Wealth managers rely on platforms such as broker/dealers and custodians, and over two-thirds have considered switching their current arrangements, though only 17.1% are actively planning to make changes by 2025 or 2026. 

More successful wealth managers are actually more likely to switch for better operational and business support. Key factors influencing platform choice include financial arrangements, operational support quality, and business development assistance, while personal relationships are less influential. 

Efficiency and negotiating favorable financial terms are critical, as is the ability to find ideal clients through referrals. Wealth managers should critically evaluate the claims of platforms, especially regarding business development support programs. Despite interest in changing platforms, inertia and other demands may prevent many from following through.

Finsum: While the relationship isn’t causal its worth pointing out that higher networth advisors are more active in thinking about their future relationships with their broker dealers.

Active bond funds are essential for a well-diversified investment portfolio, providing income and cushioning against market downturns. In 2022, bonds demonstrated their resilience, with most fixed income categories performing better than the broader stock market. However, bond values are inversely related to interest rate changes, so with rates projected to rise, focusing on short- to intermediate-term bond ETFs is advisable. 

Active bond ETFs, such as Pimco’s Active Bond ETF (BOND), offer diversified exposure and professional management, helping investors navigate volatile markets. If you want to shorten the duration Pimco’s Enhanced Short Matruaity Active ESG ETF (EMNT) might provide a more robust alternative with ESG exposure. 

Despite higher costs, active management can be beneficial, especially in uncertain economic conditions, making these funds a strategic addition to long-term investment portfolios.

Finsum: Duration risk is especially important in this current climate and because interest rates could fall quickly in the next year depending on the Fed’s decisions.

At the annual Milken Institute Global Conference, many expressed concerns that, as rates remain elevated, there is increasing liquidity risk for some borrowers. So far, robust economic growth has masked these underlying issues, but many borrowers would be vulnerable in the event of an economic downturn.

So far, default rates have remained low. Skeptics contend that this is due to amendments made to loan terms, leading to maturity extensions and payment arrangements. Ideally, these maneuvers would buy time for borrowers until monetary conditions eased. 

Yet, economic data has not been supportive of this outcome so far in 2024, leading to more stress for borrowers and concerns that defaults could spike. According to Katie Koch, the CEO of the TCW Group, “This cannot be extended forever. Eventually, those default rates will rise.” Danielle Poli adds, “It is going to be ugly. Many of these companies are burdened with excessive leverage, with holes in their covenants like Swiss cheese.”

Some investors sense opportunity as there has been an increase in bridge loans to borrowers, searching for liquidity. Oaktree Capital has reduced exposure to syndicated loans and raised cash levels to take advantage of any dislocations. In addition to bridge loans, there is also increasing demand for hybrid capital, which is in between senior debt and equity and provides liquidity and cash flow relief to borrowers.

Finsum: At the annual Miliken conference, Wall Street heavyweights warned that as rates remain elevated for longer, borrowers are getting more stressed and that a spike in defaults is looming.

Summit Financial was founded in 1982 as an independent firm. Over the last 4 years, assets under management grew from $3 billion to over $10 billion as it aggressively recruited talent from wirehouses and other firms. Ed Friedman, the director of business development and growth at Summit, shared some insights on what has driven the firm’s recent success.

The biggest factor is creating a culture that allows advisors to be fiduciaries, grow their own businesses, and have a meaningful stake in the firm’s long-term success. Friedman stresses that clients are ultimately loyal to an advisor and not a company. 

Additionally, advisors at independent firms have more control over their destinies. In contrast, an advisor's fate at a wirehouse or larger institution can be affected by unrelated factors. For instance, many brokers at Merrill Lynch had their equity wiped out in 2008 when it had to be bailed out by Bank of America. Similarly, advisors at First Republic were impacted by the crisis last year, despite the wealth management unit’s strength. 

Friedman also attributes the acceleration in growth to bringing in professional management. This has allowed advisors to focus on clients, prospecting, and financial planning, while other matters such as compliance, backoffice tasks, and administration are handled by the firm. 

Finsum: Summit Financial is more than 40 years old. Yet, the RIA’s growth has exploded in recent years as it has brought in professional management and found success with its independent-hybrid model. 

Direct indexing has many advantages, such as lower costs, boosting after-tax returns, and providing more flexibility to clients. However, some advisors are failing to properly implement the strategy, which means some portion of the benefits are not being realized. 

According to Barret Ayers, the CEO of Adhesion Wealth, advisors should offer direct indexing through unified managed account (UMA) frameworks. Currently, only 2% of direct indexing assets are managed through UMAs, with the majority in separately managed accounts (SMAs) or as a standalone model.

By going through a UMA, tax-loss harvesting strategies can be fully implemented and optimized. With standalone accounts, or SMAs, it’s burdensome to manage rotations out of losing positions or transfer holdings when necessary. As a result, many losses cannot be captured due to penalties or restrictions on wash sales. 

Another benefit of direct indexing through a UMA is that advisors can most effectively leverage core-satellite strategies to build a portfolio. This entails a core portfolio allocated to indexing with smaller pockets of higher-risk, higher-return investments in inefficient asset classes. Within a UMA, this strategy's efficacy can be maximized as it allows for efficient rebalancing, changes in asset allocation, and reduced time spent on administration.

Finsum: While direct indexing is surging in popularity, many clients and advisors are failing to fully take advantage of its benefits. Here’s why direct indexing in a UMA is the best approach.