Your average client account is over $250,000. What do you find clients are investing in more these days?
Really, the focus is allocation – the breakdown between stocks and bonds and cash and providing hedges of protection. It’s very client specific. It really comes down to evaluating the particular client’s goals and objectives and building that portfolio specific to them.
The masses tend to move toward things that are doing well, which has been the stock market. That is often the exact opposite of what you need to do. So it really depends on the client situation of whether that’s appropriate or not. But, I think, if you ask clients, they’re comfortable in the market right now because it’s doing so well.
According to the Investment Company Institute, the average expense ratio of American equity mutual funds, weighted by assets, fell to 0.68 percent in 2015 from 0.99 percent in 2000. Why do you think this shift occurred and what does it mean for the market moving forward?
There has been a shift on the brokerage side of our business to where they now have to disclose fees. To make it more palatable to the marketplace, I think they have made some adjustments to fees because they now have to share what they’re charging. Before, many times, I wouldn’t say they were hidden because people received a perspective of what fees were, but now, most clients know what they’re paying. And now that they do, I think they’re trying to do some window dressing to make that more palatable for clients.
What about robo-advisers? Is this disruptive to your industry?
It’s really not. I think it will be something that will be on the horizon for sure. In our particular niche, I don’t see that as a big competition because we’re building individual portfolios using individual securities. It’s a different approach. The robo-advising is very model driven, typically. Certainly, it’s something that will gain traction, but now, we’re not seeing a lot of impact on our industry.
What other trends are you seeing?
On the estate-planning side, we’re seeing trends toward longer-term trusts instead of outright distribution. We see pockets really focused on protections. So, if I give a child money outright, as opposed to leaving it inside the shell of the trust, it could be exposed to divorce or outside creditors, and they may have the ability to be spend that however they choose. Inside the shell of the trust, I can protect it in ways where it’s not marital property, not exposed to outside creditors and provides them structure as to how they can use and spend those assets.
It seems, the farther away from the World War II generation we get, the less confidence we have in people’s ability to manage money. You are seeing more structure put in place in the trust side to help protect families’ wealth and provide longer management streams for those assets.
Timothy Parrish may be reached at firstname.lastname@example.org.
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