Wealth Management
In an article for SmartAsset, Rebecca Lake CEPF discussed the importance of a workable retirement plan for financial advisors. Many advisors spend their careers helping their clients achieve their financial goals, so they can retire in peace. Yet, they don’t apply the same diligence to succession planning for their own practices.
Instead, advisors should think about the ultimate outcome they want for their business and then work backward to create a plan to achieve that goal. Of course, the plan needs to have some flexibility built in as circumstances can change. But, an end goal is essential to ensure that all of your efforts translate into ultimate success.
The next step is to have a rough estimate of the net worth of your business. This will help you understand how much your practice would generate in the event of sale. In tandem with this, advisors should also ensure that their personal financial planning is on track in terms of retirement planning, disability insurance, life insurance, budgeting, etc.
Following this, you should be transparent about your succession planning with clients and employees or anyone else who could be potentially impacted. Employees want to have some sort of clarity about their careers and potential roles, while clients want to be reassured that they will be in good hands with a new management team.
Finsum: Succession planning is an essential step for financial advisors especially as these decisions will have a major impact on clients and employees.
In an article for USNews, Tony Dong covered how fixed income funds can help investors reduce volatility in their portfolios while producing a steady income. These funds offer the benefits of bond ownership without the costs and complexity. And, it’s especially the case for fixed income classes where markets are less liquid, opaque, and hard to access such as municipal debt and corporate bonds.
These funds also offer benefits in terms of diversification that simply are not possible to replicate for non-institutional investors. The iShares Core US Aggregate Bond ETF is one of his picks as a top bond fund as it is extremely liquid and has very low costs at 0.03%. The fund holds over 10,000 government and high-quality corporate debt, while it pays a yield of 4.2%.
Another option is the Nuveen Floating Rate Income Fund which is an actively managed bond fund. This fund offers higher returns as it tends to invest in shorter-term and lower-quality debt. It also has higher costs with an 0.71% annual expense ratio.
However, active management does offer some benefits especially given recent volatility around rates given increasing levels of financial stress and expectations of a change in Fed policy.
Finsum: Fixed income funds can help investors reduce volatility in their portfolios while generating a steady income.
In an article for LPL Financial, the firm discussed some methods for how financial advisors can build a pipeline of potential clients to ensure the growth and longevity of their practice.
The first step is to identify your prospecting strategy. This entails identifying key goals and metrics for each step of the client journey to ensure that consistent effort and focus is being applied at all stages. There should also be some sort of system to monitor outreach to prospects, quickly follow up, assess whether the prospect is a good fit, and conversion into clients.
The next step is to identify your key values and differentiators. Then, share this with your target audience. This step is critical in helping prospects understand why you chose the profession, and what you stand for.
An important element of this step is to figure out your ideal client and then focus your outreach efforts on this niche. Then, you can brainstorm ways to connect with that target audience whether it's through advocacy groups, social media, community events, etc.
Finally, you should ask for referrals from existing clients as they are likely to have the best understanding of who among their friends and colleagues would be receptive to learning about your approach to helping them reach their financial goals.
Finsum: Financial advisors need to build and nurture their pipeline of prospects to ensure that their practice continues to grow and has longevity.
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Algo Chain, a fintech wealth management startup, is launching an AI powered toolkit subscription service which utilizes ChatGPT 3.5 Turbo. The service offers a variety of ETF model portfolios that use technical signals and macro data points to help users navigate markets and optimize asset allocation.
The AI is designed to generate signals and suggest allocations based on historical precedent. It enables advisors to sort through thousands of ETFs to find the ideal combination of factors to suit a client’s needs.
Given the proliferation of AI tools following the release of ChatGPT 3.0 earlier this year, it’s not surprising to see the technology applied to wealth management. The company believes that the bulk of a portfolio’s returns are due to asset allocation. Thus, it offers insight into how various asset allocations have performed in various circumstances.
This is Algo Chain’s second model portfolio offering. Earlier this year, it launched six model portfolios in tandem with HANetf, representing various themes. It’s expected that we will continue to see a proliferation of AI-backed tools to enhance model portfolio offerings over the coming months.
Finsum: Algo Chain is launching an AI powered toolkit to help enhance and optimize ETF model portfolios offerings.
In an article for InvestmentNews, Jeff Benjamin discussed the need for succession planning especially as there are about 100,000 advisors that are expected to retire over the next decade. In total, they are estimated to control $10 trillion in assets.
Of this group, 45% intend to transfer ownership to employees or a family member. Around 30% are looking for an external transition, while 25% do not have a firm succession plan. According to industry insiders, this is a major challenge for the industry especially as succession plans take time to prepare. Additionally, there needs to be guidelines for alternative scenarios especially as fewer young people are entering the industry.
Even in the event of a sale, there are complications and contingencies that need to be considered such as your clients’ comfort and the financing of such a transaction. With internal transitions, unexpected events can also arise such as relationships souring with prospective owners that result in a shift of strategy or advisors being recruited away to other firms.
Finsum: Financial advisors need to have a succession plan. This is especially critical given the wave of retirements that is expected to hit over the next decade.
In an article for MarketWatch, Morey Stettner discussed various options for alternative investments including non-traded real estate, private debt, venture capital and hedge funds. The asset class delivered strong returns in 2022 especially compared to stocks and bonds.
Looking ahead to the next decade, alternative investments are expected to fare better especially as they offer diversification to investors with the potential for higher returns. The traditional 60/40 allocation does not seem sufficient for a higher-rate, higher-inflation regime, and alternatives could be one solution for advisors to help clients reach their goals.
There are also some additional considerations about alternatives that advisors need to understand. For one, money isn’t immediately deployed especially in private equity and venture capital. Additionally, money often cannot be immediately redeemed, while there is less transparency about pricing in less liquid markets.
Many investors see opportunities in private real estate and venture capital especially as savvy managers will be able to take advantage of the dislocations in these arenas. Many also believe the asset class would outperform in a recession or inflation scenario which would likely continue to be a major headwind for stocks and bonds.
Finsum: Alternative investments continue to attract interest especially due to stocks and bonds coming off a poor year in 2022.