FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Conversations about financial planning with millennials are going to differ from the ones had with older generations. Millenials are less and less likely to follow “school-work-family-retirement” path.
Millennials generally wait longer to start families, are more likely to switch up their careers several times, and are more likely to hold more than one job. And perhaps most importantly, millennials are “more willing to dip into savings for things such as additional schooling, a start-up business, or an artistic pursuit.”
“Advisors can also expect client conversations to shift slightly on other investing topics. For instance, younger clients tend to see themselves as hands-on investors. Yet studies show that although they display confidence, they also seem to lack thorough investment knowledge.”
“Brevity and relevance are vital” for millennial investors. As a result, advisors should “try looking at conversations with prospects as opportunities for discovery. Advisors who make the strongest impressions ask probing questions that leave younger prospects feeling understood and valued. Many younger investors who seek financial advice are looking for education, collaboration, and validation of their choices.”
Infrastructure could be the next big investment opportunity, according to Blackrock’s Larry Fink. He suggests that investors and the government should work together to improve the United States’ infrastructure because “governments simply don’t have enough cash for the projects they need, and investors are looking for new sources of return in increasingly difficult and correlated financial markets.”
Infrastructure “helps to solve both long-term and short-term economic problems.” In the short term, infrastructure construction can create jobs for “low skilled” workers — especially for those that are “struggling with the long-term impacts of the financial crisis” and the “impact of technology on the job market.” And long-term benefits are widespread.
Fink notes that infrastructure will lead to efficiency and lower costs across industries. And all that saved money can be used by firms on new investments, such as “equipment and technologies” and job creation. Plus, the governments “will be able to make better use of tax dollars (and potentially even cut taxes).”
New research suggests that inactivity is the way to go. A study that “analysed 80,000 yearly observations of institutional investment assets, accounts and returns from 1984 through 2007” found that portfolios that “of products to which money was allocated underperformed compared to the products from which assets were withdrawn”, according to a recent article cited by John Kimelman from Barron’s.
However, “there’s a big difference being leaving an account alone — that is trading less — and ignoring that account outright. Best to never do the latter while taking a mindful approach to the former,” Kimelman noted.
He also added that unless an investor periodically rebalances his portfolio by selling asset classes that have increased in value and buying those that have decreased, he will “either be taking too much or too like risk” — which will have “serious consequences” over time.
If You Rush Into An Acquisition You’re Probably Not Going Pick A Good One (Wealth Management.com)
Advisors who buy a book of business quickly and because it’s available “are less likely to have a successful acquisition,” according to a recent NFP Advisor Services survey. The president of the NFP Adviser Services, James Poer, added that “those who take their time looking for an acquisition target (three years or more) are typically more intentional about what they’re trying to achieve,” and therefore more satisfied.
Advisors who had successful acquisitions were those who focused on assets under management, the client service model, revenue mix, business longevity, and cash flow from operations in order to determine a firm’s value. On the other hand, advisors who had unsuccessful acquisitions “looked at age of clients and areas of specialisation.”
The survey also found a strong correlation between price and quality of acquisition: in other words, advisors needed to pay more in order to acquire a firm that is worth it. Successful acquisitions on average cost 1.55 times the firm’s revenue, while unsuccessful acquisitions cost 1.27 times the revenue.
Over the summer, the SEC issued the new Money Market Fund (MMF) rules in an attempt to avoid a “future run on money markets similar to what happened during the 2008 financial crisis.” Naturally, these rules have implications for financial advisors.
“With regard to private trusts and charitable foundations, investment managers should keep in mind that the state laws governing the management of trusts generally list specific suitability factors that must be considered in portfolio construction. These include reviewing the tax consequences of certain investments, which likely would include consideration of a MMF’s ability to make timely disbursements.”
Plus, managers will now have additional disclosure information available to “assess the suitability of specific MMF holdings.” And once the new rules go into effect, “funds will be required to disclose the prospectus or statement of information a 10-year look-back period on various types of information, beginning after the effective date in July 2016. This information must include any use of gates, fees, or sponsorship support to maintain stable share values, as well as when daily liquid assets dropped below 10 per cent.”
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.