High rates have severely impacted the real estate market. In terms of commercial real estate (CRE), higher rates mean that financing costs have risen, but more pain will come when they have to roll over debt in the coming years, assuming that rates remain elevated. 

According to Rich Hill, the Head of Real Estate Strategy & Research at Cohen and Steers, Head of Real Estate Strategy & Research, REITs are in a much better position to handle these stresses than the larger CRE market. 

Many REITs have delivered their balance sheets with 86% of debt fixed for around 6 years which means there is much less exposure to interest rates than other CRE operators and investors. Additionally on the aggregate, REITs have a loan to value of 35% which is quite conservative relative to historical standards. 

So far, high rates have had a muted impact on earnings, about 1.4%, making it more of a mild headwind. Thus, valuations for REITs have become quite attractive, while they remain on strong footing fundamentally, especially in relation to the broader CRE market. As a result, Hill notes that valuations for REITs have stabilized, while private valuations continue to move lower. 

Finsum: High rates are leading to significant amounts of stress for parts of the commercial real estate market; however REITs have been less affected so far. 

Succession planning is increasing in importance given the aging of the industry. Succession planning is essentially a plan for the business beyond an advisors’ involvement. It’s also a contingency plan in the event of an unforeseen event. Currently, less than 30% of advisors have a firm succession plan in place. Here are some options when it comes to succession planning.

The first option is an internal transfer of clients and assets to the next generation. It requires both parties to agree upon a value for the practice. The drawback is that often there’s a large gap in this assessment. However, the upside is that the transition for clients has much less friction.

The next option is to sell the practice to an aggregator or integrator. These firms specialize in acquiring RIAs and are often funded by private equity. Typically, this involves giving up control of the business, meaning that the successor has less upside and control due to ownership being diluted. 

Another option is to sell directly to a strategic buyer, which is often another financial institution or financial advisor practice. This entails some sort of transition period to merge operations, employees, and clients. It requires carefully choosing a successor and ensuring that the culture of the two firms can mesh. 

Finsum: Succession planning is increasingly important for clients. Here are some of the most common types of succession plans.

Despite the pain and volatility of higher interest rates, fixed income issuance is continuing to expand at a healthy clip. Skeptics who are calling for the “death of bonds” are incorrect as the market continues to function well despite the bear market. 

In 2022, global bond issuance was down by 20%. However, this is mostly attributed to above-average issuance during the period of extremely easy monetary policy in 2020 and 2021. 

Now, fixed income sales are normalizing and forecasted to exceed $6 trillion by year-end. And issuance is set to increase even more next year. Over the next couple of years, trillions in corporate debt will need to be refinanced which will be the major driver of new issues. 

On the demand side, interest in the asset class has surged due to yields at attractive levels while the economic outlook remains muddled. Many institutions are forced buyers of fixed income securities due to regulatory reasons. Additionally, proceeds from fixed income investments are also often re-invested. 

Currently, the global bond market is worth $140 trillion which means that even with 2% yields, it would generate nearly $3 trillion in payments. Of course, this figure is much higher given that most yields are much higher, but it’s an indication of the bond market’s staying power. 

Finsum: Fixed income deals with considerable volatility and looks set for its second straight losing year. Yet, the bond market continues to operate fine with minimal systemic risk. 

For a financial advisors practice to grow and thrive, there must be a continuous flow of new leads. Many advisors waste significant amounts of time and energy pursuing ineffective lead generation strategies. Instead, advisors need to refine their strategy to ensure that they are getting results on their efforts to create a pipeline of prospects. Here are some tips to increase your chances of success. 

You can establish trust with prospects by offering them something that is free and useful. This can include information in the form of content or directly answering questions around specific topics. This can take the form of blog posts, podcasts, or webinars. 

Social media can also be a powerful tool to connect with prospects and share your message. However, it can often be inefficient so it’s important to ensure that you are spending time on the same platforms as your target client. It can also mean doing research on the right keywords to increase the visibility of your content. 

Another source of leads is through your existing clients. Person to person recommendations remain the best source of warm prospects. You can simply ask them if they know anyone who is looking for help with their finances. 

Finsum: Many advisors aspire to work with high-net-worth clients. Here are some tips to increase your chances of success.

One of the reasons that direct indexing has been gaining in popularity is its ability to harvest tax losses in portfolios with regular scans and rebalancing. This technology can also be used to harvest taxable gains on assets that have appreciated considerably over a long period of time by raising the cost basis of securities. This will ultimately lead to a lower capital gains tax bill.

This strategy entails selling shares that are owned on a low-cost basis and then rebuying at a higher cost basis. Unlike tax loss harvesting, there is no wash rule which prevents the same shares from being rebought. It can be most effective when there is an offsetting capital gains loss in another part of the portfolio. 

Investors have not readily embraced this strategy as it conflicts with human nature and the desire not to sell a winning position. Advisors have an opportunity to serve their clients by explaining the benefits. 

However, they need to identify these opportunities with the right technology and holistic perspective. The best chance of gaining this perspective is with a unified management account. It can also aid recruitment as many potential clients are looking for advisors who have a firm grasp on technology and innovative solutions to reduce capital gains taxes.

Finsum: Direct indexing can help advisors and investors with harvesting tax gains in addition to tax losses. This entails selling winning positions and then rebuying at higher levels to lower future capital gains tax bills. 

Raymond James CEO Paul Reilly was optimistic about efforts to close broker recruitment deals before year-end on its recent earnings call. In total, Raymond James only added 31 brokers in its Private Client Group, while it lost 24 brokers in its independent channel. 

The firm saw a 15% increase in assets to $1.3 trillion, although net new assets declined to $14.2 billion from $20.2 billion. Its Private Client Group segment saw a 29% increase in profit and a 13% jump in revenue. 

Earlier this month, Raymond James completed a deal for a group of 27 advisors managing $3 billion in assets away from Cetera Investment Services. The company also set aside $55 million for an SEC probe into off-channel communications. Similarly, rival firms like Stifel and Ameriprise also revealed similar amounts it was setting aside. 

Ameriprise also shared Raymond James’ optimistic assessment of recruiting despite a seasonal slowdown on its earnings call. It added 64 brokers but saw total headcount decline by 2%. But the company believes trends are positive and that there should be more additions into year-end. 

Ameriprise saw a 13% increase in revenue and a 23% increase in pretax profits. Assets increased by 15% to $816 billion while net new additions dropped 20% to $8.9 billion from $11.2 billion. 

Finsum: Raymond James and Ameriprise both noted a seasonal slowdown in recruitment but believe that activity should pick up into year-end. 

Despite considerable volatility in 2023, fixed income inflows have been quite robust. According to an annual ETF investor study by Schwab Asset Management, adoption among Millennials is one factor.

According to Schwab, younger investors have a larger portion of their portfolios in fixed income relative to older generations. This is quite contrary to expectations as younger investors typically tend to favor riskier investments. Even Millennials with no fixed income investments, indicated an interest in learning more about the asset class.

According to David Botset, the head of equity product management and innovation at Schwab Asset Management, “Millennials actually indicated that they have a larger percentage of their portfolio in fixed income than older generations, which was quite surprising and not what you would expect.”

The survey was conducted across 2,200 individual investors between the ages of 25 and 75 with a minimum of $25,000 of investable assets. The differences in fixed income allocations between the generations is notable. Millennials had about 45% of their portfolio in fixed income, while baby boomers had 31%, and GEneration X had 37%. 

While about 45% of Gen X investors and 40% of baby boomers plan to invest in a fixed income ETF in 2024, 51% of millennials plan to do so. It’s a validation that the surge of inflows into fixed income ETFs and boom in new issues will only continue. 

Finsum: Charles Schwab conducted a survey of individual investors. One of the most notable findings was that fixed income ETFs are more popular among younger investors than older ones. 

The combination of high rates and an uncertain economic outlook have resulted in record sales for annuities. In the first three quarters of the year, total annuity sales were up 21% compared to last year for a total of $270.6 billion according to LIMRA’s US Individual Annuity Sales Survey. To compare, there was a total of $255 billion in sales in 2021 which was the last year of the ZIRP era.

In Q3, sales were up 11%, reaching $89.4 billion. LIMRA is forecasting another record year of sales for 2023, exceeding 2022’s record sales of $313 billion. Within the category, fixed indexed annuities continue to dominate, accounting for $23.3 billion in sales in Q3, a 9% gain from last year. YTD, these annuity products have accounted for 26.5% of total annuity sales.

Single premium immediate annuities and deferred income annuity sales saw the biggest increases at 20% and 88% compared to last year’s Q3, respectively. LIMRA is bullish on income annuities which tend to rise with interest rates. According to the group, “Income annuities will hit record levels in 2023, with sales in this category expected to exceed $16 billion for the year.”

Finsum: Annuity sales are hitting new records. Most of this can be attributed to the rising rate environment and risk-aversion among many investors.

This month has seen two major takeovers in the energy sector as Exxon bought Pioneer Natural Resources for $59.5 billion, while Chevron announced that it would buy Hess for $53 billion. Exxon significantly boosted its North American energy production and reserves with the acquisition, and Chevron added a mix of domestic and international assets. Many are speculating that these moves will trigger more M&A activity in the space.

This follows a slight slowing of M&A among oil E&P companies in Q3 as there were 25 deals worth $14 billion. To compare, there was $24 billion of M&A activity in Q2 of this year and $16 billion in Q3 of last year. 

Of course, these deals are dwarfed by the size of Exxon and Chevron deals. According to a report by Enervus, "As anticipated, the pace of consolidation slowed for private E&Ps as the cream of the crop in terms of scale and quality has largely, but not entirely, been bought out. The next logical step in consolidation is more tie-ups between public producers."

Enervus anticipates more dealmaking among smaller companies in the sector especially in the shale patch. Additionally, larger independents could target smaller and midsized mergers with some candidates including Devon Energy, Marathon Oil, Chesapeake Energy, and Southwestern Energy. 

Finsum: There were two mega-deals in the energy sector this month. Here’s why this could trigger a wave of M&A in the sector.

Plan advisors and DC recordkeepers are keenly aware of the opportunity presented by the massive movement of dollars from 401(k) plans into rollover accounts. Research firm Cerulli estimates that over $400 billion were rolled into IRAs (from 401(k) plans) with the assistance of advisors in 2021 alone.

This flow of funds is expected to continue, and advisors see it as a way to grow their wealth management businesses. While the opportunity is enormous, a key data point offers a clue to capitalizing on the trend. Cerulli’s report revealed that “of advisor-intermediated rollover assets, 86% take place through an existing advisor.”

Associate Director, Shawn O’Brien emphasized the importance of relationship-building efforts. “For wealth managers looking to capture rollovers from DC plans, this data underscores the importance of establishing and nurturing relationships with participants earlier in their careers, years before potential rollover events.”

While the implication of this research is clear, not all advisors are set up to engage with every participant. More frequently, advisors are seeking “coopetition” with recordkeepers whereby participants needing rollover assistance are segmented; plan advisors helping a select group of participants – often those with larger account balances – and the recordkeepers serving the remaining participants.

This collaborative approach ensures that each participant receives the optimal solution, transforming the dynamic between advisor and recordkeeper from competitors to partners.

Finsum: Partnering with 401(k) recordkeepers to capture rollovers helps plan advisors capitalize on this huge wealth management opportunity.