Displaying items by tag: digital advice

Financial advisors are flocking to independence.  Some who switched to the RIA model, say it was a game-changer for their career, and they have gained an "entrepreneurial mindset" while creating lower-cost programs for clients.

This trend is widespread. Cerulli reports the RIA channel is experiencing the fastest growth in advisor headcount. The number of independent RIAs and advisors working there have grown steadily over the past decade. Advisors are seeking independence for several reasons. Clients demand lower fees, and RIAs allow advisors to deliver quality service at a competitive price. Wirehouses, on the other hand, are raising advisor costs.

One highlights of the RIA fee-based model is it has made RIAs a target for private equity firms. Cerulli predicts RIAs will control nearly a third of the market by 2027. Advisors like Harry Figgie see this as inevitable due to the open architecture, financial benefits, and equity-building opportunities offered by the RIA model.

Finsum: The RIA model has been made easier by the technological advancements in advisor space, and this trend might continue to ramp up.

Nearly $68 trillion in assets are moving to a younger generations over the next 30 years, wealth management firms catering to high-net-worth individuals (HNWIs) are urged to adapt by integrating digital solutions to complement their bespoke services, rather than replacing them outright. 

HNWIs, distinguished by their substantial asset portfolios, require a tailored approach from wealth managers, particularly given their demand for nuanced portfolio guidance across various asset classes, such as real estate and cryptocurrency. While digital tools are reshaping consumer expectations within financial services, HNWIs continue to prioritize the personal touch and customized service that comprehends their unique preferences and financial complexities. 

However, there exists a gap in consistently delivering such personalized service, with over half of surveyed HNWIs reporting a lack of proactive support from their providers. Despite the surge in digital engagement during the pandemic, HNW clients still value personalized experiences, indicating a need for wealth managers to strike a balance between digital convenience and maintaining a human touch.

Finsum: Most clients want a mix of digital and personal service which advisors can use to leverage further business. 

According to a recent survey of active retail investors conducted by Opinium on behalf of Lansons, educating affluent investors on alternatives could lead to huge inflows. Lansons, a leading independent reputation management consultancy, partnered with strategic insights agency Opinium to conduct a nationally representative survey of 1,832 Americans. The survey found that a majority of Americans are unfamiliar with digital platforms that offer access to alternatives. Eighty percent have either never heard of these platforms or don’t know much about them. However, educating these investors could be the key to unlocking massive inflows as investors are certainly open to investing in them. Based on the results of the survey, 20% of Americans would strongly consider investing in alternatives and 7 percent are already planning to do so. In addition, active investors would be willing to allocate 25% of their portfolios, on average, to alternatives. These figures represent more than $1.3 trillion in potential investment. In addition, the current market conditions could provide an opportunity for the industry to educate investors about alternatives as nearly half (47%) of the survey respondents expressed extreme concern about the impact of inflation on their investments. Alternatives such as gold and real estate are generally considered hedges against inflation.

Finsum:If a lack of knowledge on alternative investing could be remedied, alternatives could see massive inflows. 

The advent of digital advice has not only made investing easier but has also allowed client interactions to become more seamless. With more client interactions moving online, do online content and advice still put a client's best interest first? That’s a question the SEC, industry lawyers, and other regulators are contemplating. While online firms such as Robinhood came under scrutiny for gamifying investor behavior, something as simple as an investment calculator on an advisor website can be construed as a recommendation. Last August, the SEC issued a request for comment about broker-dealers’ and investment advisors’ digital engagement practices. Keith Kessel, a senior principal consultant at ACA Group, told Financial Advisor IQ that the SEC “is trying to ascertain in what set of scenarios would a recommendation or solicitation exist versus what are those engagement practices that are outside of the purview of the scope of the solicitation of the suitability rule and/or Regulation Best Interest regulation duty as such.” He also noted that the SEC’s request for comment “emphasizes the regulator’s concern about the blurring of the lines between engagement and advice.”

Finsum: As more client interactions occur online, the SEC is trying to determine what constitutes advice and what constitutes engagement.

Franklin Templeton has partnered with Futu Securities International, a Hong Kong-regulated operation of digital brokerage Futu, to offer three risk-based model portfolios. The two companies have worked together since 2019 when Futu rolled out its mutual fund business to help expand its client base. The new model portfolios will help the China-based company strengthen its strategic relationship with Franklin Templeton. The model portfolios will have various risk levels to fulfill the client's needs and risk appetites. Futu is leading the brokerage industry in Hong Kong with a high market penetration rate. According to the company, its average user spends 1.5 hours per day on the Futubull app. The company also claims that its Hong Kong users accounted for more than 40% of Hong Kong’s adult population.

Finsum:Franklin Templeton is renewing its partnership with Hong Kong-based Futu Securities with the launch of three risk-based model portfolios.