Displaying items by tag: wealth management

For ETFTrends, James Comtois discusses the pros and cons of direct indexing as opposed to the traditional approach of investing in open-ended funds such as ETFs and mutual funds. Currently, direct indexing is in the midst of a surge in adoption due to technology and providers making it available to a wider swathe of investors beyond only those with a high net-worth. Another factor is increasing familiarity from advisors and clients.

Despite these positive trends, it’s still warped by traditional investing in ETFs and mutual funds which is how the vast bulk of advisors and investors manage their portfolios. While both methods are intended to track the performance of an underlying benchmark, the key difference is that with direct indexing, the investors actually buy the individual holdings of an index.   

This means that investors have an opportunity for more customization based on a clients’ values or personal situation. For instance, a client may feel strongly against investing in companies that manufacture firearms, so these stocks can be excluded and replaced with different stocks that have similar factor scores. 

Another benefit is that direct indexing can lead to tax-loss harvesting opportunities which aren’t available with investing in close-ended funds. Losing positions can be sold and offset gains from other positions, leading to a lower tax bill. This has been proven to result in increased alpha and better performance especially in years with more volatility.

Finsum: Direct indexing is a recent innovation. For certain investors, it is a better option than investing in close-ended funds due to tax-loss harvesting and the ability to customize portfolios.

In an article for Investopedia, Roger Wohlner shares some tips from financial advisors on how to convert prospects into clients. In theory, clients simply want an advisor who offers them insight and a plan to achieve their financial goals. In reality, this requires building trust and demonstrating expertise around these topics.

However, the ultimate challenge for advisors is that this must be achieved in a limited time in a competitive atmosphere with so many advisors vying for your clients as well. Wohler recommends that you start off by asking clients about their goals and tolerance for risk in order to build a rapport. One suggestion is to send a small questionnaire to prospects which can help you better communicate with them. He also recommends doing some research online to get a better understanding of who they are. 

Another approach is to ask open-ended questions which will force the client to reveal more about themselves and their personality. It also will give you an opportunity to pursue topics that are more important and meaningful to your client, leading to a more authentic connection. Finally, advisors should try to dig deeper into a client’s motivations and understand their values in order to build trust and form a deeper relationship. Ultimately, it comes down to the client believing that you have their best interests in mind. 

Finsum: Financial advisors need to consistently convert prospects into clients. It can be challenging given a limited amount of time to form connections, but here are some tips. 

Direct indexing is increasingly becoming a core offering for many financial advisors. Maybe the best indication of its growth is that there have been 12 major acquisitions by wealth management firms of direct indexing providers over the past couple of years.

Although its ubiquity and availability to all sorts of investors is a recent development, direct indexing has been around for many years albeit only for high-net-worth investors. In a recent SmartAsset interview of Vestmark’s SVP of Direct Indexing, Dave Gordon, he discussed what financial advisors need to know, and why wealth management firms are so bullish on the trend. 

Gordon cites the growth of direct indexing due to clients demanding more customization and lower tax bills while wanting to retain the benefits of low-cost index investing. Direct indexing is a way for clients to have their cake and eat it as well due to technology which is making it possible for firms to offer these services to all types of clients. 

However, there are some differences in terms of direct indexing offerings and approaches. For instance, some direct indexing providers will rebalance losing positions into sector or index ETFs for a temporary period to maintain factor scores and then re-invest in the same securities while others will choose to invest in different securities with similar factor scores. 

Overall, he believes that direct indexing is more about data and technology than it is about securities and investing. Therefore, he believes in finding the providers with the best platform and resources.

Finsum: Direct indexing is here to stay, and wealth managers are betting big on the trend. Here are some important things for advisors to understand. 

For WealthProfessional, Leo Almazora discusses best practices when it comes to succession planning. For one, advisors need to delineate between working in the business and on the business. Many are so wrapped up in helping their clients plan for the future and reach their financial goals that they don’t apply similar principles to the futures of their practice.

However, it’s increasingly accepted that succession planning is an integral part of serving your clients especially if you plan to retire before your clients. Therefore, advisors need to secure a worthy successor for their clients and it’s ‘the last best thing an advisor can do for their clients’.

According to Almazora, advisors should start planning for succession about 5 years before their retirement date. Although there are multiple ways to structure a takeover, some sort of soft transition is ideal, where the new advisor and old advisor both work together for a couple of years to ease the transition. These types of transitions typically result in less client attrition and more client satisfaction. 

In terms of finding the right successor, some considerations are shared values in terms of planning and investing and a similar temperament when it comes to clients. Another important factor is that the successor should be able to identify with the niche that is an advisor’s specialty. 

Finsum: Over the next decade, there is going to be a wave of retirement of financial advisors. WIth this in mind, advisors need to get serious about succession planning.

In an article for SmartAsset, Rebecca Lake CEPF discusses some time management tips for financial advisors. This is especially relevant for advisors in the early stages of their careers as they often have multiple roles such as prospecting for clients, servicing existing clients, portfolio management, operations, marketing, etc. 

Many advisors end up overwhelmed and working inefficiently. Ironically, advisors need to audit their time and efforts to ensure that their daily routine is consistent with their long-term goals which is a similar process with onboarding new clients. 

The first step is to start creating a structure and routine to your day especially in regards to the most important tasks that drive success. Often, advisors can end up in a reactive mode throughout their day which leaves them tired at the end of the day but still unproductive in terms of achieving longer-term goals. 

Another step is to identify tasks that are time-consuming but not productive and find ways to outsource or delegate these. If this is not possible, then you can put some time limit on these tasks. 

Overall, these steps can help advisors be more productive and also have a healthier work-life relationship while ensuring that progress is being made towards longer-term goals. 

Finsum: A big challenge for advisors is time management. This is even more the case for new advisors who have to build their business while they learn the business.