By Patrick Ferrell
October 2, 2023
The financial services industry is faced with several tipping points from both an operations and client perspective. There’s a massive wealth transfer taking place over the next 20 years coupled with an aging advisor population set to retire and fewer next-generation advisors filling in the gap and providing wealth management. And market volatility in recent years has reminded everyone that markets can and will go down.
These factors, and more, make it an interesting time to be a wealth management firm, especially one that wants to grow and provide opportunities for its advisors to succeed.
We asked Patrick Farrell, President and Chief Operating Officer of Sound Income Group, a diversified financial services company, for his views on potential industry challenges in 2024, the Great Wealth Transfer and why income-generating investment approaches will continue to be popular.
Q: Can you provide a quick overview of Sound Income Strategies?
Pat: Sound Income Strategies is a fast-growing independent RIA that is focused on fee-based advisory income solutions. We provide comprehensive support for independent advisors who want to focus on being income specialists. Sound Income Strategies has over $2 billion in assets under management (AUM) and often serves as a third-party asset manager for wealth management firms that want to deliver sophisticated income strategies to their financial professionals without having to build the capabilities themselves. We are also part of Sound Income Group, a diversified financial services company headquartered in Ft. Lauderdale, Florida.
Q: How do you work with colleagues across the other business lines of Sound Income Group?Pat: The other business lines of Sound Income Group include Advisors’ Academy, a Field Marketing Organization (FMO) and coaching firm for insurance professionals, and Retirement Income Source, a turnkey franchise business model for financial advisors. All three units are primarily “income-centric” at their core, and unique because they can be interconnected and independent at the same time.
Some advisors come to us through Advisors’ Academy because they want to learn how to become better income specialists by incorporating various insurance product solutions to create more predictable income streams for their clients.
Others join the Sound Income Strategies because they want to be part of our RIA. Here they can offer clients investment solutions that focus on dividend-paying stocks or various fixed-income strategies.
Then there is the Retirement Income Source, which allows advisors to market themselves as income specialists and take advantage of our national branding, training programs and marketing efforts.
We have advisors who start in one business unit and end up working with the other two. And, we have advisors who only come into one unit because it serves a particular purpose they value.
Q: Income-generating strategies have been in the spotlight as the markets were volatile and interest rates rose, will that continue to be the case once equities stabilize and rates drop?
Pat: Income-generating investment strategies aren’t new, but they sure have received a lot more attention in recent years as retirees and near-retirees saw their portfolios affected by market volatility and as rising interest rates made income-generating securities more attractive. I think the attention these vehicles have received in recent years will not wane when equities stabilize, and rates decline. There will always be a segment of investors who are interested in investing in dividend-paying stocks and fixed-income-like solutions because of their risk tolerance
Q: What challenges should wealth management advisors be aware of in the next six to eight months?
Pat: I see several challenges facing advisors from a practice management and client relationship standpoint. With clients, managing portfolios and optimizing income solutions will continue to be challenging, especially if inflation continues and interest rates rise – even in smaller increments. Many advisors have decided to outsource money management as a partial solution. This allows them to spend more time managing client relationships and gathering new assets, and less time being portfolio managers. From a practice management perspective, consolidation and M&A within the industry will continue to affect ownership structures and how advisors want to operate.
Q: Does generational wealth play a larger role these days? Why or why not?
Pat: Generational wealth is a factor just from sheer size. An estimated $73 trillion is expected to pass to heirs by 2043 – that’s a lot of money. This transfer ushers in a host of wealth management issues, from re-investment to tax implications and more. I think the knowledge and experience of wealth managers and financial advisors will be even more important in the upcoming years as individuals navigate issues related to inheritance.