Stress in the bank sector? Sure, okay.

Uncertainty spawned by the U.S debt ceiling? Yep, no one can legitimately propose an argument to the contrary.

Political uncertainly festering in Russia? Well, yeah, if you’ve watched even a scintilla of news lately.

Despite that exhaustive list, the global economy’s hanging tough, strutting its resilience, according to gsam.com, which believes a restored allocation to core fixed income can help boost the ability to reinforce the resilience off portfolios to periods of bearish sentiments. That’s especially in light of a bounce in yields which have bolstered the protective power and income benefits of high quality bonds.

Meantime, the economy continues to perform better than expected, seemingly shucking aside rates hikes that have been a mainstay since last March, according to privatewealth-insights-bmo.com.

Consumers, buoyed by high employment, not to mention escalating wages, have hung tough.

For this cycle, with Canadian rates riding high and the stream of rate hikes -- for the most part, at least -a thing of the past, the time to take another look at fixed income allocations is right.

For ThinkAdvisor, Jeff Berman reviews some takeaways from the “Future of Practice Management: Boosting Business in 2023.” Overall, the majority of advisors are struggling with growth while a slim minority are accounting for the bulk of growth in terms of clients and assets.

In fact between 2016 and 2022, the average annual growth rate of revenue for registered investment advisors (RIA) was 11.3%. However, this was mostly due to the market appreciating rather than advisor-driven growth.  According to research from Charles Schwab, most advisors see growth between 6 and 7% primarily due to referrals, while they lose around 5% every year due to clients taking distributions.

In terms of growth tips, the panel recommends that advisors start using AI tools especially for marketing and back-office purposes to get more effeicinet. Having an organic growth plan is also essential especially given that most advisor growth is solely due to client referrals and asset appreciation. Part of the growth plan is defining your ideal client and figuring out how you can get in front of them on a regular basis. 

Finally, advisors need to think about thier clients holistically, and how their services will improve all aspects of a clients’ life rather than just financial areas. WIth competition from robo-advisors and other technological solutions, advisors need to emphasize the human touch and become a trusted advisor and source of personalized financial advice. 

Finsum: Many advisors are falling short when it comes to growth, solely relying on referrals and asset appreciation. Here are some tips on how to accelerate your practice’s growth trajectory. 

US Treasury yields surged to their highest levels in 16 years following the release of minutes from the July FOMC meeting. The minutes made clear that the Fed continues to lean in a hawkish direction despite some signs that the economy is decelerating, softness in the labor market, and moderation in inflation. Essentially, it’s another sign that rates will remain ‘higher for longer’ and that any pivot in Fed policy is nowhere near. 

In the minutes, the Fed said that there were ‘significant upside risks to inflation, which could require further tightening of monetary policy’. Following the release, yields on the 10-year Treasury reached 4.3% which is the highest level since before the housing collapse and Great Recession in 2007. 

In addition to the Fed, there are other factors that are contributing to selling pressure in Treasuries such as foreign governments reducing their holdings and expectations of supply hitting the market in the coming months due to the federal government’s funding needs.

Already, equity markets started to wobble and give back some of the gains made in recent months. Previous breakout in yields have resulted in sharp sell-offs in equities, and there is a risk that it could reignite the crisis in regional banks.

Finsum: US Treasury yields shot up to their highest level in 16 years following hawkish minutes from the July FOMC meeting. Other factors are also contributing to Treasury weakness, and it’s worth watching if it will result in damage to parts of the economy.

More than anyone else, financial advisors intuitively understand the value of planning in order to create successful outcomes. Their entire career is built around that concept, and they provide that service for their clients on a daily basis to help them reach their financial goals and attain a comfortable retirement.

So, it’s a conundrum that many advisors don’t apply the same rigor when it comes to their practices especially as it may impact their ability to recruit and retain clients if they are at a more mature age. Succession planning can also help advisors maximize the value of their business when it comes to selling, but it can be overwhelming given the variety of options. 

A good intermediate step for advisors who are just beginning the process is to have a management succession plan and a buy/sell agreement in the event of a death or disability. A management succession plan details who will take control of the business in terms of operations. Typically, it’s an employee or possibly a trusted colleague in the industry. The buy/sell agreement is usually funded by life insurance and is a legal document that clarifies how ownership of the business is transferred if the principal unexpectedly leaves the business. 

Both steps are essential as it guarantees the successful continued operation of the business, while assuring that the interests of the advisors’ heirs and family are also taken care of. 

Finsum: Ironically, many financial advisors don’t take succession planning seriously. It’s understandable given the variety of options and implications, but here are some small steps to get you started.

A major theme of 2023 has been the constant compression in volatility. In fact, the volatility index (VIX) is now lower than when the bear market began in January of 2022 despite the S&P 500 being about 10% below its all-time highs.

However, the consensus continues to be that these conditions won’t persist for too long. The longer that rates remain elevated at these lofty levels, the higher the odds that something breaks, causing a cascade of issues that will lead to a spike in volatility and a probable recession. According to Vanguard, a shallow recession remains likely to occur sometime early next year. 

For fixed income, it will certainly be challenging. So far this year, the asset class has eked out a small gain despite rates trending higher due to credit spreads tightening and low default rates. However, more volatility is likely if rates keep moving higher which would likely lead to selling pressure or if inflation does cool which would result in the Fed loosening policy, creating a generous tailwind for the asset class.

Given this challenging environment, active fixed income is likely to outperform passive fixed income as managers have greater discretion to invest in the short-end of the curve to take advantage of higher yields while being insulated from uncertainty. Additionally, these managers can find opportunities in more obscure parts of the market in terms of duration or credit quality. 

Finsum: Fixed income has eked out a small gain this year. But, the environment is likely to get even more challenging which is why active fixed income is likely to generate better returns than passive fixed income.