Financial advisors are shifting an eye-catching sum of client money into bond funds. Not because they are necessarily anticipating the end to the longest-ever bull market. The baby boomer generation is beginning to retire and wealth managers are looking to fixed income as they adjust investment portfolios.
Morningstar estimates U.S. taxable-bond mutual funds and exchange-traded funds took in a record $413.9 billion in 2019, while U.S. equity mutual funds and ETFs saw outflows of $41.3 billion.
These days, bonds come with their own challenges. For the asset class to deliver the yield investors need or want, they are looking to longer durations and more credit risk. The U.S. Federal Reserve lowered its benchmark rate three times last year and currently has a set range of 1.5% to 1.75%.
This requires more expertise or resources dedicated to security selection than many wealth managers have. As much as 62% of advisors rely on their own investment research and portfolio construction even though only an estimated 7% of those are capable of doing that effectively, according to Cerulli Associates, a Boston-based research and consulting firm.
Even advisors who outsource investment management have sought help looking for solutions and at least one turnkey asset management platform, or TAMP, listened and delivered.
AssetMark (ticker: AMK) said Wednesday it added three fixed-income strategies to help advisors address clients entering or in retirement: the American Funds Retirement Income Portfolio Series, Dorsey Wright Tactical Fixed Income, and PIMCO Tactical Income Focus. The TAMP offers a total of more than 50 strategies, spanning asset classes and purposes, from over 20 third-party companies.
“I won’t say it’s a huge deal but it’s important,” David McNatt, senior vice president of Product Strategy and Management at AssetMark, told RIA Intel about the addition of the three fixed-income strategies.
The company has a “lengthy due diligence process” and infrequently adds or subtracts from its menu of strategies, McNatt said. That’s the most important thing a TAMP delivers to users, who either don’t have the expertise or the time to continuously cultivate and prune a menu themselves.
“There is a growing need from advisors because of their clients’ need for income. We’ve been in a long cycle where people were accumulating assets and we’re getting to a point where part of the population needs some of those assets.”
In addition to third-party strategies, AssetMark provides some of its own that McNatt said asset managers aren’t delivering to advisors.
The TAMP’s Guided Income Solutions program uses a composite of funds designed to give advisors’ clients regular cash flow with paycheck-like regularity. Clients knowingly and unknowingly develop behaviors centered on paydays and deviating from that schedule can stir insecurity, McNatt said.
AssetMark, which went public last July, has been outspoken about its plans to acquire other smaller, “sub-scale” TAMPs, its bullishness on the independent RIA channel, and financial advisors outsourcing investment management as more offer holistic planning and advice.
“Investor needs are changing, and the needs are becoming increasingly complex and personalized. That change is happening pretty quickly, and it’s one that I hope advisors are paying attention to,” AssetMark President and CEO Charles Goldman told RIA Intel in a November interview.
Earlier this month, AssetMark announced that all of its third-party mutual fund strategies on its platform would offer institutional share classes. It plans to automatically shift existing client accounts to the institutional versions of strategies through a tax-free transition in early June, the company said in a statement.
