Displaying items by tag: client management

One persistent challenge for financial advisors is communications around annuities. According to a new research report from the Center for Retirement Research at Boston College, many advisors forgo recommending annuities to clients due to these concerns even when there is a risk that a client may outlive their funds. Additionally, advisors also report that clients often don’t take their advice when it comes to buying annuities which is one possible explanation for advisors’ reluctance.

The research report explores the question of why Americans don’t buy annuities despite the ubiquitous fear of running out of money during retirement and the desire to shield investments from volatility. 

Currently, only about 10% of older Americans have purchased an annuity. The research identifies a major issue as advisors are unlikely to recommend annuities and even when these recommendations are made, clients are unlikely to act on it.  

The research suggests that the issue is less about understanding the complexities of the product. In fact, most households with assets over $100,000 were either not familiar or only ‘somewhat familiar’ with annuities. Thus, there needs to be more awareness about annuities and the process of buying one needs to be simplified. Advisors should seek to clarify the steps involved and explain the decisions that need to be made.

Finsum: Americans have very low ownership rates of annuities. This is despite the common fear of running out of money during retirement and concerns that market volatility could impact investments. 

It’s an interesting time for fixed income given the recent rally and optimism around inflation falling enough to cause a change in Fed policy. In conversations with clients, Nicholas Bragdon, Lord Abbet’s Associate Investment Strategist, discussed some common themes that are emerging. 

The first is that many clients report feeling satisfied with earning 5% returns in deposits and have no desire to make a change. While returns on cash are the highest in decades, the same is true across the fixed income universe even in short-duration assets like short-term corporate debt. Historical data also shows that being overweight in cash leads to long-term underperformance while also leading to reinvestment risk in the event that the Fed does start cutting rates. 

Another common concern among clients is that they believe they will have sufficient time to make changes to their portfolio if the Fed does start cutting rates. However, history shows that it’s quite difficult to time these changes in rate policy. 

In fact, last year at this time, the consensus was for the economy to fall into a recession in the second-half of the year, leading the Fed to start cutting rates. In reality, markets are too efficient and will have already priced in a bulk of gains by the time the Fed actually starts easing. Thus, investors should consider moving from cash or short-duration fixed income into intermediate or longer-duration to take advantage of the changing environment.

Finsum: Fixed income markets are at an interesting place, following a strong rally to end the year amid anticipation of a change in monetary policy. Here are some common client concerns. 

Building an effective lead generation strategy is essential for advisors who are serious about growth. According to Angela Osborne, the COO of Bluespring Wealth Partners, advisors should focus on generating referrals from existing clients and working on leads that are already in the pipeline. Failure to do so runs the risk of becoming a ‘melting iceberg’ which is a firm with no growth strategy that loses clients and assets through time and attrition.

She recommends being clear with prospects about the value being offered in addition to what differentiates you from competitors. And this branding should be consistent across all the mediums where you want to share your message. Additionally, the message should resonate with your ideal client. 

In terms of optimizing lead generation, she recommends having a digital marketing strategy. Advisors should also refine their messaging to quickly and clearly articulate why clients should choose them over their competitors. Once a lead is acquired, it must be nurtured which takes time in order to build an authentic relationship. 

The final step is to actually convert a lead into a client. Many advisors fail at this final step. She recommends identifying who in the company does this well and have them mentor others at the firm. 

Finsum: Without an effective lead generation strategy, RIAs are bound to become ‘melting icebergs’ as they lose clients and assets through time and attrition. 

Natixis Investment Managers and CoreData Research conducted a survey of 11,000 investors. One of the most interesting results was that those who were invested in model portfolios were less stressed, had more confidence, and trust in their advisors relative to individuals not invested in a model portfolio. 

11% of model portfolio clients felt stress while 23% of non-model portfolio investors were stressed. Similarly, 45% of model portfolio investors felt confident about their finances, compared to 24% of non-model investors. Further, 78% of model portfolio investors saw volatility as an opportunity. In contrast, only 47% of non-model portfolio clients felt the same way. 

Only about half of the respondents were invested in a model portfolio despite the benefits. Currently, about 51% of wealth managers and RIAs offer third-party model portfolios. However, it does present an opportunity for advisors as it frees up more time for financial planning, client service, and prospecting. 

Ronnie Colvin, the founder of Fractional Planner, said “Model portfolios make life easier for the advisor because the allocation percentages and the investments in the portfolio are predetermined. So the advisor doesn’t have to go and scour the market for various investments to fill a target allocation.” He added that model portfolios can help with managing risk while also leading to a more customized experience given that there are model portfolios optimized for tax efficiency, sustainability, income, and alternatives.

Finsum: Model portfolios offer certain advantages for clients and advisors according to a survey of investors. These include increased levels of confidence, less stress, and more trust in their advisors. 

Direct indexing is seeing a surge in popularity as it appeals to many investors due to its tax benefits and customization abilities while still offering low costs and diversification. Hearts & Wallets conducted a focus group in 3 cities across the US with investors to get their thoughts on the emerging strategy.

Direct indexing is essentially a variant of traditional index investing through low-cost ETFs or mutual funds. However, the major difference is that investors replicate the index within a separately managed account. This means that they own the actual constituents of the index which means that there are additional opportunities for tax-loss harvesting and personalization.

The focus groups were overall very favorable to the concept and more so than in previous years. Respondents seemed to be most attracted to its potential tax savings. In contrast, many were less enthused about customization given that it added a layer of complexity and seemed time-consuming. A small minority did appreciate the option of being able to avoid companies they don’t like.

Another interesting finding from the focus group is that it’s appealing to investors with less assets as well as high net-worth investors specifically for its tax savings. According to the firm, two-thirds is in taxable accounts, and this continues to grow at a faster pace than money in nontaxable accounts. Thus, advisors are likely to have the most success by stressing this benefit of the strategy. 

Finsum: Hearts & Wallet conducted a focus group of investors in 3 cities about direct indexing. It revealed that investors were most receptive to the strategy’s tax benefits.