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CNBC
a day ago
- Business
- CNBC
Financial advisors are turning to this asset class for diversification and stability as uncertainty rocks markets
Alternative investments are gaining traction among financial advisors who are seeking diversification just as rising geopolitical tensions and shaky tariff policy rattle stocks. A survey of nearly 200 financial planners by the Financial Planning Association and the Journal of Financial Planning from March 23 to May 4 found that while these investments aren't in widespread use among advisors, they've seen significant growth compared to last year. More than 17% of the advisors are incorporating such options into their practice, nearly double from last year, the poll found. Some 23% are using individually traded real estate investment trusts, up from 14.9% in 2024. More advisors also embraced private debt, with about 19% of participants saying they're turning to this asset class, compared to 12.5% last year. The results arrive as investors grapple with an S & P 500 that's up just 2% this year, and volatile movements in Treasury yields, as well as escalating conflict between Israel and Iran. "This use of alternatives as an asset class is a natural evolution in the process of bringing greater diversification and greater consistency of portfolio performance as a whole," said Paul Brahim, certified financial planner and managing director at Wealth Enhancement Group in Pittsburgh. He is also the 2025 president of the Financial Planning Association. An evolution of the 60/40 allocation How advisors implement alternatives in their practices will vary, but they tend to see it as a complement to investors' asset allocation – rather than a complete overhaul of the split between stocks and bonds. Brahim said that the 60/40 model that's typically split between stocks and bonds has evolved to include exposure to domestic and foreign assets, a range of market capitalizations, different flavors of fixed income and now alternative investments. Jon Ulin, CFP and managing principal at Ulin & Co. Wealth Management in Boca Raton, Fla., said that his practice has transitioned from a 60/40 allocation to a 50/30/20. The 20% portion is split among structured notes to offer downside protection and income, as well as private credit, private equity, real estate and commodity ETFs. "We aren't reinventing the wheel, but instead we're trying to smooth out people's results," he said. Key considerations for investors hoping to dip a toe into alternatives include correlations in price performance versus other asset classes and strategies, the use of leverage — which can magnify gains and losses — access to liquidity and fees, Brahim said. "The objective of alternatives is to reduce overall portfolio volatility to create more consistency in returns so that we get better compounding," he said. Access through ETFs Esoteric products like structured notes and private credit may not be easy for individual investors to access, but retail investors can tap into alternatives through exchange traded funds. "If you've never done alts before, the best way is to use the ETFs that are within the scope," said Shana Sissel, founder of Banrion Capital Management. Her firm, based in Glenview, Ill., provides financial advisors with a platform for incorporating alternative investments into their practices. Sissel said that in a hypothetical situation, an individual with a $1 million portfolio might earmark $800,000 to a 60/40 strategy and direct the remaining $200,000 into alternatives. She likes ETFs that are "hedge fund like," calling out AGF U.S. Market Neutral Anti-Beta Fund (BTAL) and the Clough Hedged Equity ETF (CBLS) . When strategies incorporate options, she prefers that they be focused on hedging market risk, rather than providing income. .SPX BTAL 1Y mountain The S & P 500 versus the AGF U.S. Market Neutral Anti-Beta Fund (BTAL) in the past 12 months BTAL aims to provide negative beta exposure to U.S. stocks – meaning, it strives to move in the opposite direction of the market. In 2022, BTAL did just that, rising around 20% while the S & P 500 tumbled more than 19%. This year, with the broad market up a mere 2%, BTAL is off about 1%. CBLS holds a portfolio of long and short positions and seeks to minimize volatility. The fund lost more than 11% in 2022's tumult, but it's up more than 8% this year. Pricing will vary for these strategies: CBLS's total annual fund operating expenses add up to 1.90%, while BTAL's fees weigh in at 0.45%. "I want to look at the strategy and how it correlates to fixed income and equities," Sissel added. "These strategies could be doing different things, but the role they play is as a diversifier."
Yahoo
06-06-2025
- Business
- Yahoo
More advisors are 'outsourcing' some investment management
Financial planning involves a lot of elements. For a growing share of advisors, managing investments isn't one of them. The use of mutual fund wrap programs — a unique type of fund that allows planners to essentially buy a prepackaged portfolio for their clients — has increased in popularity over recent years, according to a survey of 195 financial advisors in the Financial Planning Association's annual Trends in Investing report. Since 2020, use of the wrap programs among planners has increased 20%, up six percentage points overall. Advisors say the increased use of wrap programs reflects the broader industry trend in which a growing share of planners "outsource" the investment management of their clients' funds. READ MORE: Trillions in SMA assets ripe for tax-friendly ETF 'exit valve' "I think the industry has been really telling and pushing advisors towards basically outsourcing the investment management and focusing on the bigger picture of holistic financial planning," said Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts. "And so you have all of these so-called strategists, you know, mutual fund companies, Vanguard, they say, 'Well, listen, we'll build the models for you, just give it to us and we'll trade them, we'll rebalance them, etc.' That way, the advisor themself is not doing [the investment management], and maybe they're focusing on other areas of financial planning." At the same time that wrap programs have grown in popularity, non-wrap mutual funds have seen a decline in use among planners. Ken Nuttall, chief investment officer at Blackdiamond Wealth Management in New York City, said that these more traditional mutual funds, which often charge an up-front fee, are less appealing in most situations due to the rise of low-cost exchange-traded funds. ETFs often offer a similar basket of assets as many non-wrap mutual funds, with added flexibility and lower costs. For advisors who handle investments in-house, that's a big reason to abandon mutual funds. But for advisors who would rather focus on other aspects of financial planning, wrap programs specifically remain an appealing option. "Some people just don't fully appreciate how investments work," Nuttall said. "I'm not trying to knock them down or anything, but they say 'I want to invest in stocks, but I have no idea which stocks to invest in,' Which is fine, just get someone who does know." Still, the added convenience of such programs can come at a cost to clients. Wrap fees normally range anywhere from 1% to 3% of the assets under management. That fee often includes the costs of an additional advisor from the mutual fund company. In those cases, a client could end up essentially paying for two separate advisors: one fee to their primary advisor and another as part of the wrap fee to the mutual fund company. READ MORE: Tips and tricks for advisors seeking to grow their business "You're definitely paying the mutual fund fee, and then you're paying the advisor's fee, and hopefully the advisor's fee covers other stuff they're doing for you," Ahmed said. "But typically, what would happen is with a wrap program, you should have the cheapest share class. So if there's a retail share class out there that costs, I don't know, 1.5%, and then they have an institutional share class, that's probably what's going to get used inside of the wrap account, not the more expensive one you can buy on your own." Nuttall pointed out that while paying two advisors may sound redundant, in practice, there's not a lot of overlap in the services they provide. While a client's primary advisor is focused on creating a holistic financial plan, the mutual fund advisor is solely focused on investment performance. The potential fees don't end there. Along with the blanket AUM fee, wrap programs often invest client money into funds that bring fees of their own, Ahmed said. "When you hand it off to XYZ mutual fund companies … they're obviously going to use their in-house products first and for the majority of the model," Ahmed said. "And every now and then, I'll see that they'll throw a competitor's mutual fund in there, just so they can say, 'Well, it's not just all our stuff.' But it's not always the case. A lot of the time, it is [all in-house funds]." READ MORE: 10 best and worst crypto ETFs of the past year "I suspect a lot of the time these mutual fund companies, because they're getting these assets, they probably figure, 'Let's put in mutual funds that don't actually gather the assets on their own. You know, maybe people aren't actively buying this particular fund, but if we put it in our model, then that will ensure that it gets assets in it,'" Ahmed added. While the FPA's data doesn't provide any indication of the types of advisors utilizing wrap programs, Nuttall said broker-dealers are more likely to buy into these programs due to their financial incentives. "It's kind of the way those broker-dealers get paid, is that 25 basis points or whatever through the 12b-1 fee. Yeah, part of that does go back to the broker-dealer as a fee," he said. "So, I mean, there's economics at play there." 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Miami Herald
14-05-2025
- Business
- Miami Herald
Workers struggle with one big problem when they retire
Many Americans may feel financially prepared for retirement, but the emotional transition and rising health care costs remain significant hurdles, according to a recent survey. The 2025 Trends in Retirement Planning survey report, released by the Financial Planning Association (FPA) and the Journal of Financial Planning with support from Finance of America, gathered feedback from 167 financial planners to offer insights into evolving retirement challenges. And here's what they found. Image source: Koslov for Unsplash There's a striking disconnect between financial and emotional preparedness. While over half of planners feel their clients are financially ready for retirement, only 11% believe those same clients are emotionally prepared. The survey found that nearly 60% of planners indicate clients are only moderately emotionally prepared, and 5% believe clients are not prepared at all. According to the report, clients often grapple with fears about: Adapting to no longer workingLosing their sense of identityPotentially becoming a burden to loved ones Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter "Studies show that while health and wealth are vital for a successful retirement, being mentally and emotionally prepared is more critical," said Mitchell Kraus, a certified financial planner with Capital Intelligence Associates. "No matter how financially ready an American is to retire, their retirement can lead to a shorter and less fulfilling final chapter if they are not emotionally prepared." Jim DeGaetano, a certified financial planner and author of "The Fruitful Retirement," draws this parallel: "The emotionality involved in leaving one's life work cannot be understated. In fact, as I discuss the four stages of retirement in my book, there is a similarity to the phases of grief and loss. Wealth advisers must understand how critically important it is for their clients." As a result, financial planners are increasingly going beyond managing money to help clients address these significant emotional and lifestyle adjustments. "Being emotionally prepared is almost as important as being financially prepared," said Kris Etter, a certified financial planner with Beacon Financial Planners. "Life does not stop happening just because you retire." Financial advisers across the country are developing innovative approaches to address the emotional aspects of retirement. Their strategies offer valuable insights for those planning this major life transition. Related: Medicare recipients face a growing problem David Demming, a certified financial planner with Demming Financial Services, believes in gradual transitions, recommending "phasing down rather than abruptly retiring to adapt emotionally as well as financially." Rather than a complete stop to working life, he strongly advocates for "partial employment" with a refreshing philosophy of "work for play, not pay." Building on this approach, Catherine Valega, a certified financial planner with Green Bee Advisory, emphasizes that having sufficient finances isn't the complete picture: "Even those with enough money – that is not enough to maintain health both emotional and physical during the possibly several decades spent in retirement." To address this gap, she's developing a practical solution to help people "test-run their retirement lives" before fully committing. Rob Schultz, a certified financial planner with NWF Advisory Group, reinforces this approach: "Scaling back work tends to be successful because it gives you a trial run at what it would be like and you can see if you like being retired without fully committing to it. Once you are out of the workforce, it can be tough to re-engage." While some advisers focus on transition strategies, others like Ed Snyder, a certified financial planner with Oaktree Financial Advisors, takes a proactive approach from the very beginning by asking "prospective clients in their first meeting what their retirement lifestyle looks like for them." This early visualization helps clients prepare mentally as he guides them to "imagine what kinds of things they will want to be doing" and consistently encourages them to "stay active and involved." Patti Black, a certified financial planner with Savant Wealth Management, frames this proactive approach by "encouraging clients to know what they are retiring to, not just what they are retiring from. What is their purpose in retirement, their reason to get up and get going every day?" She's even working to shift the perspective "from 'becoming a burden' to 'becoming a blessing.'" Taking this comprehensive approach even further, Juliette Williams, a certified financial planner with Wealthspire Advisors, thoroughly goes "beyond the numbers" with her clients. She facilitates deeper conversations through targeted questions including: "What does it feel like to spend your days and nights together, as opposed to only your evenings while you are working?""What does a regular day/week look like in retirement? How do you plan to spend your time?""How do you think you will feel about no longer being known as whatever it is they do for a living?" Marcos Segrera, a certified financial planner with Evensky & Katz/Foldes Wealth Management, takes an innovative linguistic approach by "intentionally reframing 'retirement' as 'repurposing'" to encourage clients "to view this significant life stage not as a passive cessation but as an active, deliberate redirection of their accumulated energy, wisdom, skills, experience, and passions towards new or redefined goals." Related: These are the most tax-friendly states if you work in retirement Williams summarizes the philosophy that connects all these approaches: "I often tell my clients that the numbers will work out because they've been working toward the numbers all of their lives. I want to ensure that the life part works out as well as the numbers." Edward Thomas, a certified financial planner with Savant Wealth Management, puts it even more succinctly: "It is more behavioral coaching than financial." Prepare emotionally and financially. Retirement is a significant life change that requires reflection on what life will look like beyond work. Consider hobbies, social connections, and how you'll structure your time. "Retirement readiness goes far beyond numbers," said Nathan Sebesta, a certified financial planner with Access Wealth Strategies. "Emotional preparedness and clarity on how you'll spend your time are just as vital." Laura Mattia, a certified financial planner with Wealth Enhancement Group, stresses the importance of personalized planning: "Decisions regarding retirement are not just about the number of years worked or the age they aim for. There is no formula or one-size-fits-all answer." She recommends a six-step approach that begins with exploring "plans in retirement to pursue a new or continued passion, utilize skills, stay social, build relationships, and maintain health." DeGaetano offers a helpful framework through his "A Happy Retirement Is Freedom" acronym, which covers five essential factors: Activities: How you'll spend your dayHealth: Staying active and healthyRelationships: Nurturing connections that bring joyIntention: Both spiritual and personalFinancial security: The foundation for freedom Kraus recommends starting early: "Start talking about retirement early. Ask clients from our first meeting what they would do if they didn't have to work anymore." He also suggests "trying out the activities they plan on doing at retirement" before fully committing to them. Acknowledge and address emotional adjustments. If the transition proves challenging, seek resources or support to navigate the emotional aspects, such as adjusting to new routines or finding purpose outside of work. Etter reminds retirees that understanding your financial tools and when to use them can help manage stress. Glenn Downing, a certified financial planner with CameronDowning, poses a crucial question to new retirees: "What are you going to do with yourself all day?" He notes that the response "tells me volumes. If I get a blank look back, I know that the retiree has only thought about the negative (i.e., not having to go to work) and not the positive (i.e., the opportunity to completely reinvest oneself)." "Ultimately, a successful retirement blends financial stability with purpose and proactive health and lifestyle planning," says Sebesta. Resources that can help would-be retirees become emotionally ready include the blog "The Retirement Manifesto" and the book "The Keys to A Successful Retirement" by Fritz Gilbert. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
