Wealth Management
The traditional perspective on direct indexing as solely an equity investing strategy is shifting, as highlighted by Jonathan Rocafort from Parametric Portfolio Associates, who advocates for its exploration in fixed income portfolios.
Customized and tax-aware bond ladders present an intriguing opportunity, particularly for advisors with clients nearing retirement. While advisors are well-versed in tax-loss harvesting for equities, Rocafort notes a knowledge gap regarding tax-aware bond investing and the potential for tailored retirement income portfolios at scale.
Direct indexing in equities involves purchasing individual stocks from an index, enabling tax optimization and customization beyond traditional funds. Similarly, managers can offer customizable bond ladders in municipal, corporate, or Treasury bonds, aligning with investors' values and tax strategies. Despite uncertainty in the interest rate cycle, there's optimism about utilizing fixed income strategies like bond ladders amid potential rate hikes in tax strategies.
Finsum: While it is still not the cheapest strategy, direct indexing could prove useful for HNW clients utilizing bonds as they near retirement.
Have you ever wondered exactly what stocks and bonds make up your mutual fund? While diversification and professional management are huge benefits, you may want a timelier picture of your investments than these vehicles allow. This is where separately managed accounts (SMAs) offer a distinct advantage.
Unlike mutual funds, SMAs provide direct ownership of the underlying securities in your portfolio. This transparency lets you see exactly what you're invested in, empowering you to adjust more quickly if desired.
For instance, making informed and timely decisions is particularly useful when aligning your values to your portfolio. SMAs, with their immediate transparency and ability to customize holdings, allow for quicker adjustments if needed.
On the other hand, mutual funds typically update their holdings lists every quarter, which may be too much of a delay for your liking. And, by the time you see that report, the fund may have already bought or sold securities. With an SMA, you and your advisor have real-time access to your holdings, enabling you to stay on top of your investments and adjust as market conditions or your personal preferences evolve.
Finsum: The timely transparency of separately managed accounts is important to investors seeking to align their portfolio to their values.
Many advisors are apprehensive about contemplating a switch to a new firm. They fear the process will be complicated and full of risk. But what if the recruiting process itself could be a valuable source of insight?
As the saying goes, "how a person does one thing is how they do all things." This principle often applies to organizations as well. Finding a firm that prioritizes a smooth and transparent transition can be a strong indicator of how they'll be as a partner in the future.
A transparent and efficient onboarding experience demonstrates the firm's respect for your time and commitment to setting you up for success. Transparency throughout the process also demonstrates the firm's commitment to open communication, a cornerstone of any successful long-term relationship.
Don't let the fear of a complex transition process hold you back from exploring new opportunities. Use the recruiting process as an opportunity to gain valuable insights into the organization's culture and working style. By prioritizing transparency and ease of interaction, you can find a firm that truly values you and sets you up for a thriving long-term partnership.
Finsum: Financial advisors searching for a new firm can use the recruiting process to gain key insight into how the firm truly operates.
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BlackRock (BLK) has unveiled plans to acquire SpiderRock, a prominent provider of technological solutions tailored for financial institutions. This acquisition is set to bolster BlackRock's Aladdin platform, a key player in the world of separately managed accounts (SMAs).
By integrating SpiderRock's state-of-the-art technology into Aladdin, BlackRock aims to enhance its SMA capabilities, particularly in risk management and trading strategies. According to Cerulli Associates, SMAs are projected to see their assets under management surge to $4 trillion by 2026 from $2.7 trillion, driven primarily by heightened client demand for personalized portfolios offering tax advantages. This strategic move underscores BlackRock's commitment to leveraging advanced analytics within the management sector, enabling clients to optimize operations and mitigate risks more effectively.
Through this acquisition, BlackRock is poised to pioneer innovative SMA solutions, driving efficiency and productivity across operations and meeting the demand for tax optimization. This development signals a significant step forward in BlackRock's journey toward becoming a leader in SMA, offering tailored solutions to address the evolving needs of investors and wealth managers worldwide.
Finsum: SMAs are fighting atop the industry with model portfolios to be the customized solution.
Lincoln Financial Group unveils the 1 Year S&P 500® Dual Trigger (Dual Trigger) account option for its fixed indexed annuities, offering growth potential in all market conditions with 100% downside protection.
Consumer concerns about inflation, investment losses, and market volatility have driven demand for such products, with 61% of consumers seeking investments balancing growth and protection. With industry projections expecting fixed indexed annuity sales to reach nearly $100 billion in 2025, Lincoln Financials’ enhancements aim to simplify strategies, providing growth opportunities while safeguarding against volatility.
Additionally, Lincoln introduces the 1 Year S&P 500® 10% Daily Risk Control Trigger for its OptiBlend® fixed indexed annuity, offering potential for higher trigger crediting rates in certain markets. With a commitment to helping investors protect their savings, Lincoln Financial expands its annuity product portfolio to offer clients more choices for building wealth and confidence in retirement, working with over 22,000 financial professionals in 2023 to provide new annuity contracts.
Finsum: The recent uptick in annuity products appears to be driven by demographic shifts and boosted demand.
Last month, Innovator launched the Innovator Nasdaq 100 Managed Floor ETF (QFLR). The ETF is designed to offer investors exposure to the performance of the Nasdaq 100 while capping losses at 10% over a 12-month period with an expense ratio of 0.89%.
Innovator achieves this by using a laddered put option strategy managed by Parametric, a Morgan Stanley affiliate, in concert with investing in the securities held by the Nasdaq 100. With these put options, the fund hedges against downside risk while reducing volatility in exchange for upside performance.
According to Graham Day, Chief Investment Officer at Innovator, “Historically, in positive years, the Nasdaq-100 has averaged returns of 29%, but in negative years it has averaged losses of -30%. Most investors are unable to stomach this type of volatility, and QFLR is a solution to allow investors to remain fully invested in the Nasdaq-100 with built-in risk management.”
2022 and 2023 illustrate the value of QFLR as double-digit losses in the Nasdaq led many investors to reduce equity exposure and miss out on the big rally in the following year. Previously, Innovator launched the Innovator Equity Managed Floor ETF, which has $132 million in assets. The fund tracks an index of large-cap US stocks and limits losses to 10%. According to Innovator, it essentially captures about 80% of upside while limiting volatility to 70%. In the press release for QFLR, SFLR investors saw about 80% of the equity portfolio’s upside but only 70% of the volatility.
Finsum: The private credit market has boomed over the last couple of years due to anemic public markets and hesitant banks. Now, banks are once again competing for business and offering more favorable terms.