Wealth Management
Separately managed accounts (SMAs) are evolving, with more firms integrating active management into customized portfolios. Unlike traditional SMAs that use passive indexing or third-party overlays, some new strategies incorporate direct active management for greater efficiency.
Actively managed large-cap equity SMAs, for instance, aim to provide market exposure while outperforming benchmarks through selective stock holdings. Transparency is also improving, with firms introducing after-tax reporting to help investors understand the impact of tax-efficient strategies.
Fixed-income SMAs are seeing similar advancements, with more customization options, such as state-specific municipal bond strategies.
Finsum: As the demand for personalized investing grows, SMAs are becoming a key tool for advisors seeking both performance and tax efficiency.
Direct indexing has emerged as a popular strategy for investors looking to enhance tax efficiency by owning individual stocks rather than traditional ETFs or mutual funds. Its growing adoption is driven by the rise of passive investing and advancements in fractional share technology, making it more accessible to a broader range of investors.
By selectively selling underperforming stocks and replacing them with others in the index, investors can realize capital losses to offset future gains—a key advantage of this approach.
However, tax benefits are generally front-loaded, meaning that over time, opportunities for tax-loss harvesting diminish as portfolio gains accumulate. To sustain tax efficiency, investors can reinvest funds, donate appreciated stocks, or explore strategies like transitioning holdings into ETFs through in-kind transfers.
Finsum: As direct indexing expands beyond passive strategies, advisors are also exploring actively managed SMAs with built-in tax management features, offering more tailored solutions.
The financial industry is evolving rapidly, with new technologies helping advisors streamline operations and enhance client relationships. Investing in the right tools can give firms a competitive edge while also improving talent retention, as many advisors seek better technology.
Essential tools include CRM software, which centralizes client interactions, financial planning software for scenario modeling, and risk analysis tools to assess investment strategies. Fi360 offers data and technology specific to advisors that can improve their efficiency.
Additionally, scheduling software simplifies appointment management by automating bookings and reminders. Selecting the best options—such as Salesforce for CRM, Fi360 for financial planning, or Calendly for scheduling—can optimize efficiency.
Finsum: With Fi360 advisors have the right technology and can focus more on delivering personalized financial strategies and strengthening client trust.
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Managed accounts are set for a major transformation as current models often benefit providers more than participants due to high fees. Employers must evaluate how providers personalize portfolios and whether participants actively engage with these features.
While managed accounts generally offer strong investment management, fee structures can erode some of their value, requiring significant equity exposure increases to match target date fund returns. Personalized portfolio returns tend to fall within a narrow 5% to 7% range, with minor impacts from strategic asset allocation shifts.
A subscription-based model could better align incentives, offering lower-cost options for less engaged participants while providing premium services for those seeking greater customization. Inconsistencies in provider methodologies, driven by factors like risk tolerance and retirement readiness, highlight the need for greater transparency.
Finsum: This is an interesting strategy, but if done properly managed accounts are a great vehicle for retirement and defined contribution.
Target-date funds simplify retirement investing by automatically adjusting risk over time, making them ideal for those who prefer a hands-off approach. These funds, which held $3.5 trillion by the end of 2023, are often the default option in 401(k) plans, ensuring broad diversification and gradual risk reduction.
However, high fees can significantly erode long-term returns, making it crucial for investors to choose low-cost options. While effective for wealth accumulation, target-date funds may not serve retirees as well since they lack built-in mechanisms for generating steady income.
Some newer funds address this gap by incorporating annuities to provide predictable post-retirement income. It’s also important to note how they fit with the existing portfolio to create a coherent investment strategy.
Finsum: As retirement needs vary, understanding fund structures and choosing the right strategy can greatly impact financial security.
Direct indexing has emerged as a compelling investment approach, offering personalized portfolios and tax advantages. According to experts at Goldman Sachs, this strategy is gaining traction as investors seek tailored solutions.
The industry has expanded rapidly, with direct indexing assets now totaling nearly $800 billion—more than fivefold growth in recent years. Financial advisors are increasingly integrating direct indexing into portfolios to enhance tax efficiency and customization.
Unlike ETFs, which track broad indices, direct indexing enables investors to own individual stocks, optimizing tax-loss harvesting opportunities. As adoption rises, technology plays a crucial role in managing the complexity of these highly customized accounts.
Finsum: The technology gains have made a huge impact in the world of finance but particularly with new strategies such as direct indexing where it can have a substantial impact on the cost structure.