Top Industry Developments in November
Industry Developments
Investor Trends
Advisor Trends
Retirement
Brief Summaries of the Headlines
Industry Developments
Mutual funds remain a stalwart of growth for America's middle-class wealth
Mutual funds remain a popular choice and are a key driver of wealth for middle-class Americans, according to the Investment Company Institute. Almost 54% of US households own mutual funds in 2024, up almost two percentage points from 2023. Most of the 2024 owners of mutual funds are focused on long-term investing and have a median household income of $115k. Owners also tend to be in peak working ages, with 53% of mutual fund owning households headed by individuals aged 35-64, while 31% were 65 or older.
Source: Investment News
Evalueserve Viewpoint: The increasing popularity of mutual funds underscores their continued relevance. Asset managers must closely track fund flows to identify high-demand asset classes and strategies. This analysis can inform their product development and launch strategies.
ETF flows smash full year record
Investors have poured record sums into ETFs in 2024. As of Oct. 31, global net flows into the ETF industry had hit $1.4T, according to data from BlackRock, surpassing 2021’s full-year record of $1.33T. Barring a sharp turnaround, the final full-year net flows tally looks destined to be higher still, after $22.2B was pumped into US-listed ETFs the day after the election. The demand for fixed income ETFs has been particularly strong in 2024, with net inflows of $376B, ahead of the previous record of $331B in 2023.
Source: Financial Times
Evalueserve Viewpoint: There is a growing demand to generate regular monthly income and guaranteed lifetime income amongst investors. Products such as fixed income ETFs can help bridge the monthly income gap. Firms could look to expand their fixed income ETF product lineup and educate investors on its benefits.
Flows jump after mutual fund-to-ETF conversions, BofA study shows
Fund managers that have converted mutual funds into ETFs are being rewarded with a jump in inflows, according to Bank of America. The trend, which has seen 121 actively managed US funds with total assets of $125B switch structure in the past five years, offers hope to active managers that have seen persistent outflows in recent years as investors have increasingly adopted low-cost index-tracking funds. BofA analysis found the average fund had suffered $150M of net outflows in the two years prior to conversion but enjoyed $500M of inflows in the two years after the switch.
Source: Financial Times
Evalueserve Viewpoint: The conversion of mutual funds to ETFs is proving to be a lucrative strategy for fund managers. Active managers who have struggled with persistent outflows due to the rise of low-cost index tracking funds, have witnessed renewed success and investor interest by transitioning to the ETF structure.
Investor Trends
Affluent investors trust their financial providers more than ever
Investor confidence in their advice providers’ fiduciary commitment has grown substantially. However, 40% of affluent investors remain skeptical, according to the latest Cerulli Edge report. In 2014, just 39% of respondents agreed with the statement, “I trust that financial services firms are looking out for my best interests.” As of 2Q 2024, this figure has increased to 60%. When considered through the lenses of age and wealth, levels of trust expressed by affluent respondents are consistent.
Source: Cerulli
Evalueserve Viewpoint: The findings from the report suggests that there is an increasing appetite amongst investors to seek professional advice. AWM firms should look to capitalize on the trend and promote discretionary advice solutions which promises higher margins.
Fidelity Investments Research: Americans ready to break the cycle of avoiding family discussions on once taboo financial topics
According to the Fidelity Investments study, respondents across income and asset levels agree people need to improve their comfort level about discussing family finances. More than half (56%) say their parents never discussed money with them, yet the majority (81%) would have benefited from financial education at an earlier age. Most Americans are changing course, with 4-out-of-5 saying it’s important to talk to the young people in their lives about the subject, and two-thirds are actively engaging in those conversations.
Source: Businesswire
Evalueserve Viewpoint: The study highlights that while Americans are becoming more willing to discussing family finances, a significant gap remains. AWM players should promote social media campaigns to target young audiences and upskill them on the benefits of financial planning. Firms could look to promote long term wealth creation solutions such as MFs and ETFs to help them better manage their finances.
Estate planning services are becoming table stakes
According to a survey by online estate planning platform Vanilla, 80% of respondents answered that they expect estate planning to be integrated into their advisor’s offerings, either directly or through collaboration. More than half view estate planning as a non-negotiable service. “Providing for loved one’s financial security” and “reducing family conflict” ranked third and fourth (out of five) in terms of importance to a plan, respectively. “Protecting assets from probate” and “minimizing estate taxes” topped the list.
Source: Wealth Management
Evalueserve Viewpoint: Estate planning is becoming a fundamental expectation for wealth management services. There is a growing trend of comprehensive solutions offering (a single basket solution). Advisors need to incorporate estate planning into their wealth management solutions to cater to all aspects of investor needs.
Advisory Trends
What do advisors think about AI, wealth transfer, fixed income opportunities
According to a new report from Schroders, when asked about the factors that advisors believe will have an influence on clients’ assets over the next 12 months, interest rates come out top (74%) tied with central bank policy (74%), with economic downturn in third place (65%). Inflation risk, geopolitics, and strong consumer spending all score more than 50% while less than half cited AI and increased regulatory pressure. Digging deeper into AI and other disruptive technologies, 60% of advisors have positive sentiment on its integration for investment research and portfolio construction internally.
Source: Investment News
Evalueserve Viewpoint: The evolving expectations of clients and emerging technologies like AI are reshaping the wealth management industry. RIA firms need to shore up their spending on AI and other disruptive technologies and embed them into advisory solutions, which would enhance the investor experience.
How advisors balance passive and active strategies
The findings from a new study from WMIQ revealed that advisors are using a healthy mix of both passive and active strategies when constructing client portfolios. Indexed ETFs (85%) topped the list of the most used products among respondents, followed by individual securities (80%) and then several active ETF and mutual fund strategies. Additionally, respondents expressed a preference for the active management of taxable fixed income (39%), followed by U.S. equities (39%) and international equities (37%). Overall, just over a third of respondents said they prefer a balance of active and passive management.
Source: Wealth Management
Evalueserve Viewpoint: Advisors need to embrace both active and passive strategies, as it will allow them to offer a more comprehensive and tailored investment approach, which can lead to better client outcomes and stronger client relationships.
Retirement
Health saving account (HSA) users are missing out on their retirement savings potential
A survey by PSCA revealed that potential of HSA as retirement savings instrument is not getting fully leveraged. Research emphasized the need for employers and their providers to bolster efforts in educating employees about using HSAs for medical expenses now and in future so they will fund it as much as possible. Survey findings showed that 90% of eligible employees had HSA in 2023 and 3/4th made contributions. Few are leveraging them for retirement planning. In addition, 1/3rd of employers educate workers about using HSAs as part of their retirement strategies, and fewer than 30% allow participants to view their HSA balances alongside retirement accounts.
Source: Investment News
Evalueserve Viewpoint: Retirement providers need to create awareness amongst plan sponsors and participants on how to use HSAs effectively. This can be achieved through email campaigns, direct coaching to participants on financial wellness. Increased awareness would eventually lead to higher HSA contributions and bring more funds to manage for investment managers.
Internal Revenue Service (IRS) increases 401k limit to $23,500 for 2025, IRA limit stays $7,000
IRS has increased contribution limit for retirement plan types. This provides an opportunity for workers to save more and bridge retirement savings gap. The annual contribution limit for workers who participate in 401k, 403b and most 457 plans, as well as the federal government’s Thrift Savings Plan, will be increased to $23,500, up from $23,000 in 2024. The super catch-up contribution provision in the SECURE 2.0 Act of 2022 takes effect in 2025. It permits those aged 60 through 63 to contribute $11,250 instead of $7,500 in 2025.
Source: Plan Sponsor
Evalueserve Viewpoint: Retirement providers stand to benefit from increased contribution limit as it allows participants to save more. AWM firms need to create awareness amongst participants and plan sponsors on recent regulatory changes and promote benefits of greater retirement contributions. This would eventually bring more funds to manage for asset managers.
We hope you find these interesting and insightful. If you want to know more about our Asset and Wealth Management offerings, check out our webpage below.