With that framework in mind, MutualFunds.com is continuing its coverage of IMPACT and providing a second update on some of the best advice from the conference. Once again, we’ve dug into the conference’s key learnings and pulled out some of the most important pieces of information for you and your practice.
Reading the following update can help fill in the gaps of what you missed at the conference.
Click here to read our first piece on the best advice from IMPACT 2019.
Current Trends in Investment Strategies
Liquid alts and private equity have long been great diversifiers for high-net worth and institutional clients; however, these days, even regular Joes have the opportunity to invest in these asset classes. Boston Partners’ Paul Heathwood mentioned that advisors could gain an edge using long-short strategies given how overpriced certain nations/sectors of the market have become. Similarly, Bob Rice of Tangent Capital gave a presentation on using private equity to help generate better and smoother returns for a variety of clients. Thanks to traditional private equity funds, feeder funds, interval funds and auction funds, many investors now have the opportunity to add private equity to their portfolios.
At the same time, “value” stocks were high on the IMPACT agenda. Many strategy panels focused on the current shift away from high-growth/tech and into value stock sectors. Schwab’s Jeffrey Kleintop noted that shift in momentum from growth to value historically has coincided with inverted yield curves. With the curve still inverting in places, that shift should be able to keep going.
Finally, a big theme at IMPACT continued to be the challenges in generating income in the current environment. With interest rates falling, bonds once again are starting to not be able to pull their weight. Discussions over the end of the “60/40” portfolio and using bonds as a total return element were hotly debated.
The Value of Portfolio Diversification
This point was echoed by Schwab’s Kleintop and James Peterson in various talks. Peterson cited World Bank data that pointed to the fact that the U.S. only accounts for about 44% of the world’s market cap. This provides plenty of outside opportunities for advisors/investors. Peterson noted that global diversification still works and helps reduce risk over time, saying that “Asset allocation arguably is the most important thing we do as investors.”
Additionally, many of the conference’s talks focused on rebalancing portfolios towards strategic allocation targets. After years of gains, many portfolios are probably out of whack, and while painful to sell winners, it’s the correct thing to do for clients.
From social media to text messaging, the way advisors talk to their clients these days is vastly different than previously. But Ryan Sullivan from Hartford Funds mentioned that no matter what, advisors still need to communicate effectively. Sullivan noted that “Being a fountain of knowledge is a good thing…being a fire hose of knowledge is not a good thing?” Sullivan’s tips included advisors keeping information fresh and concise, using appropriate humor to break barriers and focusing on the Four F’s – firsts, faults, failures and fears – to build trust.
M&A in RIA
The RIA industry now managed over $82.5 billion in assets that increased 16.7% over last year. This growth as well as many broker-dealers/wealth managers realizing the power of the model have contributed to more than $500 billion worth of deals in the sector. Schwab’s Bernie Clark highlighted the mega-deals of Goldman Sachs, Hightower and Dynasty Financial Partners as proof that the RIA model is attractive to outsiders. Especially considering RIAs feature organic growth rates nearly four times that of other advisory firms. This means that more M&A is on the way and some advisors may realize plenty of offers for their practices.
Hiring and Retaining Top Talent
Today’s clients are not just looking for returns. A Schwab Advisor Services study and roundtable showed that “emotional intelligence” is now an essential skill. Schwab’s Lisa Salvi mentioned that firms need to mentor staff in order to have “difficult, often intimate conversations with clients and clients’ children about their lives.” The point is that it is not just numbers on a balance sheet or year-end statement; Salvi also provided advice that advisors should look beyond the traditional sectors of finance to find higher top talent.
The Bottom Line on IMPACT 2019
Check out our Schwab IMPACT 2019 Channel to catch all the highlights from the event.