Wealth Management
In an article for SmartAsset, Wola Odeniran shared some lessons for advisors from working with high net-worth clients.
The first lesson is that nearly everyone needs an estate plan regardless of their financial status. Many instinctively think that such planning is only necessary for wealthier individuals and families. However, estate planning is the foundation for attaining financial security. It can also help advisors build trust and differentiate themselves from competitors.
The second lesson is that it is always helpful and valuable to get outside advice. Many high net-worth clients are very successful in their fields, yet they are willing to hire and defer to advisors. Advisors can use this as an example when explaining to potential clients about the benefits of working together.
The third lesson is that index funds can be a foundation for portfolios. Many high net-worth investors stick to indexing given the low costs and forced diversification. However, these are a good fit for any portfolio regardless of net worth, yet many clients fail to take advantage of index funds.
The final lesson is that money without financial planning does not lead to happiness. Many high net-worth clients see their wealth disappear due to a lack of planning, while those with fewer assets are able to live peacefully in retirement with little financial stress.
Finsum: Here are some lessons that financial advisors can learn from high net-worth clients to improve their practice and convert prospects into clients.
In an article for Kiplinger, Martin Nuss discussed the benefits of owning annuities. First, it’s important to distinguish between the many types of annuities. For example, savings-oriented deferred annuities offer tax benefits and guaranteed principal. In contrast, income-based annuities function similar to private pensions and provide guaranteed retirement income.
A pressing concern for future retirees is that social security benefits are not going to be sufficient to meet most people’s retirement needs. And, this is before accounting for the aging population and shortfall between revenue and expenditures.
Annuities are a great solution, because it lets you save and grow money without worrying about taxes. While younger investors have risk tolerance and are willing to stomach the risk required to generate strong returns, older investors have to be more mindful of risk. Therefore, there is more demand for less volatile investments like annuities.
For investors with less risk tolerance, fixed-rate annuities are a good choice. They function like tax-deferred bank CDs, albeit with higher returns. Annuities aren’t federally insured but tend to be offered through reputable insurance companies. Fixed-indexed annuities are ideal for retirees who are looking for short-term cash flow, while they wait for their pension or social security payments to begin.
Finsum: Annuities can offer so much value to investors to help them reach their financial goals. Yet, it can be difficult given the variety of offerings.
According to research from WisdomTree Investments and shared in an article by Nick Peters-Golden on VettaFi’s Modern Alpha Channel, the volatile markets and uncertainty about the economy in 2020 yielded some insights and lessons that can be applied today.
2020 was particularly challenging for advisors given the outbreak of the coronavirus and aggressive policies to deal with it, including massive amounts of fiscal and monetary stimulus. There were other practical challenges, such as maintaining communication with clients virtually.
The research results in some surprising takeaways. For one, investors didn’t seem more panicked despite the steep drop in stock prices amid the initial lockdowns. Additionally, surveys showed that investors were satisfied with their advisors’ performance over this period.
WisdomTree attributes this satisfaction due to constant communication with clients and reassurance about their long-term plans. Most advisors increased communication with clients and were able to increase confidence by using model portfolios.
As a result, the number of investors who said advisors using third-party model portfolios was ‘absolutely acceptable’ rose to 86% from 90%. Additionally, advisors got high marks from clients about their accessibility and responsiveness than prior to the crisis.
Finsum: Research from WisdomTree Investments shows that clients were satisfied with advisors’ performance in 2020 despite a challenging environment.
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Vestmark just unveiled its direct indexing offering which is part of its personalized unified managed account that will give its clients more bespoke services like tax optimization and portfolio management according to reporting by Diana Britton for WealthManagement.com.
Initially, the company launched six index-based SMA strategies in January. Now, it’s adding to this with its direct investment platform, enabling direct indexing for customers. This is just one part of its comprehensive, outsourced portfolio management service - VAST.
VAST includes direct indexing, separately managed accounts, mutual funds, ETFs, and individual securities. It’s already available on the Manager Marketplace which counts 200 managers and 1,000 strategies. Additional offerings include daily optimization to maximize tax loss harvesting.
Another feature is values-based investing which allows clients and advisors to screen out investments based on certain criteria. The current minimum for VAST is $250,000. While Vestmark’s offerings are similar to other institutions, the primary differentiator is the daily tax loss harvesting as other companies tend to harvest tax losses on a monthly or quarterly basis.
In an article for Bloomberg, Marvin G. Perez covered Florida Governor Ron DeSantis’ latest move in his war against ESG. Lately, the movement for institutional investors to consider environmental, sustainability, and governance criteria in their investments has drawn criticism from conservatives.
Florida is increasingly the frontline for these political battles, so it wasn’t surprising to see the Republican-controlled State Senate approve a bill to abn state and local governments from using ESG criteria in making their decisions. Last month, the legislation passed the State House of Representatives and is expected to be signed into law by DeSantis soon.
DeSantis is looking to consolidate support as he is widely expected to enter the 2024 presidential race. He and others have criticized ESG investing as an overreach and symptomatic of ‘woke capitalism’. So far, Florida has pulled $2 billion from Blackrock funds which many consider to be the vanguard of the ESG movement.
The legislation also bars municipalities from selling bonds that are connected to ESG projects or ratings. Last year, Florida sold about $13 billion in bonds, making it the fourth-largest issuer in the country.
Finsum: Florida is increasing its efforts to combat ESG with the State Senate approving a bill that bars state and local governments from using ESG criteria in investments and selling bonds.
After a few quarters of turbulence, economic conditions are improving for fixed income according to an article by Principal Financial Group. Essentially, the Fed is succeeding in realizing its mandate as inflation and economic growth are moderating.
This means that the Fed’s hiking cycle is most likely in its final innings. Already, we are seeing longer-term rates bending lower in anticipation which is providing support to the asset class. Although there is the potential for more short-term volatility, the softening of economic and inflation data means that the longer-term trend is higher.
The first quarter of 2023 featured mild softness in inflation and the labor market, while economic growth came in better than expected. In the second quarter, economic data is likely to soften which increases the odds of the Fed pausing.
Additionally, the Fed’s rapid tightening over the past year has not been felt in the economy. As these effects become more evident, fixed income will outperform and reward investors willing to sit through near-term volatility.
Finsum: Fixed income performed well in the first quarter, but economic conditions continue to develop in favor of the asset class.