Each year, market intelligence provider Cerulli Associates surveys more than 10,000 affluent investors to identify investment product development trends. In early March, attendees of Nicsa's Strategic Leadership Form were given valuable takeaways from this research, as well as strategic insight into demand, distribution, and innovation across packaged investment vehicles.
Scott Smith, Director at Cerulli Associates, who moderated the conference session, said today's investors seek financial advisors who take the time to understand their needs, consider their entire financial picture, and propose solutions customized to their needs and goals. With that in mind, panelists from Ameriprise Financial Services, Bank of America/Merrill Lynch, and BlackRock shared their product insights.
Panelists said adoption of model portfolios is on the rise because these tools allow advisors to scale their practices and focus more on client relationships.
"By the end of this year, we will have a flexible UMA that can support a number of models; we're working closely with third-party managers to develop those as we speak," said Sandy Bolton, Executive Vice President, Head of Wealth Management Solutions at Ameriprise Financial Services. "The UMA is the happy medium; advisors are still able to build a portfolio, ... put their brand on it, and deliver it through a platform that is centrally traded and rebalanced according to a client's risk tolerance and investment objectives."
Greg Weiss, Managing Director, Head of Managed Accounts at BlackRock, agreed that advisors appreciate the ability to put their fingerprint on model portfolios. "The fastest-growing segment of our models business at BlackRock is custom models, where we allow an advisor to customize our flagship offering with their favorite funds, rebalancing frequency, trade rationale, and other preferences," he said.
With the global economy facing significant risks over the past few years, some say economic conditions are currently affected by a "permacrisis," spurring cash allocation concerns.
"We have about 100 individuals that are focused on a 'Cash on the Sidelines' campaign as we speak, and one of the things that we're doing to enhance it is pull in our third-party asset managers to help us tell that story," Bolton said. "We don't want advisors and clients sitting out too long and missing out when the market does rebound."
Referencing BlackRock's research, Weiss pointed to the power of a model-based practice in a permacrisis.
"When comparing a models-based practice to a non-models-based practice during peaks of market volatility, 70% of advisors who had a models-based practice were able to keep their clients invested according to their objectives and their risk profile, and they were able to do that with automated rebalancing, tax-loss harvesting, and changing the risk profiles as opposed to whipsawing."
Stephen Patrickakos, Managing Director, Head of Managed Investments at Bank of America/Merrill Lynch, addressed trends in direct indexing.
"In terms of the overall tax overlay from a UMA perspective, adoption has been growing over the last few years," Patrickakos said. "If there are restrictions on the overall portfolio, the availability of overlay is certainly there; tax is one, certain types of screens are another — and that customization from an overall UMA standpoint is a very big deal for advisors in that they can differentiate themselves."
"The direct indexing piece is big — it's been there for a while, but we've only been very specific about what it is in the last few years," he continued. "And that still has a place in the UMA portfolio today with advisors, but overall, there are some additional levers and features that an advisor can access internally at the firm as well, and adoption has been significantly increasing."
Weiss shared some of BlackRock's unique use cases regarding concentrated stock. "We've established a platform at BlackRock that provides a spectrum of solutions around concentrated stock. For example, for close to 25 years Aperio has been helping ultra-high net worth investors unwind a concentrated stock to a multi-year capital gains budget — a transition plan of how to go from a concentrated equity position to a well-diversified portfolio of equities."
Looking for additional product trends and innovations? Registered users can access an archive recording of this presentation by visiting https://learn.nicsa.org/2023-slf.
Personal views and observations of individuals contained herein are as of the date of the live event or written material and do not necessarily reflect the views of Nicsa or its member organizations. May contain forward-looking statements subject to various uncertainties. Nothing herein is intended to be or should be construed as legal advice. Contact your own counsel in order to obtain legal advice regarding these or any other matters. The information contained herein is for informational purposes only and does not constitute a recommendation of best practices.
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