When it comes to financial advisors, many instantly think of managing portfolios and selecting stocks. While many advisors still cling to this model, model portfolios are increasingly gaining favor. For one, portfolio management at the client level is not scalable which means that advisors would eventually be overburdened if the firm keeps growing.

Equally important, it frees up time for them to focus on the activities that actually drive success for their practices - client relations and effective prospecting. Also, most research shows that advisors who actively manage portfolios don’t necessarily generate better returns in the long-term. 

According to research from Cerulli Associates, model portfolios generated better returns than advisor-managed portfolios over multiple timeframes. And, this discrepancy widened during periods when the market experienced a negative quarter as model portfolios outperformed 60% of the time amid these conditions. 

The biggest drawback for advisor-led portfolios is the wide dispersion and variability of performance especially compared to model portfolios which had much steadier performance. Given that model portfolios are leading to better returns for clients with less volatility and also frees up time for advisors to focus on client relations and growing their business, the continued proliferation of model portfolios seems inevitable. 

Finsum: Model portfolios are taking an increasing share of the asset management pie. The benefits for advisors are obvious in terms of growing their business but research is also showing better returns with less volatility.

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.