In an increasingly challenging market environment, investors are looking more to their financial advisor for advice on how to navigate the environment in 2023 and beyond.
To learn more about the RIA’s perspective, we talked to Julie Cooling, Founder and CEO at RIA Database and RIA Channel, a leading financial advisor website focusing on education. The site hosts more than 100,000 advisors in events every year.
Q: What should RIAs feel confident or concerned about in 2023?
Julie: Certainly, 2022 was more volatile than other years, but RIAs who built well-diversified portfolios for their clients have been able to avoid some of the choppiness. We don’t know what 2023 is going to look like, but it’s a challenging environment. RIAs are getting a lot of questions from clients about what changes they should make to their portfolios. The 60/40 portfolio construction has been dead for a long time, and modern portfolio theory needs to be modified. In volatile markets like we have now, advisors need to focus on aligning their clients’ risk profiles appropriately and building diversified portfolios. Given the current rate of inflation, staying invested is probably more important than anything.
Q: What’s your view of thematic investing?
Julie: There are many themes out there, but I’ll just comment on three popular ones: cryptocurrencies and digital assets, ESG and real estate.
There was a boom market in cryptocurrencies and digital assets, but that fell apart almost overnight thanks to some bad actors and a failure to do due diligence. All strategies need to be evaluated, and advisors don’t necessarily have the time to do rigorous due diligence. However, they can outsource that function to consultants. As a rule of thumb in investing, if it looks too good to be true, it probably is.
There’s a lot of hype in the media around ESG, and RIA Channel does many events on this topic.
That said, a lot of work needs to be done on ESG because it encompasses so many things. Perhaps more thematic, opportunistic, impact investing will emerge out of this work. For example, investors might want to invest in an ETF that specifically focuses on batteries. What’s important to one advisor and client is not to another. Over the course of this year, I think product companies might rethink their strategies to align with advisors’ needs.
When it comes to alternatives, real estate is probably the most interesting for advisors – not offices, but industrial and single-family rental properties. Real estate investments can be targeted in a particular geography as well. Investors can access opportunities through liquid, real estate investment trusts (REITs) and REIT ETFs listed on exchanges as well as SMAs and structured products.
Q: What products or asset classes could be interesting in the current environment?
Julie: RIAs have so many choices for building diversified portfolios, depending on the type of client. There’s a misconception that there should be one set of products for institutional investors and another set for retail investors. RIAs want to offer the right products to the right clients. A big challenge in 2023 will be building non-correlated portfolios, and that might mean looking at illiquid opportunities that can generate alpha. In response, some product companies are offering structures such as Regulated Investment Companies (RICS), interval funds and interval funds within RICS that offer quarterly liquidity.
There’s a tremendous amount of interest in private markets nowadays, especially since many companies have delayed going public in recent months. However, RIAs need to keep in mind that private companies shouldn’t be traded every day. It takes time to nurture and to grow a company. Growth equity enables companies to improve efficiency, scale and take advantage of opportunities over the longer term until they can potentially go public. Gating gets a bad rap in the news, but it protects investors. If you have people coming in and going out, it disturbs valuations, and investors could be forced to sell at inopportune times. That’s not what these products are designed to do.
Generally, advisors need to figure out how to access illiquid products and allocate them across their book of business without the custodial headaches associated with K1s and sub docs. They also need tools, education and due diligence so they can match the right products to the right clients.
RIA Channel is a leading financial services marketing company specializing in connecting asset managers with financial advisors. We provide data-driven, lead generation strategies, augmented with the most robust advisor intelligence and data available. With more than 200 live events annually, RIA Channel is the largest provider of investment webcasts in the industry. For more information contact Julie Cooling at [email protected].
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