Navigating U.S. Wealth Management: Five Key Themes for Financial Advisors and Individual Investors

Unprecedented changes are reshaping the financial advice industry and affecting portfolio construction for individual investors. New regulation, technological innovation, capital market trends and the prospect of lower future returns are all exerting profound effects.

At PIMCO, we are dedicated to engaging with our clients to deliver best-in-class investment solutions to help financial advisors and investors benefit from these industry trends and meet their goals. In our discussions with wealth management firms, advisors and individual investors across the U.S. over the past several months, we have observed five key themes. Here is how we see them unfolding and how our partnerships with advisors and individual investors are evolving as a result.

THEME ONE: TWO BUSINESS MODELS OF FINANCIAL ADVICE ARE EMERGING TO MEET INVESTOR NEEDS: 1) OUTSOURCED ASSET ALLOCATION/MANAGER SELECTION AND 2) ACCESS AND CUSTOMIZED SOLUTIONS.

In perhaps the most immediate development, regulatory pressures and a more complex investment landscape are bifurcating financial advisor business models. One set of advisors is providing more “holistic” advice, which, in addition to traditional portfolio construction, includes a broader array of services such as estate planning, tax planning and financial coaching, to retain and grow their businesses. With finite resources in a competitive marketplace, many of these advisors are choosing to outsource what was once their primary activity – asset allocation and manager selection – to home offices and third parties that provide model portfolios and portfolio-construction services. At PIMCO, we have a team of over 25 investment professionals focused on engaging with home offices and model providers to ensure that we are bringing PIMCO’s thought leadership and investment capabilities to these financial advisors and their clients.

On the other end of the spectrum, we see some advisors catering to the growing number of individual investors seeking highly customized investment portfolios. These advisors embrace the “rep as portfolio manager” model and focus their time on educating clients on bespoke investment solutions. In addition, these advisors are providing access to unique investment solutions such as alternatives (see theme five) and alternatives beta strategies, differentiating their offering from those of other advisors. To help them, we offer tailored insights and portfolio reviews that leverage PIMCO’s proprietary analytics to help differentiate allocations as well as provide highly specialized investment strategies to complement traditional portfolio allocations.

Of course, many advisors are straddling both approaches. We are focused on providing solutions that meet the needs of financial advisors as their business models evolve.

THEME TWO: DIGITAL TOOLS AND SOLUTIONS ARE CREATING MORE EFFICIENCY AND CUSTOMIZATION.

The growing importance of digital tools and solutions in wealth management cannot be overstated. When used appropriately, these solutions enable advisors and investors to solve important financial problems in a highly scaled and efficient manner. Financial advisors and investors are already using technology to automatically rebalance portfolios, monitor risk in real time and create more tax-efficient outcomes. The real value-driver, however, lies in leveraging technology to create highly customized portfolio solutions efficiently.

We are focused on developing digital solutions that financial advisors and investors can use to help improve investment outcomes. We recently rolled out our Muni Ladder Portfolio Calculator, which creates customized municipal bond ladder portfolios based upon client criteria in a matter of seconds. We view this as just the tip of the iceberg. We are also converting existing proprietary analytics into digital solutions that can drive dynamic asset allocation. Although the use of digital tools and “robo” advice can go a long way to delivering client solutions, we think qualitative assessments are crucial.