FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Don’t Let Your Risk Tolerance Drive Your Portfolio Mix (Morningstar)
One of the major problems that investors have is that they let their risk tolerance (or the ability to withstand short-term losses) drive their portfolio mix.
Behavioural finance research shows that “investors can undermine their portfolio’s performance when they’re stressed out.” In other words, no matter how good a portfolio your portfolio is, if you switching things up too much during “stormy” markets, it won’t be successful.
However, risk capacity is something that should drive market tolerance. Risk capacity is the investor’s ability to withstand losses with having to change their goals or their standard of living if they’re retired. However, older clients typically have lower risk capacity because they have shorter time horizons.
Commodity Wealth Is Not The Most Important Driver Of Emerging Markets’ Performance (The AllianceBernstein Blog)
Fixed-income investors tend to split emerging markets into commodity exporters and commodity imports. But that’s a big problem because commodity wealth is not the only (and not even the most important) driver of EM performance, according to AllianceBernstein’s Fernando J. Losada.
Research from AllianceBerstein shows that “being a commodity producer didn’t guarantee improved credit fundamentals or stronger growth during that time. In fact, some of the commodity ‘winners’ are actually worse off today. Many commodity importers, on the other hand, weathered the storm and saw their economies strengthen.”
And there’s a simple reason why this happened. Not many commodity-heavy countries took advantage “of the windfall and fiscal flexibility” of the unprecedented commodity boom. Instead, most countries focused on social programs that would gain political favour, like public sector wage increases.
Morgan Stanley Just Snagged A $US4.5 Billion Advisor Team From Merrill Lynch (Financial Advisor Magazine)
On Wednesday Morgan Stanley announced that it has acquired a $US4.5 billion advisor team from Merrill Lynch. Managing directors Brian and Tim Brice, and their team, will be moving to the Birmingham, Michigan branch, and will work under Morgan Stanley’s Graystone Consulting unit.
“The team handles corporate accounts, endowments and foundations, health-care organisations, insurance companies, state and local governments, Taft-Hartley funds, family offices and high-net worth individuals, Morgan Stanley said.”
According to the recruiter Mindy Diamond (who placed the team with Morgan Stanley), the Brices felt that they would have more influence over client experience at Morgan Stanley.
US Wealth Is At A Record High And Clients Are More Trusting Of Advisers (Financial Planning)
High-net-worth-individuals (or “HNWIs”) who have investable assets of more than $US1 million grew by 17% in the last year, according to the 2014 US Wealth Report. Their wealth rose by 18% — up to $US14 trillion.
And on top of that, these individuals are more trusting of wealth managers and wealth management firms. Both saw 12% increases in trust, up to 84% for managers, and 87% for firms.
New York is still the top wealth market by a long shot (with 894,000 HNWIs), followed by Los Angeles (with 333,000 HNWIs). However, New York also had the second slowest growing rate at 12%, slightly better than that of Detroit (11%).
The fastest growing markets for HNWIs were in Dallas, Houston, and San Jose, where there are focuses on technology and energy.
Nontraded REITs Have Produced Some Solid Results (Investment News)
Even though they’re not quite as great as publicly traded REITs, nontraded REITs that have had liquidity events have produced some solid results. The average annualized, dollar-weighted returns for the nontraded REITs with liquidity events was 10.9%, according to the report from Green Street Advisors. By comparison, it was 14.% for listed REITs.
“Since 1990, 34 nontraded REITs have experienced liquidity events, with those REITs raising $US54 billion in equity, which is about half the total capital raised by all nontraded REITs, the report said.”
The nontraded REIT industry has grown incredibly in the last five years. They’re even on track for a second consecutive year of raising $US20 billion in equity. Comparatively, they only raised $US8 billion from 2003 to 2012.
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