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Investing
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New Asset Allocation Considerations Factor In Client Careers And Investments In Their Education, Professions, And Businesses |
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Thursday, February 21, 2013 13:25
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What does your client’s profession have to do with your investment advice to them? Plenty, according to Moshe Milevsky, finance professor and author of "Are You a Stock or a Bond?"
It’s a matter of considering what your clients do for a living as part of their human capital. The risk involved in your clients’ professions should be factored into their asset allocation design. This Website Is For Financial Professionals Only
In fact, for anyone who is not born into wealth, their careers are their most important assets. A 25-year-old’s human capital makes up about 99% of his or her personal balance sheet.
Only by around age 55 does an investment portfolio become of equal value.
Quantifying a person’s human capital is difficult. A good initial tool is the US Department of Labor’s salary ranges and unemployment levels for various careers.
Using this information, you can calculate a reasonable projection of the present value of current cash flows, just as you would with a stock or bond.
Most financial planners and advisors do not spend time on these aspects of their clients’ lives because it is not a revenue source for them.
Combining an asset-based fee arrangement with an hourly rate may be a solution. Offering career advice, job prospects, debt levels, savings plans, and whether a professional or graduate degree is advisable.
None of that advice currently fits within the traditional financial planning model.
Looking at a person’s investments in their careers or businesses and how those investments factor into a client’s personal financial picture should also be part of your service model.
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FOX Report Shows MFOs And Top Wealth Advisors Face Continuing Challenges As Competition Increases |
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Thursday, February 21, 2013 13:06
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Tags: Advisor businesses | business strategy | family offices Wealth advisors and multi-family offices (MFOs) have experienced solid revenue growth over the past three years, although that growth tapered off in 2012.
Along with 22% profit margins, a recent report from Family Office Exchange (FOX) noted that MFOs and wealth advisors face some challenges ahead. This Website Is For Financial Professionals Only
Two perennial issues are the high price and difficulty of finding top client-facing talent and increasing competition on fees for service.
Approximately eight out of ten MFOs are hiring and this reflects confidence of principals in the industry.
But the scarcity of top talent has created a seller’s market that is driving up labor costs. Finding the right talent for client-facing and sales positions is taking as long as a year.
This has caused a substantial number of MFOs and wealth advisors to fall back on less experienced personnel to fill a role that has been a key differentiator for the family office service model that has driven MFO popularity and growth.
The situation is unfortunate for both MFOs and wealth advisors and their clients. The edge the family office service model has over other advisor-client models is the level of personal service and the depth of relationship.
Competitive forces in the broader wealth management industry are increasing as more financial institutions scramble to adopt some iteration of what is referred to as the family office service model.
These forces will likely be significant over the next couple of years. But wealth advisors and MFOs who deliver a more authentic family office service model will continue to grow.
In this age of collaboration, outsourcing the client-facing positions is an option that can fit quite well with a firm’s current business model.
And since wealth managers and MFOs are beginning to increase pricing for their more complex clients to offset higher service delivery costs, including outsourced resources in the service mix makes sense from both business strategy and productivity and cost perspectives.
The fact that MFOs and top wealth advisors are experiencing such solid growth shows that clients will reward firms that offer what they are looking for.
Offering such a level of service authentically will build long-term relationships and turn clients into advocates for your business.
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The Key To Attracting And Keeping Wealthy Clients Is To Adopt Role Of Chief Advisor |
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Thursday, February 21, 2013 12:50
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Tags: Advisor businesses | client communications | client retention
An SEI survey of multi-millionaires revealed that, although the wealthy still put their trust in advisors, they tend not to trust just one. This is not news. The Merrill Lynch Capgemini World Wealth
The survey highlights a key way to differentiate your practice: acting as chief advisor to the client’s wealth advisory team. This Website Is For Financial Professionals Only
This is not news. As far back as 2005, the Merrill Lynch Capgemini World Wealth Report noted that the wealthy want a single point of contact to manage their multiple advisory teams and that the average client with as little as $5 million in assets had a minimum of three advisors.
In terms of comfort in asking advice, the wealthy identified financial advisors at 39% and attorneys at 22%.
Segmenting respondents, 53% of retirees had the greatest confidence in advisors, 48% of 50 – 59 year olds, and 46% of investors above age 60.
Most investors under age 50 feel they need three times their current net worth to feel financially secure.
Average asset level of respondents was $11.8 million. Respondents were primarily retirees, corporate executives, and business owners.
The survey reveals another important contrast to accepted belief: that even the wealthiest want to continue to accumulate assets as they dually focus on preserving the wealth they have.
The most effective way to become a client’s chief advisor is to conduct robust, in-depth, face-to-face discovery. This may take more than one meeting.
Only by discovering the most critical issues for clients—which often lie way under the normal advisor-client conversation—can investment strategies be appropriately aligned with the client’s goals.
If you don’t wish to have such deep conversations with your clients or if you need to develop these skills, it’s a good idea to bring in an external resource to either perform this part of your process for you or to help you develop your skills.
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Fed Meeting Minutes Show Increasing Likelihood That QE Program May End Sooner Than Expected |
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Thursday, February 21, 2013 12:47
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Tags: Economic Outlook | economy | Federal Reserve
The notes from the Federal Open Market Committee (FOMC) meeting in January indicated a shift in thinking toward the quantitative easing program consisting of $85 billion in bond purchases per month.
Several participants said the committee should be prepared to vary the pace of those asset purchases based either on changes in the economic landscape or as it reevaluates the costs and efficacy of those purchases. This Website Is For Financial Professionals Only
Stocks, oil, and gold markets all fell on the possibility that the Fed could end the program sooner than anticipated even as several Fed officials warned of the dangers of ending the program too early.
The meeting minutes indicated the Fed is willing to taper the purchases at some point in the future to gauge likely economic reaction instead of ending the program all at once.
The December meeting saw officials almost evenly divided over ending the program mid-2013 or by the end of the year.
At the January meeting, officials decided to continue the $85 billion worth of purchases without setting a time frame or total size limit.
Some officials said a cost-benefits analysis could cause the Fed to taper its purchases before it judged that the labor market had improved to its desired point.
Others argued that cutting the program too soon could also result in significant costs and danger to the economy.
The FOMC will conduct a review of the program at the March 19 – 20 meeting. It will also contemplate new ways to present its economic projections in public communications.
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Greatest Technological Shift Since The Internet Is Only Just Beginning; Mobile Is Projected To Grow 66% Per Year Over The Next Five Years |
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Wednesday, February 20, 2013 14:04
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Tags: economy | internet marketing | mobile apps The advent of the internet was one of the largest technological shifts of our time but another significant shift is only just beginning: the growth of mobile.
Mobile data growth has been doubling each of the past two years. A report from Cisco said that global traffic on data networks grew by 70% last year alone. This Website Is For Financial Professionals Only
Traffic on mobile data networks in 2012 was almost 12 times that of total global internet traffic in the year 2000, just when the internet was taking off.
Growth in wireless data traffic is predicted to grow 66% per year for the next five years. By 2017, it will be 13 times what it is now.
But as hindsight would have it, growth predictions for technology are an educated guess and rarely are accurate due to unforeseen changes.
What can truly be gleaned from these predictions, however, is that the current data indicates the era of the mobile web is still in the early stages and that it promises to change our daily live even more radically and in ways we cannot anticipate.
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