Wealth Management
Building and maintaining meaningful relationships with plan participants is an ongoing challenge for 401(k) advisors. Demonstrating their value is vital. One powerful strategy lies in the skillful use of managed accounts, which showcase their investment expertise and enhance participant engagement.
Managed accounts allow advisors to personalize their investment guidance at scale. By collaborating with the right recordkeeping partner, advisors can craft the portfolio allocations within the program, thus affecting the allocations within individual accounts. This partnership enables both parties to highlight their value propositions: advisors provide strategic investment guidance, while the recordkeeping platform facilitates participant access to this invaluable services.
Ed Murphy, President and CEO of Empower, recently shared insights with planadviser.com on the strong demand for discretionary, personalized managed portfolios. He also commented that nearly 9% of their participants are enrolled in their managed account program, underscoring its value and appeal. Murphy's observations reflect a broader industry trend where participants seek personalized financial strategies, highlighting the importance of advisors integrating managed accounts into their service offerings.
Finsum: Implementing manage accounts within a 401(k) plan is an effective and scalable way for plan advisors to demonstrate value to participants.
Financial advisors have begun to embrace the concept of buffered ETFs. These specialty funds track equity indices, capping the potential upside, which pays for downside protection (the buffer) if the index experiences a decline.
While this concept has practical portfolio applications, these funds have another unique feature advisors should know about: they mature (and reset).
A buffered ETF has a stated cap and buffer that stays in place for a specific period, in many cases one year. This means the cap and buffer reset at the end of the period (at maturity). It also means that investors buying the ETF any time after the first day of the period should be aware of the remaining cap and buffer for that ETF for the rest of the period they bought within.
Here’s an example: let’s say a fund that caps its return for the year at 10% has already experienced a 5% decrease since the start of the period. An investor purchasing the fund at that point has a 15% cap for the remaining period – this is a good thing. The opposite is also true. Had the fund already experienced an 8% gain in the period, the buyer would only have the potential to gain 2% for the remainder of the period.
Finsum: Buffered ETFs have a unique feature that every financial advisor should know about: they have a maturity date when their upside cap and downside buffer resets.
Marketing is a non-negotiable for any practice that is serious about sustaining consistent growth. While there are many aspects to consider, an overriding factor is determining the right budget. Some of the variables that will impact this decision are the size of the firm, the marketing strategy, and the channels that will be targeted.
It can be helpful to study the marketing strategies and budgets of other advisors. According to a study conducted by Broadridge, the average advisor spent $17,400 on marketing in 2022. The average spend for an RIA was $27,800 vs $9,700 for independent broker-dealers. In terms of impact, the study found that firms were onboarding an average of 23 clients per year with the cost of acquisition at $743 per client. However, there was significant variance as some reported spending under $250 per client, while others reported figures above $2,000 per client. The survey also showed that 30% of advisors plan to increase their marketing budget, while only 2% of advisors plan to reduce spending.
The general rule, for more established advisors, is that the marketing budget should be between 1% and 10% of annual revenue. Marketing is also an iterative process, so it’s important to evaluate the effectiveness of spending and various tactics in terms of desired metrics such as generating leads, finding prospects, or brand building.
Finsum: Marketing is key to sustainable growth for advisors. Determining a marketing budget is the first step. Here are the most important factors to consider, and how other advisors are approaching the matter.
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First Trust is launching a new managed floor product called the First Trust Vest U.S. Equity Moderate Buffer UCITS ETF. The ETF will strive to capitalize on the gains in the S&P 500 but will cap the returns at 13.86% annually. However, this comes with the benefit of a 15% downside protection.
The Fund will have an outcome period of a year and will set to end in February 2025, when this time expires the cap and buffer conditions will be reset to match the current market conditions adapting to the new financial climate.
Managed by First Trust Advisors L.P. and sub-advised by Vest Financial LLC, GFEB invests primarily in Flexible Exchange Options (FLEX Options) on the S&P 500, providing a customizable approach to outcome-based investing and mitigating bank credit risk. Derek Fulton, CEO of First Trust Global Portfolios, highlights the fund's role in addressing investor concerns about downside risk and underscores the increasing popularity of buffered ETFs as a solution in today's market landscape.
Finsum: Buffer ETFs like these give investors an alternative route to navigate the tricky 2024 markets while maintaining exposure to the upside equities offer.
State Street Global Advisors is looking to grow its model portfolio business from $5 billion currently to over $25 billion by the end of this decade. Model portfolios are experiencing increasing popularity among financial advisors and clients. They enable advisors to bundle funds into specialized, off-the-shelf strategies, creating more time and resources for client engagement and financial planning.
At the moment, Blackrock is the clear leader with nearly $100 billion in assets tied to its model portfolios. Recently, the asset manager predicted that over the next 5 years, model portfolios’ total assets will exceed $10 trillion over the next 5 years from $4 trillion as of July 2023. State Street is aiming to capture a piece of this expanding market.
Peter Hill, State Street’s head of model portfolios solutions, remarked, “We are fully committed to investing in our model portfolio business to meet the needs of our advisors and our platforms as their adoption rate of models continues to grow.” To achieve this, State Street is investing in the segment from an ‘infrastructure perspective’. This includes hiring employees in sales and marketing while also increasing outreach to advisors.
Finsum: State Street is looking to grow its model portfolio segment by 5-folds over the next 5 years. Over the next 5 years, model portfolio assets are forecast to exceed $10 trillion from $4 trillion currently.
BNP Paribas conducted its annual alternative investment survey which revealed some interesting insights. There were 238 respondents, collectively representing $1.2 trillion in hedge fund assets, who were surveyed in December 2023 and January 2024.
Many allocators are expecting a regime change with more opportunities for alpha and beta with US equities underperforming. This type of environment is more amenable to hedge fund performance.
In contrast, hedge funds struggled in 2023 with an average return of 7.6%, while the S&P 500 was up 24%. It was the inverse of 2022 when hedge funds outperformed while both fixed income and equities were down double-digits. Interestingly, hedge funds outperformed global equity markets by 5.7% over the full 2 years.
Going forward, allocators seem bullish on hedge funds. History indicates the asset class outperforms during periods of ‘high, stable rates. Over the last 2 years, allocators increased their expected return from 7.5% to 9.1%, which is the highest over the last decade.
In 2023, there was a $100 billion in net outflows due to rebalancing flows, underperformance, and competition from risk-free returns at 5%. This year, survey respondents are expected to add $17 billion on a net basis.
Finsum: BNP Paribas conducted a survey of asset allocators. They are increasing allocations to hedge funds as the asset class has historically outperformed in high, stable rate environments.