Wealth Management
The era of employee-funded retirement began decades ago with the rise of 401(k) plans. Ever since, employers and service providers have been looking for ways to increase participant savings rates within these plans. Research conducted by Empower sheds light on a key to making this happen.
The study found that "engaged 401(k) plan participants are saving at significantly higher rates than that of unengaged participants, demonstrating that getting people involved in their retirement planning is a key component of driving better outcomes."
One way to engage participants is to provide them with access to in-person advice. Yet, not all plan advisors are equipped to deliver advice to all the participants within the plans they advise. Here's where fiduciary support from the plan's recordkeeper can be invaluable.
While partnering with recordkeepers capable of participant-level advice, plan advisors can selectively choose which participants for whom they are best suited to provide advice. The recordkeeper's advice program is an ideal solution for the remaining participants – usually those with smaller account balances or less complex questions.
Fiduciary services such as participant advice are integral to engaging participants, boosting savings rates, and helping them invest wisely. By partnering with the right recordkeepers, plan advisors can enhance the quality and efficiency of these services, benefiting all involved parties.
Finsum: An Empower study shows that engaged 401(k) plan participants save at a higher rate than unengaged participants underscoring the importance of finding ways to get involved in their retirement planning.
Inflows into fixed income ETFs have continued despite major losses in bonds over the last couple of months. Further, there is no clear indication when the tide will turn given expectations of high supply in the coming months and ambiguity about the economy, inflation, and Fed.
The most liquid and popular bond ETF, the iShares 20+ Treasury ETF (TLT) has had $17.9 billion inflows so far this year. Assets under management have swelled to $41 billion as well. The biggest driver of flows is due to institutions, pension funds, and family offices that have a mandate regarding fixed income exposure.
Another factor driving demand is that yields are at their highest level in 16 years due to the Fed’s rate hikes. A longer-term trend that supports fixed income flows is that many investors and wealth managers are increasingly favoring ETFs over mutual funds due to lower costs and better liquidity.
ETFs could also be better suited for volatile environments given that they can be used to harvest tax losses. Additionally intraday liquidity means that exposures can be shifted more easily to achieve precise targeting.
Finsum: Fixed income ETFs continue to experience healthy flows despite significant volatility.
For AdvisorHub, Holt Hackney interviewed Kimberly R. Nelson, an advisor at Coastal Bridge Advisors, on the factors behind her success, and what makes her practice unique. Nelson was ranked #5 on AdvisorHub’s Top 100 RIAs to Watch List and credits her success to using empathy to understand the emotions that are driving the behaviors and actions of her clients.
Nelson is an empath which means she can intuitively empathize with her wealthy clients. Despite having wealth, her clients still face the same challenges as others along with additional complications.
Empathy helps her connect with her clients and provides support and resources when it’s needed most. She’s also pioneered serving female clients after divorce who may find themselves with a windfall but no professional network to help them manage this money.
In terms of her investing philosophy, she believes that quality assets will provide value to a portfolio and outperform in the long-term. She believes that her job is to ‘shepherd’ her clients through periods of volatility and recommends diversified asset allocation and a well-constructed financial plan that reflect the needs and concerns of the clients.
Finsum: Kimberly R. Nelson is an empath, and she attributes this to her success as a financial advisor.
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Stephen H. Dover, the Chief Market Strategist of Franklin Templeton, shared his thoughts on the rise in bond yields, and whether it should be feared. Higher yields do push up borrowing costs for corporations and households.
And as long as yields stay elevated, global growth will be lower, profit expectations are squeezed, and there is greater risk to equities and credit markets. However, Dover attributes most of the increase in yields to rising term premiums rather than inflation or increased supply.
Term premiums are the additional yield that investors demand to hold onto longer-duration securities. Long-term rates are composed of 3 factors - inflation expectations, the neutral short-term interest rate path, and term premium.
Since mid-July, the yield on the 10-year has advanced by more than 100 basis points. In contrast, the yield on the 2-year note is only up about 35 basis points over the same period. Notably, inflation expectations have moderated during that time frame as well, indicating that term premiums are to explain the surge in long-term yields.
A major reason for the rise in term premiums is the removal of the ‘Fed put’ of the past decade, when central bank intervention was a constant through asset purchases and forward guidance. Overall, increased risk and volatility for long-duration bonds mean that investors need to be paid higher yields.
Finsum: JPMorgan shared its Q4 fixed income outlook. Its two base-case scenarios are a recession and a period of below-trend growth.
In a CNBC interview, CAIS CEO Matt Brown commented on the alternative asset market. He believes that a major factor behind the current growth of the category is due to increased access, highlighting venture capital, hedge funds, private real estate, and private equity.
He forecasts that alternative exposure will continue to increase among investors and advisors along with greater access. He also believes that the traditional 60/40 portfolio will shift and become a 50/30/20 mix between stocks, bonds, and alternatives. This reallocation will result in $10 trillion moving into alternatives over the next few years according to Brown.
CEO Rob Sechan of NewEdge Wealth also added that alternative investments provide diversification and a better chance of achieving targeted returns especially in an environment of falling returns for stocks and bonds.
He believes that consistent private market performance is due to greater operating and financial leverage while public securitie performance is too economically sensitive. Investors in private markets are also able to take advantage of dislocations in public markets by buying discounted assets with a long duration during selloffs. Recent examples include the European debt crisis and Silicon Valley Bank.
Finsum: Alternative investments are becoming a major asset class and increasingly a larger allocation for some investors and advisors.
As the year comes to a close, it presents an opportune moment for financial advisors to revisit strategies and offer valuable advice to clients. A timely topic is tax loss harvesting. And direct indexing is becoming a popular way for investors to accomplish this. Therefore, now is a great time to consider introducing the concept of direct indexing to your clients.
The Value of Tax Loss Harvesting
Tax loss harvesting is a technique that can reduce taxable income by selling securities that have incurred a loss. As we approach year-end, this tax-saving tactic may be appropriate for some of your clients, yet you need a convenient way to make these trades without upsetting their entire portfolio. Direct indexing allows you to accomplish this task.
Direct Indexing: No Longer Just for the Elite
Direct indexing, which involves buying individual stocks directly rather than through a fund, enhances the ability to tax loss harvest. While it's not a new concept, it's becoming more accessible to a broader range of investors. As author Medora Lee pointed out in her recent article in USA Today, "(direct indexing) was once mostly reserved for the affluent with at least $1 million to invest." But things are changing. "With better technology and zero- or low-commission trading now the norm, more people can use direct indexing."
Embracing the potential of direct indexing and tax loss harvesting is another way to demonstrate your value to your clients.