Wealth Management
Generation Z is defined as being born in between the mid 90s and mid 2010s. Older members of this group are starting their careers and beginning their investing journeys. This group is shaped by events like the 2008 financial crisis and the pandemic. They also are the first generation to grow up with the Internet and have a much more intuitive relationship with technology especially when it comes to managing finances.
In a piece for USA Today, Jon Stojan explains why alternative investments are gaining traction with Generation Z. Some of the unconventional options include investing in art, wine, farmland in addition to more known options like cryptocurrencies and precious metals.
According to a survey from the Lansons Group, only 10% of Americans have invested in alternative assets but 30% of Gen Z investors have done so, highlighting the appeal of alternatives.
The most commonly cited reasons are a potential for high returns, hedging against inflation, and interest in tangible, enduring value. However, there are some drawbacks to these asset classes especially as their performance is unproven through multiple market cycles unlike stocks and bonds. Additionally, they tend to come with higher costs and less liquidity.
Finsum: Alternative investments are gaining traction with Generation Z investors who are looking to invest in asset classes beyond just stocks and bonds. Examples include cryptocurrencies, precious metals, artwork, farmland, and wine.
In FinancialPlanning, Victoria Zhuang shares some insights from research regarding a key segment of the population that can help financial advisors successfully grow their practices. In essence, about $72.6 trillion of assets is set to be passed down to heirs through 2045.
And, this trend is accelerating. This year, $700 billion is forecast to be passed down, and the number is set to double by the next decade. However, many advisors are not positioned for this epic wealth transfer. Only 35% of advisors surveyed indicated that younger investors are a ‘critical priority’ or ‘high but not critical priority’.
In fact, clients under the age of 44 only make up 27% of accounts. Many in this cohort will benefit from the wealth transfer. Advisors should be appealing to this demo by offering specific advice and services regarding estate planning and wealth transfer.
Additional tips to appeal to this niche are to offer more technology like video calls, AI, and/or robo-advisors that would feel more intuitive for Millennials and Generation Z. Firms can also target or recruit younger advisors who may do a better job of connecting with ‘young heirs’.
Finsum: Prospecting ‘young heirs’ could be the key to success for advisors over the next couple of decades given the ‘great wealth transfer’ of $72.6 trillion in assets by 2045.
For Advisorhub, Jeff Nash shares some thoughts on how financial advisor practices can invest in technology to lure top-notch advisors to their firm. Technology solutions should offer specific benefits such as a quick and easy transition, an increase in efficiencies, automation of routine tasks, regulatory compliance, and an improved client experience.
One of the factors limiting advisor movement is the amount of time and attention that is required to facilitate the move including paperwork, interruptions to operations, and regulatory compliance. So, it’s essential that any practices’ tech stack have an effective onboarding process that minimizes these disruptions and inconveniences.
Another consideration is that advisors’ time during the transition process should be ideally spent on staying in constant touch with clients to ease any concerns and resolve any issues. However, this can be difficult given all the additional challenges of the transition period.
Many firms are investing in AI to assist with onboarding especially as it can help complete paperwork and address regulatory filings. Overall, AI will help reduce burdens on back and middle office support roles and play a role in client communications and provide more scalability.
Finsum: Technology can help firms recruit advisors and aid with the onboarding process. Onboarding is stressful for firms and advisors given the regulatory challenges and additional demands but technology and AI can reduce the burden.
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Direct indexing has gone from an obscure strategy only utilized by a handful of ultra wealthy investors to one that is accessible to all types of investors. In fact, many see it as the next evolution in passive investing as it captures the major benefits such as low costs and diversification. But, it also has some additional benefits such as tax savings and greater customization. According to a recent Morningstar report, tax management is cited as the number one reason that investors are increasingly choosing direct indexing. .
Currently, there is $260 billion in assets under management that is managed via direct indexing. The most common application is to simply mimic a popular benchmark like the S&P 500 or the Russell 2000. Others will endeavor to create their own index around certain themes such as ESG or companies creating jobs in the US.
Beyond surveys, the arms race in direct indexing also indicates its growing importance. Vanguard made the first acquisition in its history when it bought Just Invest and renamed it Vanguard Personalized Indexing Management. The firm sees it as one of its key growth drivers in the coming decade. Similarly, Blackstone bought Aperio, while Morgan Stanley acquired Parametric Portfolio Associates as part of its Eaton Vance purchase.
Finsum: Direct indexing has many benefits, but tax savings is the most common one cited by advisors and clients in a recent survey.
The cultivation of talent’s come a long way. Baby.
At its center: succession planning, according to sigmaassessmentsystems.com.
SIGMA – with the intent of providing organizational leaders with a snapshot of what’s unfolding today in succession planning – produced a report on where things stood this year. Several emerging trends were revealed:
Most organizations are focused on recruiting and retaining staff.
Many organizations recognize that they must keep up with industry innovation.
Many leaders are committed to improving customer experience.
A significant number or organizations want to transform their brand and culture
Interestingly, new financial advisors are setting a high rate of bolting from the industry, according to a Cerulli Associates report, reported financial-planning.com.
The importance of new talent in wealth management is further stoked given the fact financial advisors, who oversee trillions of dollars of assets, are riding into the sunset.
Yet, those making their maiden voyage into the profession aren’t exactly being received with a steaming mocha latte and scone, according to Cerulli, which reported that while 13,169 of new trainees left the industry in the rearview mirror, offsetting the more than 18,000 it picked up,
For ThinkAdvisor, John Manganaro discusses how advisors are increasingly seeing that direct index offerings are essential for high net worth clients given the enhanced after-tax returns. However, it has typically been only used with equities but there are also similar opportunities with fixed income.
By now, most are familiar with direct indexing for equity portfolios. Essentially, it offers the benefits of index investing such as diversification and low costs while allowing for more customization and potential tax savings.
On the fixed income side, direct indexing can allow investors to customize bond portfolios along their desired parameters such as income, duration, geography, or tax profile. There is also the potential for tax-loss harvesting during periods of volatility or bear markets to offset capital gains in other areas.
It’s estimated that direct indexing assets will grow from $260 billion at the end of last year to $825 billion by 2026. Typically, direct indexing adds 30 to 50 basis points of excess returns although the amount can be greater in years with more volatility. For advisors, it’s a way to offer a value-added, low-cost service with greater personalization.
Finsum: Direct indexing assets are forecast to nearly triple over the next couple of years. Most are familiar with its use for equities but it is also being increasingly applied with fixed income.