Forward-thinking investment advisors are already formulating creative strategies for the 2020s.
Change is the name of our game, and if the last ten years offer any guide, we can expect turmoil and opportunities, bold technological innovation and the deeper entrenchment of traditional financial values. That’s the way it’s always been, but we’d best be on our toes.
Active wealth managers are implementing strategies to position their clients for growth and security in the coming decade. The market could hardly have been stronger in 2019, and most were content with the solid results of passive investment strategies. Active management was put on hold, and while that works fine when the bulls are charging, it can lull the critical minds of investors and advisors alike, leaving them vulnerable to even short-term shocks.
Experienced market watchers know that long-term performance rests on healthy diversification. Forward-thinking advisors are eyeing a mixed passive/active strategy when building or adjusting client portfolios.
We don’t see any particular dangers on the near horizon, but that doesn’t mean the wolf isn’t out there. When he might strike is too soon to call, but we’d rather be well fortified when it happens. In any circumstances, active and passive management should be seen as complementary strategies, spreading out the risk while earning gratifying if not exaggerated returns.
Clients may not be happy with this new diversified approach: no one wants to leave money on the table. Careful educational efforts are called for: you aren’t crying wolf, it’s merely a matter of prudence. Work together to decide which asset classes are best suited for passive management and which should be actively handled.
We keep talking about returns – sometimes hard to find these days with global interest rates so low. Strategies previously limited to top-flight institutional investors can now garner growth for individual clients – but there’s a catch. These are complex instruments, often beyond the ken of even skilled investors. Advisors should be careful about dipping their customers’ beaks into murky waters that may hide some sharp-toothed dangers.
Private markets are opening up to public investment. The burgeoning popularity of direct finance is fueled by punters hungry for opportunity who are stymied by the reticence of US firms to list – nowadays, companies tend to stay private for longer than historically indicated. There’s plenty of money out there available for private investment. As with any new market, though, there’s considerable risk, if only because investors are not sufficiently prepared: careful due diligence, as ever, is called for. Advisors should start with themselves, with an eye to learning how to construct diversified portfolios in this newly accessible market.
Portfolio construction is an exceedingly complex affair these days and some advisories are choosing to outsource the process. Model-based portfolios are available in abundance, which offer interesting solutions tailored to diverse customer demands and market conditions. Again, there are dangers: conflict of interest concerns are acute in this business. When entering this marketplace, firms need to choose wisely from only the best governed of providers.
In conditions where returns are a concern, tax minimization strategies come strongly to the fore. Advisors must be keenly aware of the tax implications of any product or strategy they suggest to customers. Software solutions are at hand to easily determine after-tax earnings on investments, and unified management accounts – where a range of investments are combined into one account, aiding tax awareness and supporting tax-minimization strategies – are also coming into wider use.
For more information, please read:
5 Emerging Investment Trends for Wealth Managers in the 2020s | ThinkAdvisor