Wealth Management
Model portfolios? Nope; they’re not exactly collecting dust. As of March of last year, they were home to nearly $350 billion in assets, according to thinkadvisor.com. Did some say increase? Must have, because that represents a jump of 22% over the prior nine months, reported Morningstar in June.
Using model portfolios, of course, investors are able to leverage simple, effective investment methods, according to smartasset.com. The icing on the cake: minimal management is needed.
In an idyllic world, a combo of management investments based on deep dive research is behind every portfolio.
Naturally, it’s not all sugar and spices. Your asset management goes at least partially by the wayside when you put a model portfolio in your arsenal. Now, if you don’t like the idea of acquiescing total control of your cash to a financial advisor, well, a model portfolio might not be your cup of java.
And performance? No different than any other investment: guarantees: forget it. After all, professional management doesn’t translate into automatic performance.
While direct indexing is expected to see wider engagement this year, it isn’t ready to take over the wealth management industry quite yet. That is according to Anton Honikman, CEO of MyVest, who stated “I’m not necessarily of the view that 2023 will be the year that direct indexing becomes broadly democratized. There’s a different discussion about bringing direct indexing to a broader market. What’s hindering that is the need for more of an experience with direct indexing.” Honikman says the necessary building blocks for direct indexing are in place such as access to fractional shares, commission-free trading, and portfolio management technology capable of handling the nuances of direct indexing. However, the technology to unlock its full potential is not in place, according to Honikman. That technology would enable the “true personalization” of financial plans and portfolios at scale. For now, Honikman believes that it makes more economic sense for firms to serve down-market clients with the next best alternative: low-cost, tax-efficient, ETF-based portfolios. Honikman says 2023 will be a year that technologists and wealth management firms continue to invest in personalization by focusing on building the onboarding experience and the data collection, management, and reporting capabilities that will eventually enable direct indexing.
Finsum:Anton Honikman, CEO of wealthtech firm MyVest, believes that direct indexing isn’t ready to take over the wealth management industry until technology such as data collection and reporting that would enable the “true personalization” of portfolios is put in place.
According to data compiled in late December and early January by Devin McGinley, director of InvestmentNews Research, advisors are showing an increasing interest in alternative investments. McGinley’s survey of more than 200 advisors and financial professionals revealed that 43% of advisors plan to add exposure to at least one alternative asset class this year, while 46% anticipate increasing their average allocation to alternatives over the next three years. The survey also revealed that advisors said their average allocation to alternatives over the next three years is expected to rise to 15% from a current average of 12% of client portfolios. McGinley explained that an uncertain economic outlook and a recognition of the long-term benefits of diversification are driving the increasing appeal of alternatives. While it’s the responsibility of advisors to navigate client portfolios, McGinley is also seeing increasing pressure from investors. For instance, more than a third of advisors surveyed said they’ve had clients asking about alternative investments over the past six months. When discussing alternatives, the two biggest investor concerns were down markets and inflation. McGinley said that “Clients are asking about alternatives because they’re nervous.” More specifically, his research found that clients are asking about the following asset classes in order: real estate, gold, private equity, liquid alternatives, cryptocurrency, structured notes, and private debt.
Finsum: Based on recent research by InvestmentNews, advisors are showing an increasing interest in alternative investments due to client pressure, an uncertain economic outlook, and the long-term benefits of diversification.
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Advisors today not only have to compete against each for business, but they also have to keep up with an endless stream of eye-catching content pushed to consumers. That’s why Merrill Lynch, in an effort to keep their advisors front and center, is rolling out a suite of new tools to help advisors become content creators. The brokerage firm recently launched Merrill Video Pro, a virtual video studio for advisors to create clips and connect with clients and prospects at scale. Video Pro is billed as a turnkey video creation tool. It provides access to a template library of topics to help advisors quickly craft compliant clips. Advisors can either personalize one of the scripts already in Video Pro or start from scratch. Once a script is approved by compliance, advisors can record videos up to a minute in length. Video Pro also offers tools such as a scrolling teleprompter and support for selecting the right thumbnail to make things easier for advisors not used to filming. Kirstin Hill, chief operating officer at Merrill Wealth Management, had this to say about the new tool, "Video is an engaging medium for advisors to connect in a modern, simple way. The new tool is the latest example of how Merrill is modernizing the way advisors communicate with clients and connect with prospects."
Finsum: To help their advisors stay in the mix amid an endless barrage of sharable content, Merrill Lynch launched Video Pro, a virtual video studio for advisors to create clips and connect with prospects.
According to a Natixis Investment Management survey of fund selectors globally, self-reported use of third-party managers grew from 11 percent in 2021 to 24 percent in 2023. This was partly due to the demand for model portfolios as 72 percent of respondents reported that their firm offers some sort of model program. Natixis surveyed 441 professional fund selectors managing over $30 trillion in total client assets at wealth management, private banking, and insurance platforms globally, including 43 based in Asia. The survey also revealed that in Asia, fixed income is a highly favored asset class due to the strong demand for yield. Sixty-three percent of fund selectors in the region say they will increase investments in government bonds, while 54 percent will increase allocation to investment-grade corporate bonds. Another area of focus in the survey was alternatives. Six in ten respondents in Asia say they are recommending increased allocations due to greater market risks. Within this asset class, fund selectors are most likely to increase allocations to infrastructure at 60 percent, private equity at 32%, absolute return strategies at 32%, and commodities at 32%. ESG investing is expected to see the largest allocation boost with 61 percent of fund selectors seeking to increase allocations and 77 percent seeing increasing demand for impact investments.
Finsum:According to a new study from Natixis, self-reported use of third-party managers grew from 11 percent in 2021 to 24 percent in 2023 partly due to an increased demand for model portfolios.
One of the big stories of 2022 was the failure of the 60/40 portfolio. The 40% allocation to bonds is supposed to help protect investors during downturns, but during markets like last year where both stock and bonds fell, the portfolio failed. Now, strategists are looking for ways to improve the 60/40 portfolio. In a recent panel discussion at the New York Stock Exchange, industry experts spoke about “The Rise of Alternatives and the New 60/40 Portfolio.” Asset management professionals and advisers talked about methods to diversify and target new sources of income for retirement savers. Kimberly Ann Flynn, the managing director of XA Investments, said “An available alternative is a mutual fund wrap with added investments such as managed futures and commodity futures, which exist in the category of liquid alternatives.” She added, “I think with now this big push again looking at 60/40, it’s just diversification away from U.S. equity. I think some of these liquid alternatives are going to see a resurgence. In terms of performance, long-short equity performed well, on a relative basis and absolute basis. Some of the managed futures strategies performed really well.” Brian Chiappinelli, a Managing Director at Cambridge Associates, said that another alternative gaining momentum is the collective investment trust (CIT). He stated that “CITs have more leeway to add alternatives that are customized to a particular employee demographic.”
Finsum: After the blood bath in 2022, asset managers and advisors are looking for new ways to improve the 60/40 portfolio, including adding alternatives such as managed futures, commodity futures, or utilizing a CIT.