Displaying items by tag: advisors

Natixis conducted a survey of 500 investment professionals, managing a combined $35 trillion in assets. The survey showed that investors are adjusting their allocations in expectations of more volatility in 2024 due to more challenging macroeconomic conditions. 

A major change in the survey is increasing preference towards active strategies as 58% noted that active outperformed passive for them in 2023, and 63% believe active will outperform this year. Overall, 75% of professionals believe that being active will help in identifying alpha in the new year. 

In terms of fixed income, 62% see outperformance in long-duration bonds, although only 25% have actually increased exposure due to uncertainty about the Fed. In addition to increasing duration, many are interested in increasing quality with 44% looking to increase exposure to investment-grade corporate debt and US Treasuries. 

Money continues to flow to alternatives with 66% believing that there will be significant delta between private and public market returns. Within the asset class, fund selectors are most bullish on private equity and private debt at 55%. 

With regards to model portfolios, 85% of firms now offer them either in-house or through third-party firms. Due to increasing demand, the number of offerings are expected to increase. Benefits include additional diligence and increased odds of client retention during periods of uncertainty. They also help form deeper relationships with more trust between advisors and clients, leading to more of a relationship focused on comprehensive, financial planning. 

Finsum: Natixis conducted a survey of 500 investment professionals and found that model portfolios are increasingly popular. Another major theme is that volatility is expected to remain elevated in 2024 due to uncertainty about the economy and Fed policy. 

With signs that inflation is starting to tick higher and renewed concerns about the stability of banks, many investors are looking to shield their portfolio from a rise in volatility. As 2022 demonstrated, rising inflation creates conditions that are unfavorable for stocks and bonds. 

One way that investors can protect their portfolios is to increase their allocation to fixed index annuities. They can help investors reduce risk while still allowing for accumulation. A fixed index annuity (FIA) functions similarly to a traditional annuity as it guarantees some payment while allowing for deferral of taxes. However, the key difference is that it also tracks a specific index to allow for appreciation of the principal as well. 

Unlike fixed income or equities, there is much less downside risk and sensitivity to interest rates. Essentially, the FIA will not see any loss of principal in the event that the index suffers losses. However if the index has positive returns, the FIA will capture some portion of the upside. 

Thus, FIAs can help reduce portfolio risk and shield investors from disastrous scenarios especially if they are in or near retirement. At the same time, it ensures that the portfolio is also protected against inflation, reducing the risk that a retiree will outlive their savings.

Finsum: Risks to the outlook have been steadily rising in 2024 as inflationary pressures are once again building, and there are renewed concerns about the health of the banking system. Here’s why fixed indexed annuities are an effective way that investors can diversify and de-risk their portfolios.

According to recent SEC filings from LPL Financial and Cambridge Investment Research, it’s clear that M&A activity remains robust. Lately, it’s the independent broker-dealers that have been the most aggressive in terms of dealmaking. 

For instance, LPL Financial revealed that it made 19 acquisitions in 2023 using its ‘liquidity and succession’ program for a total of $190 million although this could rise as high as $297 million depending if certain criteria is met. Currently, LPL is a leading broker-dealer with over 21,000 advisors. 

Previously, broker-dealers offered succession plans for retiring financial advisors. A new development is that these broker-dealers are buying up their own advisors’ books. The most notable recent example is LPL buying one of its own branches, Financial Resources Group Investment Services which managed $40 billion in assets. 

The catalyst for this trend is the entry of private equity buyers into the marketplace which is increasing pressure on independent broker-dealers to retain the books of their existing advisors. According to Carolyn Armitage, an industry consultant, “Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that’s a more diversified way to earn money on those assets.”

Finsum: The M&A market for financial advisors’ practices remains heated. Private equity buyers are a new force and willing to pay large multiples. It’s forcing independent broker-dealers like LPL to be aggressive in order to ensure that existing advisors’ assets don’t migrate to a different platform. 

In 2023, despite upheaval in the banking sector particular with the key industry figure First republic, advisor recruiting remained robust, indicating resilience in the financial advisory industry. 

The tumultuous environment in banks likely spurred advisors to seek stability and growth opportunities elsewhere. This trend is expected to continue in the current year, with more advisors exploring moves to firms offering better support and prospects for their practices. 

The allure of independence and the ability to provide personalized service to clients continue to drive advisors away from traditional banking institutions. Firms that prioritize advisor support and flexibility are likely to attract a significant share of talent in the upcoming months. Amidst ongoing industry shifts, the importance of robust support systems and adaptable business models cannot be overstated for both advisors and the firms competing to recruit them.

Finsum: Advisors are making changes in 2024 mirroring the flexibility desired in many other job categories. 

While portfolio construction is crucial for achieving client investment goals, it's merely one facet of a successful financial advisor-client relationship. A deeper understanding of the client's life circumstances and how their investment objectives fit into their overall financial picture is equally important for fostering trust and long-term engagement.

Time constraints often lead advisors to outsource portfolio construction, allowing them to dedicate more time to relationship building. Delegating this task can prove to be a win-win for both parties. The client gets professional investment management from an entity whose sole job it is to maintain their portfolio. And the advisor has more time to be there for their clients when they truly need them.

However, even with outsourcing, advisors must understand the client's portfolio construction and ongoing management comprehensively. Overreliance on outsourced services can lead to losing track of the intricate details of the investment process.

Ultimately, the client relies on the advisor to bridge the knowledge gap between their financial goals and the details of portfolio implementation. By remaining knowledgeable and engaged, advisors can effectively represent their client's best interests and build a robust and enduring partnership.

Finsum: Advisors outsourcing portfolio construction benefit from more time to build client relationships, but they still need to keep up with the details of the investment management of client accounts.