It’s not just sailors and punk-rockers shipping up to Boston.

Wellington Management has agreed to acquire Hartford Funds, the asset arm of The Hartford insurance group, in a deal valued at $1.9 billion. While the firms have partnered for decades, Wellington will gain direct access to Hartford Funds’ extensive advisor relationships through the deal. Hartford Funds, which offers mutual funds, ETFs and 529 college savings plans, manages more than $160 billion in client assets and will be integrated into Wellington’s US wealth business. With the deal, Wellington said it can offer financial advisors broader access to investments, better support and a deeper distribution platform. “The US wealth market has evolved dramatically in recent years and continues to do so at a rapid pace,” Jean Hynes, Wellington CEO, told Advisor Upside. “Advisors increasingly want access to broader capabilities, more vehicles and stronger support.

Buy ‘Em All

Boston-based Wellington, which is famous for its work on many Vanguard funds, oversees more than $1.3 trillion in assets, but hasn’t focused on M&A in the past. This is actually its first acquisition since the company went private over 50 years ago. As asset managers look to scale, acquisitions are quickly becoming a priority.

Over the next five years, some 1,500 mergers and acquisitions are expected in the wealth and asset management spaces, reducing the number of firms by 20%, according to a report from consultant Oliver Wyman and Morgan Stanley.

Major deals last year included:

• BlackRock purchased HPS Investment partners in July, bringing with it more than $150 billion in private credit assets.
• Japan-based Nomura Holdings bought Macquarie’s US and European public asset management business in December, acquiring $166 billion in retail and institutional client assets.
• Also in December, Janus Henderson agreed to sell itself to Trian Fund Management and General Catalyst Group Management, in a transaction now valuing the business at about $8 billion.

A Thin Line. The bar to profitability used to be lower and there was enough organic growth to go around, but now mid-sized players are operating on much thinner margins, as leaders take an increasingly disproportionate share of net new money, according to the report. “We expect the combination of these factors to drive consolidation as mid-sized players become attractive targets for leaders seeking further scale and diversification,” the report said.

Move over. I’m driving.

Advisors have outsourced a lot of investment management responsibilities over the past two decades, but whether they’re model portfolios, TAMPs or separately managed accounts, they’re all still run by humans. Robinhood’s latest feature allows AI agents to automatically make trades on users’ behalf. The discount brokerage behemoth is essentially handing the car keys to artificial intelligence, and advisors say it’s going to be a bumpy ride.

“It’s built to make someone feel like they’ve done a great job of researching and understanding their investments, and thus creates a gap between how the investor feels about the world and how the world operates,” said Robert Persichitte, founder of Delagify Financial.

And (a)I Helped

Advisors’ biggest concern is that investors may not fully understand what they’re asking these agents to do, creating a false sense of confidence. AI models can be prone to sycophancy, telling users what they want to hear rather than what they need to hear. With Robinhood’s new feature, users can connect programs like ChatGPT, Claude, Codex and more to a separate account where the agent performs trades automatically based on parameters provided by the investor. The new features allow:

• Users to have their AI agent analyze their portfolio, identify where they’re over- or underweight and execute a rebalance.
• If a user wants to target a certain market segment, the AI can rebalance the portfolio based on new entrants and analyst upgrades in the space.
• The AI trading is currently in beta and restricted to equities, but Robinhood plans to expand it to crypto, event contracts, futures and more.

Interactive Brokers launched a similar tool this week that connects accounts to Claude to generate trade instructions for stock and ETFs, but every order has to be reviewed by the user first.

Tough Racket. Individual stock picking is one of the toughest things to do in investing. You need an edge or unique approach, said Alex Caswell, founder of Wealth Script Advisor. “If everyone has access to the same tool and is asking it the same broad-based questions, that alpha will quickly decay if it’s even there in the first place,” he told Advisor Upside.

Robinhood’s new tool also looks to be very self-serving, said Matt Chancey, founder of Tax Alpha Companies. Robinhood makes money when it executes trades, and if it can do that automatically without users’ input each time, theoretically it can make more trades and more money. “The investor doesn’t get smarter,” he told Advisor Upside. “The platform gets stickier.” Would advisors utilize a tool like Robinhood’s in their own client portfolios? Not likely, Chancey said. “The constraint on professional portfolio management has never been execution speed,” he said. “The work happens before the trade, not at it.”

Not every annuity deserves a lifetime commitment.

Financial advisors have traditionally struggled to address their clients’ held-away annuities and plan for the significant wealth tied up in those commission-based products. Annuities are inherently complex, and as a result, few advisors are in the business of dealing with them. However, there is a long-standing technique, known as a 1035 exchange, that allows annuity owners to effectively trade in existing annuities for a more suitable contract tax-free. New technology is making them much easier to implement and could help advisors add additional lifetime retirement income for clients.

“It’s a win-win situation,” said David Lau, president of DPL Financial Partners, which helps connect advisors with commission-free annuities and insurance products. “The annuity is converted into a billable asset for the advisor, while delivering superior value for the client. There’s no excuse for fee-based advisors to overlook annuities anymore.”

Nothing New

Though they have remained on the sidelines for many financial planners, 1035 exchanges have existed for decades. The basics are pretty straightforward:

• Section 1035 of the IRC allows clients to directly transfer funds from an existing annuity into a more suitable annuity contract without triggering tax consequences.
• Funds must be transferred directly between the two insurance companies, however, and clients who cash out one policy before buying another may owe taxes.

Traditionally, advisors considering 1035 exchanges had a lot of leg work to do, and many simply lacked the expertise to feel confident comparing annuities and making recommendations on their own.

Technology is quickly changing that, however. In about 70% of cases, Lau said, a given commission-based annuity contract can be mapped to a higher-value fee-based product available in the marketplace. Beyond facilitating 1035 exchanges, such tools can also help DIY investors who have previously shied away from annuities sift through products to identify those that closely fit their goals.

Annuities Reduce Anxiety. “The academic research and real-world evidence of [annuities’] value are overwhelming,” Lau said, adding that they can also improve outcomes and reduce retirement anxiety. “Failing to discuss them with clients approaching or in retirement isn’t just outdated, it borders on malpractice.”