Wealth Management
Financial advisors understand that fixed annuities often face a perception hurdle. Their clients envision handing over most of their hard-earned wealth and relinquishing control, sacrificing legacy for guaranteed income. But this all-or-nothing perspective overlooks the nuanced role these annuities can play in a diversified financial plan.
Speaking at a Morningstar conference, Wade D. Pfau, PhD, CFA, RICP®, founder of Retirement Researcher, offered his suggestions to advisors. "The idea of a tradeoff between meeting a spending goal versus not being able to provide a legacy is misguided," he said. "With the conversation around annuities, it's important to remember it's not all or nothing. It's not, 'Do I put everything in the annuity, or do I put everything in investments?'"
Helping clients see fixed annuities as part of a balanced approach is essential. By providing a secure income floor, fixed annuities enable the remaining parts of the portfolio to meet their other financial objectives, such as growth and flexibility.
Building a portfolio need not be a zero-sum game. Fixed annuities don't have to steal the show – they can be valuable supporting actors, providing income stability while the rest of the investments shine in their own respective roles.
Finsum: Retirement expert helps advisors broaden their perspective on how to discuss fixed annuities with their clients.
As the Federal Reserve's battle against inflation unfolded, recessionary fears loomed large over the US economy. However, whispers of a "soft landing" – a scenario where the economy treads water instead of diving into recession – are gaining traction. While the future remains uncertain, this potential reprieve raises critical questions for investors: how will markets react, and could value stocks thrive in this environment?
Drawing from historical patterns, experts point towards a potentially favorable landscape for value stocks. Vanguard's mid-2023 report revealed a compelling trend: since 1979, value stocks have outperformed their growth counterparts during economic recoveries. Kevin DiCiurcio, CFA, head of the Vanguard Capital Markets Model® research team, underscores this historical relationship: "On average, value has outperformed during economic recoveries, historically speaking. So, if you believe that the Federal Reserve may have engineered a soft landing—that we're going to sidestep a recession and that the economy's next move is an acceleration—the case for value is strengthened."
While past performance isn't a guaranteed predictor of future returns, the allure of historical rhyme resonates in uncertain times. If the economy begins to climb out of its current lull, advisors and investors should keep a sharp eye on value stocks.
Finsum: Learn why some experts are revisiting value investing’s historical performance advantage during periods of economic recovery.
Separately Managed Accounts (SMAs) are widening their niche in the investment landscape, doubling assets under management to nearly $2 trillion in the past five years (according to Cerulli Associates). This rapid growth stems from their distinctive advantages over traditional options like mutual funds. SMAs offer direct ownership of underlying securities, personalized portfolio construction, and professional oversight, all within a flexible framework that enables personalized tax efficiency.
And they are projected to continue to grow, reaching $3 trillion in the next few years. In a recent Wall Street Journal article, Scott Smith, director of advice relationships at Cerulli, explains why SMAs are growing. “They are no longer just for high-net-worth individuals. As more baby boomers retire and have to move money from their 401(k) plans, SMAs have become an attractive option.”
While this tailored approach resonates with certain investors, particularly retiring baby boomers and those seeking strategic tax management, SMAs are not a universal solution. Consulting a financial advisor remains crucial to assess individual needs and weigh advantages against potential drawbacks. For instance, while the ability to harvest specific tax losses can be invaluable, it may hold little weight for investors with limited capital gains.
Finsum: Separately Managed Accounts doubled assets under management in the past five years and are projected to continue their steady growth.
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Taking a look back at the previous year can reveal some interesting lessons for fixed income investors. Overall, fixed income finished the year in the green as inflation finally started to ease. This led the Federal Reserve to pause interest rate hikes, and expectations are for it to start cutting rates sometime next year, resulting in the Bloomberg Aggregate US Bond ETF finishing up 5.5% last year.
However, there was considerable variance in performance across the curve and within different sectors. The best-performing segment was CCC-rated corporate debt which finished the year up 20.1%.
While the combination of low defaults and falling interest rates is a bullish combination for high-yield debt, this variance in performance also highlights the importance of selection. To this end, BondBloxx offers fixed income ETFs that target specific sectors and credit ratings.
The BondBloxx CCC-Rated USD High Yield Corporate Bond ETF offers exposure to CCC-rated corporate debt. The firm also offers high-yield fixed income ETFs that provide exposure to specific sectors such as consumer cyclicals, or telecom, media & technology. In total, BondBloxx has 20 different ETFs with a cumulative total of $2.5 billion in assets. It’s known for its innovation in providing more targeted investment vehicles.
Finsum: 2023 saw fixed income performance that was in-line with historical averages. However, there was considerable dispersion within the asset class. For instance, CCC-rated corporate debt finished the year up more than 20%.
According to a new research report from Cerulli Associates, financial advisors are retiring at a pace, faster than they can be replaced. The firm estimates that 109,000 financial advisors in the US will retire over the next decade. This is about 38% of all advisors in the US, representing about 42% of total assets. Overall, the industry needs to do a better job of investing in training programs and giving younger advisors more opportunities in client-facing and asset-gathering roles.
The report highlighted another trend as older, established advisors will continue to move into RIAs given more control and the ability to sell their practice. Currently, advisors over the age of 55, manage 56.7% of total assets, despite accounting for 42% of advisors.
RIAs and independent broker-dealers saw headcount growth of 856 and 685, respectively, in the first 9 months of 2023. In contrast, wirehouses lost 612 advisors. This has been the case since 2008, and Cerulli forecasts that the share of advisors at wirehouses will go from 15.1% to 13.4% over the next 5 years.
In contrast, RIAs are where growth is happening as most broker-dealers now offer some sort of RIA platform to entice recruits. There has also been consolidation, driven by private equity, with a total of 321 deals in 2023.
Finsum: Cerulli issued a new report which revealed that nearly 40% of advisors will be retiring over the next decade.
Marketing is essential to an advisors’ long-term success as it is how you connect with prospects. Ultimately, it requires experimentation to figure out the best approach for your practice. But, it’s useful to learn from other advisors and identify what works for them as a starting point when constructing your own marketing plan.
While there are many methods, some commonalities between effective marketing strategies is that it effectively captures the attention of your target audience. It also communicates what makes you unique and what value you provide to clients. It should establish your credibility in your prospects’ mind. Finally, the end goal of marketing is to capture leads that can eventually be converted into clients.
Email marketing allows you to share information and promote your business to people who have signed up for your email list. You can offer an incentive for people to join such as an e-book or a free workshop. This can be quite effective as it allows you to build a relationship and establish credibility by speaking about topics that address potential pain points.
By going straight to a persons’ inbox, there is an opportunity for a deeper connection than other mediums. Over time, some portion of readers may elect for an in-person consultation or phone call once your value proposition becomes clear.
Finsum: Email marketing can be a quite effective marketing strategy. It allows advisors to establish credibility and start a relationship with clients in a low-pressure manner. Over time, some portion of readers can be converted into clients.