Wealth Management
JPMorgan had six advisor groups, managing a cumulative of nearly $15 billion in assets, leave the company on April 19. In total, 50 employees left the company to join competitors including Merril Lynch, Morgan Stanley, Citizens, and Wells Fargo.
Notably, all of the teams were originally from First Republic Bank, which collapsed last year during the regional bank crisis and was taken over by JPMorgan. About a third of its advisors departed First Republic during its turmoil, prior to the acquisition. Following these exits, First Republic’s private banking segment still had over 200 financial advisors, managing $200 billion in assets.
First Republic was a leading provider of private banking and wealth management solutions for high-net-worth clients. It was also an aggressive recruiter of advisors and brokers from Wall Street banks, luring them with generous packages. In fact, one departing team was recruited from JPMorgan by First Republic in 2020.
Currently, JPMorgan has $3.3 trillion in client assets, managed by advisors at bank branches and its wealth management group, which services high and ultra high-net-worth investors. It’s an indication that growing wealth management through acquisitions is not a straightforward process and is dependent on retaining advisors.
Finsum: JPMorgan had six advisor teams depart the company last week. These advisors came to the company through the acquisition of First Republic and managed nearly $15 billion in assets.
In the daily rush of managing your practice, finding ample time to focus on client relationships and business growth can be a challenge. According to Cerulli Advisor Metrics, advisors globally spend just 55.3% of their time on client-facing tasks, with the remainder consumed by administrative duties, investment management, and professional development. Some advisors opt to delegate investment management responsibilities to third-party firms, allowing them to devote more attention to client engagement and asset growth.
Introducing managed portfolios into your practice can yield several benefits, starting with addressing capacity constraints. With each client possessing unique goals and risk tolerances, crafting individualized plans and managing portfolios can be time-consuming. While some practices employ in-house specialists or investment teams, scaling these resources may prove costly and logistically challenging.
By recommending third-party discretionary portfolio management, advisors can access experienced professionals without bearing the burden of direct development expenses. This approach not only offers clients access to seasoned investment professionals but also frees up advisors' time for more client interaction and personalized service. Ultimately, leveraging professional portfolio management services can enhance efficiency, scalability, and client satisfaction within your practice.
Finsum: Its important to realize the that your expertise could be best served by being in the middle of a client and the portfolio construction leveraging technology to your advantage.
Innovator Capital Management, a pioneer in defined outcome ETFs, announced the launch of a groundbreaking ETF designed to provide investors with exposure to the equity market while ensuring a complete buffer against losses. The Innovator Equity Defined Protection ETF aims to match the upside return of the SPDR S&P 500 ETF Trust, symbolized by SPY, with a cap of 16.62%, while safeguarding against losses from SPY over a two-year outcome period.
Graham Day, the Chief Investment Officer, emphasized the surge in investor interest towards safer options like bank deposits and Treasuries amidst market concerns, hence the necessity for a low-risk market reentry strategy. Innovator's objective with the new fund is to offer clients a means to remain invested in the market with robust risk management, extending their buffer ETF range, which previously spanned buffer levels from 9% to 30%.
Since introducing the world's first buffer ETFs in August 2018, Innovator has witnessed competitors such as First Trust and, more recently, BlackRock, entering the fray with their versions. While the new strategy may not immediately entice investors due to its slightly higher risk and cost, Innovator anticipates competition with traditional cash-like instruments, highlighting the potential tax advantages alongside increased upside potential and complete downside protection.
Finsum: A full 100% buffer could be a major innovation in the risk mitigation space for ETFs.
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Direct indexing continues its ascent and is forecast to exceed $1 trillion in assets within the next decade. In essence, direct indexing retains the primary benefits of passive investing while allowing for greater tax efficiency and personalization.
It achieves this by buying the actual components of an index in a separately managed account (SMA). This means that tax losses can be harvested by selling losing positions and reinvesting the proceeds into positions with similar factor scores to ensure that the benchmark continues to be tracked. According to research, direct indexing can boost after-tax returns by 1 to 2% due to these savings. The effect is even more potent in periods with elevated volatility.
Direct indexing also allows for more customization to account for a client’s unique situation. For instance, if an investor has an oversized position in a specific company, that company would not be included in the index, and/or the specific sector could be underweighted. Similarly, if a client is sitting on large, unrealized gains, direct indexing can help reduce the tax burden while helping to construct a more diversified portfolio.
Direct indexing can be a way for advisors to give clients a strategy that accomplishes their financial goals in the long term, reduces tax payments, and aligns their investments with personal values and/or situation. This can help differentiate advisors in a competitive market and create a richer experience that leads to a stronger and deeper relationship with clients.
Finsum: Direct indexing continues to experience rapid growth as it offers the benefits of passive investing with more tax efficiency and customization. For advisors, it also presents an opportunity.
Spring often marks a period of transition for financial advisors, where opportunities for change abound. While the optimism of the season is commendable, it's important to acknowledge that not everything is within reach. Spring serves as a moment for introspection, especially regarding career paths. For advisors, contemplating a shift to a new firm or business model can be daunting, requiring consideration of clients, staff, and the plethora of options available.
However, the abundance of choices can lead to analysis paralysis, necessitating a focused approach. Advisors should consider their priorities, including client service, autonomy, and income growth, as they navigate the landscape of potential moves. The key questions are: what I might not have that I want going forward, and what do you already possess that you will want to maintain?
From traditional wirehouses to independent broker-dealers and RIA aggregators, each option presents its own set of pros and cons. The evolving RIA aggregator market, with its financial backing and potential for future liquidity events, adds a new dimension to the decision-making process. Ultimately, the complexity of the financial services industry highlights the importance of thorough research and leveraging expertise when considering a career transition.
Finsum: Consider the improvements of advanced technology and flexibility of hybrid work when pondering a transition as well.
Annuity vendors experienced robust performance in Q1, with traditional variable annuity sales rising by 13% year-over-year to $14.5 billion, benefiting from strong equity market performance. Overall annuities amassing $113.5 billion in sales, marking a 21% surge compared to Q1 2023. Although falling slightly short of the Q4 2023 pinnacle, preliminary findings from LIMRA's U.S. Individual Annuity Sales Survey reveal this quarter's sales accounted for 84% of the total U.S. annuity market, the highest first-quarter performance since the 1980s.
Bryan Hodgens, head of LIMRA research, attributed this trend to favorable economic conditions and heightened investor interest in securing retirement income guarantees, foreseeing continued resilience in annuity sales despite potential regulatory and economic challenges ahead. Variable annuities are expected to tack on another 10% through the end of the year.
Fixed-rate deferred annuities reached $48 billion, a 16% increase from Q1 2023, driving over 42% of the total annuity market. Fixed indexed annuity sales hit a record high of $29.3 billion, up by 27% year-over-year. Income annuity sales soared to a quarterly high, with SPIA sales reaching $4 billion and DIA sales reaching $1.1 billion, up by 19% and 35% respectively.
Finsum: Bond rates could be coming down as the Fed starts to ease rates and other retirement vehicles will become more attractive.