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While the looming demographic shift to millennials is upon the RIA community the question of which actions to take is something completely different. A massive generational wealth transfer is on the horizon, yet numerous firms find it challenging to transition from acknowledgment to action. 


Broadridge's "2024 Financial Advisor Marketing Trends Report" indicates that 78 percent of advisors target baby boomers due to their considerable wealth, but Cerulli Associates reveal that fewer than 20 percent of affluent investors retain their parent's financial advisors, underscoring a significant potential loss or opportunity.


To ready my firm for next-gen clients, I emphasize technology that boosts operational efficiency and client interaction. Investing in technology not only draws next-gen clients but also makes the firm more enduring and future-proof, ultimately resulting in higher valuations or a more robust business.

Finsum: Even millennials want a personal touch in their financial advice, but integrating technology will help you deliver optimally.

Tuesday, 28 May 2024 10:12

Is the 60/40 portfolio outdated?

What is the best way to manage a portfolio in an era with less structural disinflation, and how can you improve upon the 60/40 in the current environment 


 The traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds, has long been a benchmark, balancing growth from stocks with stability from bonds. However, the historical success of this model relies on a period of declining interest rates and favorable economic conditions in the U.S., which may not persist in the future. 


As interest rates stop declining and inflation potentially rises, the performance of the 60/40 portfolio is expected to be less impressive, especially during high inflation periods when energy and commodities tend to outperform. To better manage portfolios in this new environment, it’s advisable to diversify beyond the 60/40 mix by including assets like commodities, real estate, and cash equivalents to hedge against inflation and provide more stability during economic shifts.

Finsum: We have seen an increased correlation between stocks and bonds in the most recent years suggesting alternative diversification to manage volatility. 

The federal reserve is holding steady with interest rates, at least at the current time, but other central banks around the globe are cutting and other hiking, creating opportunities in fixed income. While this is certainly adding a level of depth to portfolio management that hasn’t been present often in the last decade, high yields indicate great returns in fixed income.


According to Goldman Sachs investors should consider upping their exposure to high quality fixed income, emphasizing active management due to unpredictable US monetary policy. Despite expectations of rate cuts, recent inflation data suggests a "higher for longer" environment, meaning higher rates may persist. 


As a result, US equities may still be attractive, but some investors are shifting towards fixed income to capitalize on strong yields, particularly in high-quality investment-grade bonds and structured products.

Finsum: Active investors continue to have an edge with disparate monetary policy actions around the globe. 

Saturday, 25 May 2024 11:38

Opportunities Amid the Energy Transition

The world is slowly transitioning to renewable energy. For institutional investors, this transition is likely to bring many investment opportunities. Of course, this will be a slow process that will take place over decades.  

The first step is the displacement of coal by natural gas, which is cleaner in terms of emissions and has already begun in many parts of the world, including the US. Another essential step is investing in various clean energy segments such as batteries, transmission and distribution, utilities, and renewable generation equipment. 

Many countries are recognizing energy security as a national security concern, which is also leading to supportive policies and capital flows. Countries are investing in electrification and local manufacturing in key areas like semiconductors, energy production, and storage. 

As the world moves toward net-zero emissions by 2050, companies in many parts of the economy will have to invest in decarbonization efforts. Morningstar sees opportunities for investors who understand the transition’s impact on the economy and various industries.

Capital expenditure for clean energy is expected to reach between $4 trillion and $5 trillion per year by the end of the decade. However, due to the transition taking place over a multi-decade period, investors should also have sufficient patience, anticipate volatility, and manage risk throughout the cycle. 


Finsum: We are in the early stages of a transition from fossil fuels to renewable energy. There will be plenty of opportunities for investors to earn healthy returns, given the size and scale of the trend.

In a blog post, Bill St. Louis, FINRA’s head of enforcement, said that more Reg BI cases are ‘in the pipeline’ and that ‘disciplinary actions have been increasing’. He added that these cases in the pipeline involve Form CSR, excessive trading, complex products, and variable annuities. 

Two recent enforcement actions involved the use of social media influencers for customer acquisition. FINRA fined Cobra Trading $200,000 for paying social media influencers with larger followings to promote the firm. According to the agency, these promotional posts made false claims and were not fair or balanced. Similarly, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that violated FINRA’s guidelines. 

Given that a growing share of the public now gets news and information about investments from social media, the agency is conducting regular sweeps. Firms are also required to conduct a consolidated audit trail. According to St. Louis, most firms are in compliance with these reporting obligations, but some audit cases are also in the pipeline. 

Finsum: FINRA is stepping up enforcement of Reg Bi. Two recent enforcement actions were due to firms improperly using social media for promotion.  

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