Wealth Management
Client turnover and attrition is a reality for every financial advisor. In order to combat this entropy, advisors need to have a marketing plan, generate leads, and build a pipeline of prospects. For many advisors, this is something they don’t enjoy as they get into the business because they enjoy analyzing investments and servicing clients.
However, this type of discipline is necessary to ensure that your firm keeps growing. In an article for Nasdaq.com, Luke Acree, the President and founder of ReminderMedia, discusses some ways that financial advisors can generate leads which is the first step in growing a practice.
The simplest step is to ensure that you are providing proper and full attention to existing clients. A good idea before embarking on a growth plan is to ensure that your current clients are satisfied. This also increases the chances of getting a referral which tend to be the highest-quality leads.
Building on online presence is a strategy that will pay off in the long-term. In the short-term, there is little return for your efforts, but it’s increasingly how younger generations will find you and make decisions. Ensure that your profiles are professional while displaying your personality and unique offering.
Finsum: High-quality leads are integral for any financial advisor practice to grow. Here are some suggestions on how advisors can ensure a steady stream of leads to help build their pipeline of prospects.
In an article for Reuters, Ross Kerber reported on Tesla being added back to the S&P 500 ESG index following the EV maker adding environmental disclosures regarding its material sourcing and hiring practices.
Tesla was removed from the index last year following a series of controversies including a racial discrimination lawsuit and reports of crashes due to its autopilot program. At the time, CEO Elon Musk had been dismissive of the movement, labeling it a ‘scam’. S&P attributed the change to the company providing more information about climate risks and information about its supply chain management strategy.
The move is seen as symbolic given that only about $8 billion in assets is linked to the S&P 500 ESG index. However, it could start other ESG funds adding the EV leader to its holdings.
Currently, the S&P ESG Index is going through this annual rebalancing with 39 companies being added, while 23 were removed. Notably, some of these moves have drawn scrutiny from people on both sides of the aisle given the additions of Chevron and Fox, while Exxon Mobil had previously been a member of the index, while Tesla was excluded.
Finsum: Tesla has been added back to the S&P ESG Index after providing disclosures about its hiring practices, climate risks, and supply chain strategy.
In an article for ThinkAdvisor, Dinah Wisenberg Brin discussed a recent bullish commentary on various segments of the fixed income market from John Hancock’s co-chief investment strategist Matthew Miskin.
Miskin sees the current inverted yield curve as due to normalize in the coming months as the Federal Reserve embarks on a cutting cycle given the firm’s view that the economy should continue to decelerate along with cooling inflation. This will create a bond ‘bull steepener’ as short-term rates decline.
It sees a recession materializing over the next couple of quarters which would be a positive tailwind for fixed income. He sees opportunities in intermediate duration bonds which historically have performed the best following yield curve inversions. Further, he sees value in the space given that the average investment-grade, intermediate bond portfolio is trading at 90 cents on the dollar with a 5% yield.
Miskin is also bullish on municipal bonds given historically attractive yields of 7% on a ta-equivalent basis for the highest earners. In terms of equities, the firm is not a believer in the current stock market rally given weakness in earnings and its expectations of a further softening of the economic picture.
Finsum: John Hancock’s co-chief investment strategist is bullish on fixed income with a particular focus on intermediate duration and municipal debt.
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The alternative investing trend was growing at a rapid clip over the past decade, but its seen an uptick in interest and adoption following the poor performance of stocks and bonds. While both asset classes have delivered strong, long-term results, they have performed poorly in inflationary, higher-rate environments.
In contrast, alternative investing delivered better returns while also reducing portfolio volatility. As access to this category has increased, there is more liquidity and transparency which is, in turn, attracting more interest from institutions.
In an article for Business Kora, Jung Min-Hee covers how the Korea Investment Corporation (KIC) will be increasing its allocation to alternative investments to 25%. Currently, it is the 10th largest sovereign wealth fund in the world and has $170 billion in assets. As of the start of the year, it had 22% allocated to alternatives.
In an interview, KIC President Jin Seung-ho indicated that the fund is particularly interested in private credit as he doesn’t see too much risk in this segment of the market. Concurrently, he doesn’t see the Fed cutting rates until 2024.
Finsum: Many financial advisors are nearing retirement. One option that is growing in popularity is for advisors to sell their practice but remain as an employee for a certain amount of time.
In an article for InvestmentNews, Kristine McManus, the Chief Advisor Growth Officer at Commonwealth Financial, discussed various considerations for advisors who are nearing retirement. Many want to exit their own business in a gradual way rather than suddenly and continue working with new owners to provide a seamless transition for their clients.
According to Commonwealth's research, financial advisor M&A data over the last decade shows that there were 359 deals. In 205 of the deals, the advisor who was selling, immediately retired and exited the business. However, a third of the deals saw the advisors remain past the acquisition.
Some of the positives of this approach are that it leads to less client attrition and provides a natural way to introduce clients to the new management team. For the selling advisor, it allows them to gradually ease into retirement while slowly letting go of responsibilities in a more organic way while ensuring that their business and clients are in good hands.
There are some negatives which include a potential clash in management styles or investing philosophy between the seller and acquirer. Often, the selling advisor has difficulty giving up control when it comes to making major decisions and transitioning into an employee role.
Overall, both parties need to be aligned in terms of goals and constant communication in order to minimize the negatives and accentuate the positives with this type of transaction.
Finsum: Many financial advisors are nearing retirement and need to have a succession plan. One option that is growing in popularity is for advisors to sell their practice but remain as an employee for a certain amount of time.
Many RIAs are testing out new pricing models and moving away from the traditional practice of taking a cut of assets under management especially for placements into alternative investments. In a piece for AdvisorHub, Suman Bhattacharyya covers some examples.
Overall, there is increasing pushback from clients about paying management fees especially when the market is falling. Additionally, these annual fees can compound over time and become a significant amount especially for long-term clients.
These concerns are magnified in years with lower or negative returns. Some advisors are choosing to take a cut on performance, between 10% and 20%, to align clients and advisors’ interests. Others are moving to a fixed-fee model which means either billing by the hour, charging a subscription or a fee per project.
According to some, 2022 which saw negative returns for stocks and bonds is simply accelerating what had been a developing trend. Despite these changes, 82% of revenue for RIAs come from fees on total assets under management.
Therefore, RIAs reliant on these fees for their business should consider alternative models or at least prepare for conversations with clients about the matter.
Finsum: The vast majority of RIAs are reliant on fees generated by total assets under management. However, many clients are electing to move away from this model.