
Finsum: JPMorgan’s head of ETF distribution, Travis Spence, shares why he’s optimistic about active fixed income, and the trends driving its growth.
Financial advisors intuitively grasp the importance of planning to help their clients reach their financial goals. As business owners, advisors need to apply the same principles with succession planning to maximize the value of their practice. A succession plan should provide a contingency plan for unforeseen circumstances in addition to detailing how the practice will transition in the future. Here are some common mistakes to avoid.
The first mistake is to not have a proper understanding of the value of your practice. This includes financial as well as other considerations such as the impact on your clients, the organizational structure of your firm, and how the firm will function without you.
Another mistake is to be unclear clear about your needs and wants in order to determine the ideal successor. With this selection, it’s important to find alignment in terms of investment philosophy, location, mission statement, and how they will continue to serve your clients effectively.
Many advisors also err by not sharing their succession plan with key stakeholders like employees, clients, family members, etc. Rather, the succession plan and any iterations should be shared with everyone to ensure that there is no lack of clarity. It can also help with client retention and recruitment.
Finsum: Succession planning is quite important for financial advisors for several reasons. Here are some mistakes to avoid.
A well-crafted value proposition details how your services will solve client’s problems and improve their financial situation, what benefits it will deliver, and why your target prospect should choose you over a competitor. Defining this value proposition can help improve your odds of success in recruitment and operating your practice. It can also help you build trust with clients.
An important step in the process is to determine your ideal client profile. Some characteristics to consider are their financial goals, challenges, and demographics. This will help you decide how to serve these clients, to address their needs and differentiate yourself from competitors.
Value propositions are necessary in an industry where success is based on trust and relationships. Some things to avoid are complicated language, a lack of focus on clients, and not sufficiently identifying what makes your services unique.
Lastly, value propositions should be updated regularly to reflect changes in the practice, industry, and your clients. It should continue to highlight your value and uniqueness while remaining relevant in terms of addressing your clients’ pain points.
Finsum: Defining your unique value proposition can help your firm attract clients and refine its purpose. Here’s how to get started.