CHICAGO -- Advisors from all over the country descended on Chicago for the Envestnet Advisor Summit, held May 14 to 16. Sessions ranged from the usefulness of new enhancements to the firm's cloud-based advisor software to discussion panels on investment, planning and practice management topics.
Below, some key takeaways from the conference.
Robo Advisors Aren't the Next Big Thing
While some financial journalists and others "call robo advisors the next big thing in wealth management," Judson Bergman, the chief executive officer of Envestnet, told attendees in the opening session, "we are not so sure."
Rather, Envestnet thinks "the next big idea" is to help advisors evolve, leverage and enhance their practices, Bergman said.
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Advisors' Increasing Relevance
"Financial advisors will be more relevant in five years," Bill Crager, president of Envestnet, predicted during a keynote session.
"At the end of that day, five years from now, advisors will be in a better position to serve clients than ever before, will have more assets and will be serving more clients," Crager said.
Fewer Advisors, More Assets
Envestnet President Bill Crager told attendees that in the near future, the industry will see fewer advisors and a growing base of assets. "The population may be shrinking, but assets will go up," Crager said.
He projected that in 2020, average advisor assets will be $145 million, up from $90 million today. At the same time, the number of advisors will shrink as older advisors exit the business. Crager also projected an advisor gap of 48,294 by 2020.
Role of Alts in Client Portfolios
In a session dedicated to the role of liquid alternatives in client portfolios, panelists agreed on a 10% to 20% allocation.
According to panelist Dorothy Collins Weaver, CEO of Collins Capital, 10% is the minimum advisors would want to allocate because "it doesn't quite move the needle," and thus isn't worth the additional time and resources required to do thorough due diligence on the investments.
Evaluating Alt Strategies
"Is there really an alignment of interests between you and those who are putting together the product?" Dorothy Collins Weaver, CEO of Collins Capital, urged advisors to ask this question as they evaluate alternative options for clients.
With a lot of noise and interest in the space, Weaver said, "You get pretenders, too."
She urged advisors to have a clear understanding of the strategy and when it won't do well. "Everyone is has a worst month," she said. The key is to know what causes it and how deep it is.
"With markets going up, it's hard to tell what is skill and what's being in the right place at the right time," she said.
Absolute Return
"You still want to grow your money, but you don't want to be exposed to that much equity risk," said Brendan Murray, a senior investment director in the Global Asset Allocation Group at Putnam Investments, during a presentation on the firm's absolute return fund offerings.
Of the portfolios that target risk and return rates of 1%, 3%, 5% and 7% above cash over about three years, he said these "volatility-dampening, efficiency-enhancing" type of products can help "smooth the ride" for retirees.
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Managing Income Volatility
"This is the first time that you can measure and build portfolios exclusively based on income and managing income volatility," said Ross Znavor, a director for BlackRock, during a presentation on the firm's new CoRI indices and funds.
While other strategies attempt to manage asset volatility, Znavor said, this one provides a structure to measure and manage portfolios based on volatility and income. Unlike a bond ladder, which staggers the bonds' maturity dates, these funds apply the principles of an institutional approach known as liability driven investing, Znavor said. In this case, a bond portfolio is built to produce yields that match the future cash flows the investor will need.
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Routine SEC Exam Cycle
"The SEC likes to say they examine advisors every seven years, but you do the math and it's not every seven years," Brian Hamburger, founder and managing director of advisor compliance consultancy MarketCounsel, told advisors during a session on compliance trends.
According to Hamburger, advisors "get hit" with a routine SEC exam closer to every 10 to 12 years.
Financial Planning Isn't Investment Management
"As long as Barron's equates financial planning with investment management, advisors won't be able to get next-generation clients into the chair," one attendee said.
And if advisors can't get in front of these wary new clients, they won't be able to explain the difference and the value of planning, he said.
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Succession Plan or 'Mad Dash'
Advisors should seriously consider their succession and business continuity plans, Brian Hamburger, founder and managing director of advisor compliance consultancy MarketCounsel, told attendees.
Given the relationship-driven nature of the business and the highly regulated nature of the industry, he said, it is critical to have a plan in place for the business and clients. "In the event of a loss of key personnel without directives in place, we are left scrambling," he said. "It's a mad dash."
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