FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
The Coming Era Of Longevity Risks An Overpricing Of Safe Assets (Bank of America)
The number of people over the age of 60 is expected to double from 841 million in 2013, to over 2 billion by 2050. Sarbjit Nahal and Beijia Ma at Bank of America Merrill Lynch, dub this the coming longevity revolution. And this revolution has implications for stocks and safe assets. “Demographics provide an investor base that will be less keen to take on unhedged equity risk than previously,” they write. “…As the population ages, core equity holdings will shrink as a proportion of asset allocation in exchange for more traditional wealth preservation assets such as bonds.”
The risk here is that a reallocation to safe-assets “may lead to safe-asset shortages and an overpricing of safe assets,” write Nahal and Ma. “At the same time, as risky assets such as equities are increasingly shunned, there is a possibility of an underpricing of riskier assets.” There are however two ways to counterbalance this: 1. “Defined benefit funds with funding gaps in the current low interest rate environment, which may invest in risky assets to enhance expected returns.” 2. “Underpricing may also be mitigated by international investors’ buying cheaper risky assets.”
People Are Buying Burrito Bonds In London (The Wall Street Journal)
The UK fast food joint Chilango has issued “burrito bonds,” that pay an 8% interest rate semi-annually. They also give buyers free burritos every week till the note matures if, buyers subscribe for £10,000 pounds ($16,800), reports WSJ’s Josie Cox. The minimum investment is £500 ($841). The firm is looking to raise £1 million ($1.7 million) and has already raised $US600,000. “I don’t want to say there’s an absurdly reckless chase for yield, but people are buying burrito bonds in London,” Josh Brown tweeted.
Advisors Need To Tell Clients About Total Costs Not Just Advisor Fees (Investment News)
Advisors underestimate how much their clients pay, a new survey from Peak Advisor Alliance and Cerulli Associates has found. The survey of 159 advisors found that 62.7% of advisors think clients pay 1.5% or less of their investable assets in total costs — this includes fees for advisors, the product, the platform, and the administrative fee — when the average total cost is actually about 1.83% of assets. “This is going to become a bigger and bigger issue because the next generation is much smarter and savvier about getting information,” Ron Carson, CEO of Carson Wealth Management told Liz Skinner at Investment News. “Advisers need to be providing it to them proactively.”
Advisors Should Find Their Ideal Client Type Instead Of Chasing Large Asset Pools (The Wall Street Journal)
Advisors tend to target large asset pools instead of the type of client they want to serve, writes Ray Sclafani, CEO and founder of ClientWise LLC in a WSJ column. “In my experience, advisers who strategize, target, and stick to their ideal client type increase their value proposition,” writes Sclafani. “Not only does having an ideal client type help advisers differentiate their services, our research suggests it can significantly increase their assets under management.”
Advisors can pinpoint their client type by locating a niche within a broader field. “For example, the medical field is a target market. Within that field the niche might be doctors, and within doctors the ideal client profile might be doctors who own their own practices, see value in financial services, and are willing to pay a fee for that advice,” he writes.
On June 5, the European Central Bank (ECB) became the first major central bank to push interest rates into negative territory. But Charles J. Thomas, an investment analyst with Vanguard Investment Strategy Group, advises clients against making changes to their portfolios based on the ECB’s actions. “One way that investors can help mitigate the risk and uncertainty associated with economic developments in any one region is to make sure they have broad diversification by owning a little bit of many investments across the world,” Thomas said. “And investors would be wise to remember that they generally are rewarded over time for the risk they take in their portfolios, not for day-to-day economic events.”
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.