Wealth Management
A robust pipeline of prospects is essential for the long-term growth of a successful financial advisor practice, however the major challenge is that it takes consistent investment of time and energy that won’t yield immediate results. In an article for SmartAsset, Rebecca Lake CEFP laid out some tips on building a strong pipeline.
The first step is to understand that there are multiple paths to successful prospecting. So when coming up with a strategy, figure out the one that best aligns with your inclination and personality. For instance, a digital savvy advisor may elect to invest their efforts into creating an online presence. Someone with a background or interest in athletics may look to sponsor and/or get involved with local sports leagues.
Related to this, your prospecting strategy must create visibility and interactions with your target demographic. This means defining your ideal client in terms of income, wealth, age, occupation, etc.
Finally, you can look at your network and existing clients for referrals for prospects who may be receptive to your message or services. Often, these have the highest conversion rate but are only earned through years of building trust.
Finsum: Having a strong pipeline of prospects is necessary for an advisors’ success. Here are some tips on formulating an effective strategy.
In an article for ETFTrends, Todd Rosenbluth discussed how US insurance companies are aggressively investing in fixed income ETFs. Last year, the industry invested a total of $37 billion in ETFs. This is a small portion of the overall ETF market and the $7.9 trillion that is cumulatively managed by US insurance companies.
However, insurance companies are some of the largest holders of fixed income ETFs especially for corporate bonds according to a report from S&P Dow Jones Indices. S&P Dow Jones believes that insurers are gravitating to these products because of increased liquidity and higher yields. Additionally, these ETFs functioned well over the last couple of years despite periods of considerable market stress.
In terms of ownership, insurance companies own 14% of the iShares iBoxx $ Investment Grade Corporate Bond ETF at year-end 2022. The average duration is 8 years with a split of A- and BBB-rated bonds.
2 more popular bond ETFs are the iShares 1-5 Year Investment Grade Corporate Bond ETF andthe iShares 10+ Year Investment Grade Corporate Bond ETF (IGLB). Both invest in similar products but with different durations. Each has 11% and 7% ownership by the insurance industry, respectively.
Finsum: Fixed income ETFs are becoming increasingly accepted by institutional investors. Research from S&P dow Jones shows that insurance companies are some of the largest holders.
In an article for ETFTrends, James Comtois discusses 3 benefits of direct indexing as laid out by Vanguard. The asset manager sees the trend continuing to grow in popularity in the coming years and is investing heavily to capture market share in the space.
Direct indexing combines the benefits of index investing such as low costs and diversification while allowing for greater personalization. Rather than gaining exposure through an ETF or mutual fund, investors own the individual stocks in the index. This allows for more flexibility, transparency, and potential tax savings.
In terms of returns, tax savings is the biggest benefit. According to research, it can add between 20 and 120 basis points annually. Losing positions can be sold to offset gains from profitable positions. Then, these positions can be replaced with other stocks that have similar factor scores to continue tracking the underlying index.
Direct indexing allows for customization to reflect an individual’s circumstances and values. This could mean ESG investing or reducing exposure to a particular industry because of outside holdings. Finally, direct indexing leads to increased transparency as the holdings are always visible while avodiing complications of conentrated positions.
Finsum: Direct indexing has 3 benefits for advisors and clients: tax savings, increased customization, and greater transparency.
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In an article for Forbes, Jon McGowan discusses how five out of the eight insurance companies, who were among the early signers of the agreement, are leaving the United Nations’ Net-Zero Insurance Alliance due to antitrust concerns and a backlash regarding ESG.
The alliance was formed in 2021 to encourage the insurance industry to proactively work on solutions towards climate change. The goal was to get to net-zero emissions by 2050 by promoting change of internal practices and to use investment decisions to encourage other stakeholders to reduce their emissions as well. It also mandates disclosures of decisions related to climate change and is modeled on financial disclosures that are required by the SEC.
This has raised antitrust concerns given the coordination of companies within an industry. It also has led to opposition due to the recent, heated pushback against ESG investing which has intensified with Republicans taking over Congress. At the statehouse level, Republicans have also mobilized to ban use of state funds from using ESG factors in investment decisions.
Finsum: Insurers are leaving the UN Net-Zero Insurance Alliance due to antitrust concerns and the backlash over ESG investing.
In an article for ETFTrends, Tidal Financial Group discussed the major challenge facing financial advisors. Clients want customized and personalized services, but growing the practice requires creating standardization of systems and processes and finding efficiencies.
These conflicting demands tend to create a lot of stress for advisors and can limit their growth and effectiveness. Too much personalized service will impede your ability to attract new clients and grow the business while too many efficiencies will lead to unsatisfied clients and ultimately retention issues.
Model portfolios can help advisors resolve this dilemma. They can help you offer more personalized services to clients without taxing an advisors’ time and resources. These models can be used for a variety of purposes such as reducing tax liabilities, values-based investing, more complex strategies, etc.
Instead of spending time on portfolio management, advisors can spend more time on marketing, client outreach, financial planning, etc. Advisors with a smaller practice may not appreciate the benefits of model portfolios until they get to a larger scale. Other benefits include simplifying client communication, leveraging research and education, and synergies between marketing and investing.
Finsum: Model portfolios are one way for advisors to become more efficient while also creating a more personalized experience for their clients.
Every year, there are countless innovations in wealth management but only a few prove to have staying power and become a disruptive force. It’s increasingly clear that direct indexing is here to stay given its massive growth over the last couple of years.
It also serves a unique niche, because it offers the benefits of index investing with more customization and tax savings. According to a report from Cerulli Associates, direct indexing is expected to continue growing at a similar pace over the next decade due to these reasons. And, it’s especially useful for investors who want to prioritize tax loss harvesting and ESG.
The report also shows that there’s considerable room for growth given that only 14% of advisors are aware of it and recommending it to their clients. However, the firm is confident in its growth especially as fee-based models continue to take market share. It forecasts 12.3% growth over the next 5 years.
Given its usefulness and newness, direct indexing is one way that advisors can differentiate themselves. It can also help create a more personalized experience for clients which can lead to more loyalty and retention.
FinSum: Direct indexing is expected to continue rapidly growing over the next decade, and it’s particularly beneficial for tax loss savings and ESG investing.