Displaying items by tag: clients

Every industry changes and evolves with time. The financial advice industry is no different as advisors increasingly move towards focusing more on financial planning and serving clients with less emphasis on making investment decisions.

This is now being increasingly handled by asset managers and third parties. Currently, about 10% of advisors use home office model portfolios with minimal modifications. 36% of RIAs and independent broker-dealers are building their own allocations from scratch. Most advisors are taking a blended approach by using these models as a starting point and then offering some customization to suit a clients’ specific needs. 

For advisors, the shift makes sense especially as most clients seem to value planning more than performance. Further, it frees up time and energy that can be spent on client service and growing the business. According to Cerulli, advisors who build their own portfolios, spend about 30% of their time on the task. 

Another benefit for advisors is that it makes the business more scalable. For advisors who spend considerable time on portfolio management, there is more of a constraint to how many clients can be added. An interesting finding is that firms with large amounts of assets under management are more likely to use model portfolios. 

Finsum: Model portfolios are becoming increasingly popular, although most are currently using a blended approach. Here are some of the major benefits to advisors. 

Decisions made by model portfolio managers are showing that investors are starting to get cautious about valuations of megacap tech stocks. These stocks have been the biggest gainers this year in the stock market. Tech stocks with market caps above a trillion dollars are up more than 50% YTD, while the S&P 500 is up 19%. 2 major catalysts for this group have been the perception that rates have peaked and a frenzy for securities connected to artificial intelligence. 

Of course, many market-cap weighted or tech-focused indices will have outsized exposure to this group. According to Brooks Friederich of Envestnet, an intermediary which operates a platform that offers customized products from asset managers, “End-clients are saying ‘I want an investment product that isn’t going to have all this exposure to the big-tech stocks,’ If you look at retirement portfolios, they all have too much exposure to that because of the construction of the market.”

He also adds that balanced portfolios continue to have appeal and are a major reason for the boom in model portfolios given the ease of combining asset classes. More than half of the assets on its platform are linked to 60/40 or 70/30 portfolios despite the poor performance of fixed income as a hedge against equities last year.  

Finsum: Model portfolio end-clients are showing some concerns about the valuations of megacap tech stocks, while remaining committed to balanced portfolios despite recent volatility. 

Building a powerful brand is necessary for financial advisors who want to differentiate themselves and boost their chance of attracting and retaining clients. Think of branding as the feeling that people get when they think of or see your name. 

Creating an effective online presence is an important element of branding. According to Maritza Lizama, the cofounder and chief marketing officer at Captiva Branding, “93% of buying decisions are influenced by what people see online. How can you improve your online presence? Start with your LinkedIn profile. Get rid of your old profile photo. Your photo needs to look like you. And it’s OK to show a little personality.”

It’s also necessary to figure out your ‘brand purpose’. This encapsulates your reasons for becoming a financial advisor that go beyond just monetary reasons. In addition to this, advisors need to develop a solid understanding of their target audience in terms of their demographics, career, pain points, motivations, constraints, and where they can be reached. 

Then, you can further refine your brand by creating complementary online content that showcases your personality. This can also mean talking about topics that are outside of the realm of finance in order to build a more authentic connection with your audience. 

Finsum: Building an effective brand is important for every financial advisor and can be invaluable in recruiting and retaining clients. Here are some tips to get started.  

Kevin Flanagan, WisdomTree’s Head of Fixed Income Strategy, and Scott Welch, the firm’s CIO of Model Portfolios, recently shared some insights on how model portfolios can be used to generate yield in the current environment. They see this as an opportune time to invest in fixed income especially given the differential between the S&P 500’s dividend yield and short and long-term rates. 

Currently, they see the Fed as wanting to remain hawkish, however the rise in long-term yields has also contributed to a tightening of monetary policy. In terms of inflation, they believe it has peaked but that the Fed is unlikely to begin cutting rates until the middle of 2024 due to ongoing tightness in the labor market. Additionally, they note that credit spreads have recently widened but nowhere near extreme levels.

Amid this environment, they recommend that investors stick to the short-end of the curve given the inverted yield curve and favor US Treasury floating rate notes which are the highest-yielding Treasuries. Within WisdomTree’s model portfolios, the firm has reduced its weight of high-yield debt while modestly boosting allocation to mortgage-backed securities.

Overall, they see fixed income as resuming its natural role - providing low-risk income and serving as a hedge against equities. 

Finsum: WisdomTree shared some insights on the current macro landscape, and how it’s positioning its model portfolio allocation to flourish in this environment. 

A major consideration for many firms is the aging of financial advisors. It’s estimated that over the next 5 years, 25% of advisors will be approaching retirement age. This demographic reality means that recruiting will be a greater challenge and of even more importance. 

Similar to financial planning, effective recruiting means setting clear goals and identifying what your firm needs. This will ensure that your decisions and actions are in alignment with the long-term vision. 

When looking at which groups to target, some common pools to consider are interns and recent college graduates, emerging advisors, and paraplanners. In terms of finding the best candidates, it can be helpful to do some research on competitors to see what they are offering recruits in addition to understanding what prospective hires value. 

Many may not be familiar with the various opportunities and career paths of an advisor. Nor will they be familiar with how an advisor can have a meaningful impact on their clients’ lives so having some personal examples of helping clients and building relationships will be particularly useful. Many candidates also will want some visibility around how the business works, and how the progression will work in terms of professional development, compensation, responsibilities, and partnership opportunities.

Finsum: A major challenge for the financial advisor industry is that 25% of advisors are approaching retirement age. This means that effective recruiting is of greater importance and value.