There is a momentous demographic turnover that reshapes the financial advisor landscape. According to Cerulli, nearly 40% of advisors will be retiring in the next decade. Currently, 60% of assets are managed by advisors who are 55 and older, while the average age of an advisor is 50. 

This reality means that older advisors need to start thinking about succession planning. Proactive and proper succession planning can also help advisors maximize the value of their practice and ensure that their clients remain in good hands. Younger advisors should be formulating a strategy to capitalize on this opportunity. 

Some key elements to successfully transition to the next generation are recruiting to replenish talent, appealing to younger investors, and scaling engagement and client service by leveraging technology. 

At current rates, there are not enough new advisors to offset retirements and attrition. Therefore, it’s imperative that practices invest in recruitment efforts to identify talent and set them up for success. This entails looking at recruits from nontraditional backgrounds who have strong people and organizational skills. 

Another important step is to gear prospecting and client service for millennials and Generation Z. This means understanding their perspective and becoming fluent with technology. Finally, advisors should be investing in technology that can help them scale personalized service to increase their capabilities and serve more clients. 

Finsum: Succession planning will be even more critical in the coming decade due to the massive retirement wave in the financial advice industry. Here are some common elements of successful succession planning. 

A financial advisor survey by Capital Group reveals a surprising lack of understanding about active fixed-income ETFs. Despite growing demand, less than 4% of assets are allocated to them, with limited advisor confidence in using them. 

Surveyors highlight the benefits of active fixed-income ETFs, including consistent returns, portfolio diversification, and potentially lower fees. This knowledge gap, especially among wirehouse advisors, may be due to their recent introduction. 

Younger advisors seem more receptive, suggesting wider adoption as awareness grows. Capital Group believes active fixed-income ETFs will bridge the gap with passive options, urging advisors to prepare for client interest.

Finsum: Macro climates like the current one almost always give bond pickers and edge, and advisors are missing alpha. 

Treasury yields jumped higher following the hotter than expected March CPI report. The 10-year Treasury yield moved above 4.5%. It has now retraced more than 50% of its decline from its previous high in late October above 5%, which took it to a low of 3.8% in late December, when dovish hopes of aggressive rate cuts by the Fed peaked.

Clearly, recent labor market and inflation data have not been consistent with this narrative. In March, prices rose by 3.5% annually and 0.4% monthly, above expectations of a 3.4% annual increase and 0.3% monthly gain. Core CPI also came in above expectations. 

Instead of trending lower, inflation is accelerating. Now, some believe that the Fed may not be able to cut rates given the stickiness of inflation. Additionally, economic data remains robust, which also means the Fed can be patient before it actually starts lowering the policy rate. 

Some of the major contributors to the inflation report were shelter and energy costs. Both were up 0.4% and 2.2% on a monthly basis and 5.7% and 2.7% on an annual basis. Shelter, in particular, is interesting because its expected deceleration was central to the thesis that falling inflation falling would compel the Fed to cut.

Finsum: The March CPI came in stronger than expected, leading to an increase in Treasury yields. As a result, we are seeing increasing chatter that the Fed may not cut at all. 

The ETF market continues to grow and mature by providing new funds for investors to reach their financial goals. BMO Global Asset Management sees more growth in the coming year, driven by more targeted funds that appeal to more sophisticated investors.

It sees the ETF market continuing to evolve and innovate in order to meet the growing demand for more sophisticated products in an ETF wrapper. It sees ETFs becoming the primary way for investors to get exposure to themes, trends, and investment opportunities. Further, there is intense competition among issuers to continue bringing new products onto the market, especially given first-mover advantages.

BMO is particularly bullish on structured outcome ETFs, which were created to help investors manage risk. It believes that investors in equity funds and short-term bond funds are exposed to volatility given the outperformance of megacap, technology stocks over the past year and uncertainty around the Fed’s rate cuts.

Structured outcome ETFs are one way that clients can remain invested while capping downside risk. Among these, buffer ETFs, which use options that protect against downside risk and cap upside potential, are becoming increasingly popular among advisors and investors. Notably, this type of protection was at one time only available to high net worth investors.

Finsum: BMO Asset Management conducted an overview of the ETF industry. It notes the constant innovation in the space, with the latest growth area being structured outcome ETFs, which are particularly useful in terms of reducing portfolio risk.   

Forget active versus passive investing, the future is about having both, but with a twist: direct indexing. This strategy combines the low fees and market tracking of passive investing with the tax benefits and customization often desired by active investors.

Direct indexing lets you build a portfolio that mimics a market index, like the S&P 500, but with a twist. You can personalize it to minimize your tax bill through tax-loss harvesting, a strategy that sells losing investments to offset capital gains and lower your taxes. This can potentially lead to significant savings compared to traditional index funds, and research shows the alpha can be as high as 1%.

Technology plays a key role in direct indexing. It allows advisors to tailor the portfolio to your specific needs and tax situation, while still ensuring it closely tracks the chosen index. This level of customization combined with the potential for tax savings is fueling the growth of direct indexing, particularly within separately managed accounts.

Finsum: While active bonds may have an advantage, the semi-passive direct indexing offers advantageous tax alpha.