Wealth Management
In an article for ThinkAdvisor, Dinah Wisenberg Brin shared some tips from experienced financial advisors on the best way to integrate model portfolios into your practice. The category has seen rapid growth in recent years with nearly $400 billion in assets as of January 2023 which was up more than 20% over the previous year.
In many ways, model portfolios level the playing field between large and small firms. While some clients will always require a personal touch, model portfolios can be valuable in serving clients who have more typical goals and circumstances. Additionally, model portfolios allow advisors to focus more on enhancing the client experience and growing their business rather than managing investments.
Another advantage is that they give smaller practices the ability to leverage tools and resources of major asset managers. These portfolios are also scalable and also leads to more optimal and efficient asset allocation.
However, one clear disadvantage of model portfolios is that they cannot be customized especially in terms of allocations, time horizon, and risk tolerance. Therefore, they may not be appropriate for clients who have special circumstances or unique goals.
Finsum: Model portfolios are a new innovation and are exploding in popularity. Find out if they are a good fit for your clients.
In an article for MarketWatch, Vivien Chen covered the decline in Treasury yields following the May FOMC meeting. Although the Fed did hike rates, investors were willing to look ahead as it seems increasingly likely that this was the final hike of the cycle. According to Fed fund futures, the market now expects the Fed to begin cutting rates in Q1 of next year.
Recent economic data which continues to show a weakening labor market, decelerating growth, and softening inflation also confirm this narrative. Additionally, many regional banks continue to struggle given the inverted yield curve which many fear could lead to a credit crunch.
At the FOMC press conference, Chair Jerome Powell continued to assess the inflation battle as being a “long way to go” and that the labor market remains “very tight”. Despite Powell’s hawkish tone, fixed income markets were stronger across the board. Odds for no change in the fed funds rate reached a 95% probability. Additionally, the market’s target for the year-end fed funds rate declined slightly to 4.25% which implies a reduction of 75 basis points.
Finsum: Treasury yields are modestly lower since the Fed’s rate hike. Odds of a pause at the next meeting have also climbed higher.
Alphathena, a personalized investing platform and direct indexing startup, won the ‘Best in Show’ award at the 2023 Morningstar Fintech Showcase Conference and was covered by Benzinga. Alphathena is attempting to use AI and automation to create solutions and tools for RIAs and Wealthtech platforms with a specific focus on customized direct indexing, automated tax-loss harvesting, and lifecycle management solutions.
The conference featured 25 fintech startups that were geared towards financial professionals. Some of the major themes included AI, personalization, and improving the client experience. Another discussion point is how the wealth management industry is poised for the Great Wealth Transfer as demographics predict a tidal wave of assets from Baby Boomers to Millennials.
In regards to Alphathena, Lawrence Johnson, the Head of Emerging Fintech at Morningstar remarked, "Alphathena, with its elegant platform and powerful engine, is an example of a growing field of innovators that have learned to harness frontier technologies to deliver better outcomes for investors."
The judges spoke highly of Alphathena’s innovative approach, potential for disruption, and strong value proposition. Currently, it can customize portfolios with ETFs and factors for personalization and performance. Its longer-term ambition is to be the solution for wealth advisors when it comes to managing the entire lifecycle of personalized investing.
Finsum: Alphathena, a startup in the direct indexing and personalization space, won the ‘Best in Show’ award at the 2023 Morningstar Fintech Conference.
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In an article for Vettafi’s AdvisorPerspectives, Nestor Hernandez discussed some ways that investing in alternative asset classes can help reduce portfolio volatility. Due to the poor performance of stocks and bonds in 2022, interest in the category has exploded in 2023. Another contributing factor is that technology and regulatory changes have made these investments available to a much wider audience.
Based on research, it’s clear that investing in alternatives leads to lower volatility due to increased diversification. These tend to be private, non-public traded funds in different asset classes such as real estate, private credit, private equity, hedge funds, venture capital, etc. In contrast to public markets, private markets tend to have less liquidity, transparency, and minimums when it comes to investment amounts.
Until recently, these investments were only available to institutional or high net-worth investors. But, these can play an important role for investors especially given that we are seeing the number of companies shrink on the public markets, while opportunities increase on private markets. Additionally, companies are going public at much later stages, meaning private investors have more opportunities to see their investments appreciate.
Finsum: CalPERS CEO Marcie Frost is facing competing pressures from liberals and conservatives over ESG investing.
In an article for AdvisorHub, Jeff Nash the founder and CEO of BridgeMark Strategies discussed what financial advisors need to consider when they are thinking about switching firms or shifting to a different business model.
He recommends that advisors start with the basics which means thinking about your current level of satisfaction, the impact on your staff and clients, and the different options that are out there. First, he recommends not falling into the trap of too much analysis which is a common occurrence given the plethora of options for successful advisors. In order to avoid this, he recommends thinking about what is currently missing from your practice that you want to add, what you want to keep, and what responsibilities you don’t want to add.
The next step is to think about what type of business model is ideal whether it’s a hybrid model, an RIA, a smaller, more regional focused firm, an independent broker dealer, or a traditional wirehouse.
Finally, he concludes by saying that hiring a consultant who is experienced and fully knowledgeable about the space can help you make the best decision in terms of financial rewards and personal satisfaction.
Finsum: Recruitment of financial advisors is picking up pace. Here are some things for advisors who are considering a move to think about.
In an article for Bloomberg, Ye Xie and Liz McCormick discussed how Vanguard’s fixed income ETFs have been major recipients of inflows as investors look to take advantage of higher yields and protect their portfolio from a potential recession later this year.
In March, the funds saw $26 billion of inflows due to the crises at Credit Suisse and Silicon Valley Bank. This was nearly more than last year’s cumulative $31 billion of inflows.
It’s also an indication that Vanguard’s passive management and indexing strategies will take on even greater significance in the fixed income world as these funds keep growing. In total, Vanguard’s fixed income funds have over $1 trillion in assets.
It also follows what has happened in equity markets, where passive funds have ballooned in size, and make up the bulk of inflows. In hindsight, the 2008 financial crisis and subsequent few years seem to have been the trigger for equity investors favoring passive funds over active ones due to the strong outperformance of indexes.
Similarly, 2022 was the biggest rout for bonds in decades due to inflation and a hawkish Federal Reserve. This also has led to investors rethinking allocations, and one outcome has been the growth of passive over active.
Finsum: Similar to what happened in equities over the last decade, passive bond funds are starting to see the bulk of inflows.