Wealth Management
According to a white paper by SEI and FP Transitions, nearly 99% of independent financial services and advisory practices fail after the founder retires, so succession planning is not just survival but an opportunity for growth.
The paper found that although 32% of advisors claim to have a succession plan, only 17% have a binding agreement, highlighting the need for more actionable planning. But this plan helps gain new clients and encourage growth because many firms don’t have a strategy in place and can’t draw in new talent.
Succession planning should focus on building a sustainable business that aligns with long-term goals, whether through acquisition or extending ownership. The white paper also notes that while 45% of advisors have a continuity plan, many intend to implement one soon, reflecting an increasing awareness of its importance.
Finsum: The current benefits of succession planning are growing and could improve practice performance today.
A recent deep dive by Cerulli Associates explored how defined contribution (DC) managed account users and non-users perceive the value of DC managed account programs.
Managed account users appreciate the time, energy, and stress saved by delegating 401(k) and retirement planning to professionals. They also value the human advice component and the employer’s vetting of the solution.
Many non-users were shown to be swayed by the human advice component of managed accounts and affected the fee structure they were willing to accept. Adding to this a meager 16% of non-advice users feel very confident in their investment strategy, while nearly all DC managed account users express strong confidence.
As the retirement industry shifts away from defined benefit systems, individual plan participants must educate themselves and implement effective retirement investment strategies.
Finsum: Retirement accounts seem ready-made for managed accounts and clients seem to desire them based on this research.
According to Cerulli, wealth management firms vying for high-net-worth clients should increase their focus on personalization and private markets. With traditional wealth management, it’s increasingly challenging for advisors to differentiate their services. Additionally, it doesn’t fully meet the needs of clients, especially given unprecedented amounts of uncertainty in terms of the economy, monetary policy, and geopolitics.
A consequence of this uncertainty is unpredictability in terms of return and risk in terms of major asset classes, highlighting the need for effective asset allocation. The report also showed that direct indexing is utilized by 55% of advisors who are looking to provide active management and customization to clients.
The firm also projects growth for separately managed accounts given high net worth investors’ growing demand for customization and private market investments. As a result, these trends underscore the need for effective account aggregation and performance reporting.
This enables the alignment of solutions across different areas such as financial planning, investing strategy, banking, estate planning, etc. Equally important, this type of comprehensive reporting and consolidation eases the transition to having higher allocations to alternative investments.
Finsum: Cerulli conducted a survey of advisors and high-net-worth clients. The findings highlight the importance of providing access to private markets and personalized services.
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Herbers & Co. conducted a survey of investors with more than $250,000 in assets and advisors to identify whether advisors’ offerings are effectively meeting clients’ needs. Among the findings, the biggest takeaway is that there is some misalignment between advisors and clients in certain areas.
One change from the survey, compared to previous years, is that 90% of clients said effective tax planning is their highest priority. Previously, clients cited retirement, investment management, and cash flow as top concerns. Currently, only 73% of wealth management firms offer tax planning services. For advisors, it’s an opportunity to offer more comprehensive planning solutions that encompass cash flow, education, estate planning, investments, retirement planning, and tax management.
Many wealth management firms self-identify as offering comprehensive planning, yet only 31% actually do so. This means planning for a client’s specific needs, such as business planning for business owners.
The survey also revealed that a portion of clients are interested in alternative investments, including cryptocurrencies. The challenge for advisors is that most firms currently don’t offer advice in these areas. However, they are likely to get questions from clients, especially with the introduction of crypto ETFs backed by asset managers like Blackrock and Fidelity. Advisors should proactively prepare for these conversations.
Finsum: A survey of clients and wealth management firms found that there are some areas in which advisors can do a better job of understanding and meeting client needs.
A portfolio’s outcome is driven by a variety of factors on factors like commissions, time horizon, and asset classes, with strategy being a key determinant shaped by each manager’s risk tolerance. While a more risk averse 60/40 strategy, allocating 60% to equities and 40% to fixed income, balances growth and stability, there are other ways to achieve those outcomes in a simplified manor.
Structured notes, which combine various asset classes into one security, offer a way to achieve this allocation without multiple subscriptions, all while potentially reducing fees. But additionally structured notes offer flexibility, and actively managed notes can adjust based on market conditions, providing regular NAV updates.
However, structured notes carry risks such as limited liquidity, market risk, and default risk, which can impact their performance and investor returns. Mitigating these risks can provide a competitive advantage in the market.
Finsum: The world of structured notes is vast, but they do offer the ability to simplify portions of an investment strategy and manage moving parts easier.
Unified managed accounts (UMAs) are professionally managed accounts that allow for the use of multiple investment strategies. This makes it a more comprehensive approach than a separately managed account (SMA) which is typically used for a single, targeted strategy.
As of the end of last year, UMAs accounted for 26% of assets in managed accounts. Growth in UMAs is due to multiple factors; however, two recent factors are improved pricing and an increase in the number of investment options.
With UMAs, different strategies can be used to construct a customized client portfolio that leverages the best strategies across different asset classes and investment managers. This allows advisors to optimize portfolios by blending various strategies and selecting managers with the proper expertise.
This means that an advisor could use different managers for different asset classes, such as domestic equities, foreign stocks, and fixed income. UMAs can also allow for more granularity, such as having one manager for a core equity position and another for dividend stocks.
UMAs also provide a comprehensive view of a client's finances, which means that rebalancing strategies are more effective, and there is more potential for personalization. This includes the ability to add custom models to a portfolio along with third-party ones.
Finsum: Unified managed accounts are experiencing rapid growth and provide advisors with a more holistic and comprehensive view of a client's finances.