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The Top 10 Trends in Wealth Management

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Wealth managers are examining all kinds of issues as they continue to push for growth while markets and the economy stabilize. We hear a lot about advisors’ issues and concerns here, and thought a list of what’s buzzing around the wealth management industry would be useful.

Borrowing from David Letterman, we give you our “Top 10 Things That Have Wealth Managers Buzzing.”

#10 Philanthropy

Philanthropy—it’s not just fundraising and writing checks anymore; wealth managers are helping clients to be more effective donors or hands-on philanthropists. Foundations, non-profit organizations and donor-advised funds are adopting business best-practices:

#9 Municipal Sustainability

U.S.municipalities—and their bonds—have been slammed by lowered tax bases and poorly-advised investment schemes. Some, though, may have a chance to go green and earn revenue, like one in Italy, “Tocco da Casauria,” reported by The New York Times to be using wind power to go green while, at the same time, funding municipal services. Would this work here?

  • Sustainability
  • Green investing
  • Municipalities own and harvest energy from solar fields or wind turbines
  • Some towns use the revenue in lieu of taxes
  • Can this save some municipalities in America?

#8 Connection Between the 'Flash Crash' and Fund Flows?

Equity fund outflows continued in September, according to Morningstar. The SEC noted investors started pulling out of equities in the spring; how much of that was due to the “Flash Crash?”

  • Sept: $16.3 billion out of equities “despite the best September for stocks in 71 years.” Taxable bond funds—inflows of $23 billion
  • Q3 2010: U.S. equity funds lost almost $43 billion; $600 million into international stock funds
  • Trailing 12-months: $80 billion out of U.S. equity funds; $34 billion into international equity funds

#7 Hedge Funds – SMAs

A new Pershing study, “The Growth of Separately Managed Accounts in the Hedge Fund Industry,” showed that 80% of hedge funds in their study are offering separately managed accounts (SMAs). Investors (who still pony up a big initial investment) like this because of:

  • Transparency
  • Liquidity
  • Lower fees

#6 Alternative/Hedge Strategies in Mutual Funds

More hedge and alternative strategies are being offered in mutual funds.

  • Transparency, pricing
  • Lower fees
  • Lower initial investment
  • Access to HF or alternative strategies’ managers

#5 Bond Bubble

10-year Treasuries at around 2%; 100-year bonds. One hundred years is a long time; remember the railroad bonds of the 1890s? They look great in a frame. But do they belong in a portfolio? Will reaching for yield bite investors once again?

  • Treasury 10-year at 2% yield
  • Reaching for Junk
  • High-quality corporates

#4 iPad Apps for Wealth Managers

The iPad has created what we hope is a race to the top for iPad apps for advisors and their clients. There’s something about looking through the “window” of the iPad that is very different from a laptop screen.

#3 Tax Uncertainty

It seems the only certain thing about taxes at the moment is we all have to pay them. What happens next is impossible to know, hence the uncertainty. It’s all political; nobody really knows what will happen. May not be resolved before year end.

  • What about withholding for 2011?
  • Bush cuts expire?
  • Keep for couples under $250k?
  • AMT, Estate
  • Small business breaks in place

#2 Estate Planning

More important than ever, but uncertainty here, too, has made planning very difficult, to say the least. If Congress doesn’t act on the estate tax before year-end, the tax comes roaring back at midnight on Dec. 31. Happy New Year!

  • Still uncertainty; will it be resolved for 2011?
  • Last minute flurry of philanthropy?
  • Current strategies
  • Critical client need
  • Wealth managers don’t have to be the specialist but need to have best-of-breed estate-planning professionals to refer clients to.

#1 Fiduciary Standard

The one thing that is more likely than any other to affect the largest number of investors and advisors is the SEC’s decision about the fiduciary standard.

The SEC is studying extension of fiduciary duty to brokers who provide advice to investors. They will report to Congress in January and then may adopt rules or principles to address “gaps” in regulation of brokers and investment advisors.  Whatever they ultimately do is likely to change the landscape for all advisors from the compliance, ethics, knowledge, practices and marketing standpoint.

  • SEC Study, rule adoption
  • Will the fiduciary standard be extended to all who provide advice to individual investors?
  • How will titles, advisor education, best practices change?
  • Disclosures: very important but will not replace fiduciary duty


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