Displaying items by tag: advisors

Interest in alternative assets continues to grow. For many, it’s become a core part of their portfolio along with equities and bonds based on the theory that it can increase diversification, reduce risk, and deliver higher returns in high inflation scenarios. 

In response, asset managers are introducing new products at a fevered pace. Examples include bitcoin ETFs, private credit, and infrastructure funds. Advisors have the task of figuring out which of these products will help their clients and become a part of their allocations. 

Some important considerations are properly explained to clients that many alternative investments mean sacrificing liquidity for a multiyear period and are only justified if investors are willing to hold for the long term. Further, focusing on returns is not the right metric, instead these products are more about dampening portfolio volatility and providing a source of non-correlated returns. 

Therefore, the biggest impediment for more adoption of alternatives is education. Many might not have a deep understanding of these strategies and have varying risk tolerances. Advisors should consider allocations to alternatives on a case-by-case basis and also gradually increase exposure levels to gauge comfort levels. 

Finsum: There is an explosion of alternative investment options available to advisors. Here are some tips on how to navigate this expanding landscape.

Assets under management, tied to model portfolios, are forecast to exceed $10 trillion by 2025. Some reasons for the category’s growth include increasing awareness and comfort among clients, a wider range of options that are enabling customization, and the advantages for financial advisors.

Currently, 70% of model portfolios are asset allocation models. Some advisors choose a hybrid approach with some of the portfolio allocated according to models with some portion remaining discretionary. Another important choice is whether there is an open or closed architecture. With an open architecture, advisors can allocate to a variety of funds, while closed architecture means that funds are from an individual asset manager. 

A growing segment is outcome-oriented models which can help clients achieve a precise goal such as generating income, reducing risk, or minimizing taxes. This is another way that model portfolios can achieve greater customization while still retaining the core benefits for advisors. 

Overall, model portfolios are rapidly gaining traction due to their ability to provide sophisticated solutions for advisors and clients. For advisors, it frees up more time and resources to spend on growing and managing the business while also deepening the relationship with clients. 

Finsum: Model portfolios are forecast to exceed $10 trillion in assets in 2025. Here are some of the reasons the category is growing so fast. 

Direct indexing combines the best elements of running a traditional portfolio with passively investing in indexes. This means that investors can reap the benefits of passive investing such as low costs, diversification, and proven long-term outperformance. Yet, they can still take advantage of tax loss harvesting which isn’t possible through investing in ETFs or mutual funds. 

This is because direct indexing leverages technology to recreate an index within an individual account. This technology will also regularly scan the portfolio for tax loss harvesting opportunities. Losing positions are sold and then replaced with positions that have similar factor scores to ensure that the index continues to be tracked. Over a whole year, this will lower an investors’ tax liability.

According to research, direct indexing will lead to an additional average annual return of 1.1%. Further, various direct indexing providers can optimize a portfolio according to an investors’ specific tax situation by offering various scenarios and the subsequent impact on capital gains. From an advisors’ perspective, many clients are interested in reducing taxes and aligning their investments with personal values. Direct indexing can help with both goals which means it can be quite potent in terms of recruiting and retaining clients. 

Finsum: Direct indexing can increase an investors’ average annual return by reducing tax liabilities. This is in addition to the typical benefits of passive investing such as diversification and low costs. 

Model portfolios represent an effective strategy for financial advisors to enhance efficiency within their practices by offering a standardized approach to portfolio construction and analytics. Models simplify the portfolio design process, allowing advisors to save significant research time and scale their services more effectively. Moreover, uniformity in portfolio construction promotes consistency, reduces biases, and improves regulatory compliance.

However, advisors must exercise due diligence in evaluating the credentials of model portfolio providers, considering aspects such as investment philosophy, historical performance, and associated fees. It is also essential to maintain flexibility for customization to meet the unique needs and risk profiles of individual clients.

While model portfolios offer considerable efficiency and informed decision-making advantages, their successful integration into a financial advisory practice requires careful consideration and a client-focused strategy. When utilized judiciously, model portfolios can significantly contribute to a financial advisory practice's operational efficiency and client satisfaction levels, albeit not as a universal solution but as a valuable component of a broader strategic framework.

Finsum: Explore how model portfolios boost advisory efficiency with standardized construction, analytics, and compliance, while ensuring due diligence and customization.

Investing in the right technology has the power to create a more efficient, scalable, and successful practice. The latest disruptive technology is artificial intelligence (AI) which will affect many different parts of a practice and is already impacting specific areas. 

Advisors who are able to effectively leverage AI will see a material and quantifiable impact in terms of generating leads, conversion rates, retention, and reducing time spent on operations and management. Client engagement is an area where advisors are already applying AI to generate positive outcomes and deliver more personalized outreach and services.

Ideally, an advisor would be able to spend hours learning and preparing for a client meeting. In reality, this is not possible given constraints and other responsibilities. However, with AI, an advisor can effectively organize and review all of a clients’ data, including notes from previous conversations, and find insights to deliver a more unique and valuable experience. 

AI can also help sort through all of the data generated by an advisor or practice and find hidden opportunities or potential risks. They can also provide guidance in terms of strategic decisions and long-term planning. It’s recommended to use a specialist AI model for these purposes given that it’s trained in relevant data and adheres to regulatory standards. 

Finsum: AI is the latest disruptive technology that will certainly impact multiple aspects of an advisors’ practice. Here is how it’s already affecting client engagement.