Where’s that ”help wanted” sign?

The wealth management industry is bracing for a major labor shortage, with forecasts projecting a shortage of more than 100,000 advisors by 2034. Against that backdrop, even modest changes in headcount are under scrutiny, as firms like UBS and LPL look to balance short-term attrition with long-term recruiting efforts. Both firms reported slight dips in overall headcount, as well as strong net new asset gains. It’s an area that will get increased attention as the fight to bring on the best industry talent intensifies.

Wirehouse Wealth

At the end of the first quarter, UBS reported having roughly 9,400 advisors globally, a less than 1% drop from last quarter and a 3.5% decrease year over year. The firm expected a dip in US-based advisors after changing its compensation structure last year. However, company executives pointed to the unit’s overall strength and gains as fuel for recruitment efforts:

• UBS’ global wealth unit managed $4.7 trillion in assets at the end of the first quarter, according to the earnings report.
• Net new asset inflows totalled more than $37 billion. The Americas division, which includes the US, Canada and Latin America, took in $5.3 billion, a sharp difference from the more than $14 billion it shed last quarter.
  

“We continue to expect net new assets in the Americas to be positive, supported by both same-store growth and a healthy recruiting pipeline,” Todd Tucker, UBS chief financial officer, said on an earnings call Wednesday.

Broker-Dealer Blueprint. Over at LPL, total advisor headcount hit 32,144 at the end of the first quarter, a small drop from the previous quarter, but a 9% increase year over year. No surprise that much of those gains were a result of its acquisition of Commonwealth and its roughly 2,900 advisors. Meanwhile, total client assets increased 30% year over year to $2.3 trillion, and organic net new assets were $21 billion, representing 4% annualized growth. “Commonwealth was a major distraction last year, and now that that’s behind them, they look poised to return strongly to the recruiting market,” Jason Diamond, president of Diamond Consultants, told Advisor Upside. “I’m not worried about LPL being able to recruit.”

Company CEO Rich Steinmeier said advisor movement in the industry has “returned to historical norms” and that LPL is increasingly focusing on external recruiting opportunities. “I see an increasing responsiveness to the value proposition that we’re putting forward in the marketplace,” he said on an earnings call.

That college acceptance letter isn’t the only fine print parents should be reading closely.

Clients with kids often feel compelled to help them cover the high cost of a college education, often by co-signing their student loans. Doing so can give students a leg up by helping them secure a better interest rate or even qualify for a loan in the first place. It’s critical, however, for parents to understand what they’re signing up for, and hint hint, it’s a lot more than a hard credit check. For all but the most affluent families, sky-high college education costs are nothing to sniff at, and the repayment of tens or even hundreds of thousands of dollars in debt won’t be easy. If their kids fall behind, co-signers are “100% on the hook,” warned Jack Wallace, director of government and lender relations at Yrefy. All too often, parents end up jeopardizing their own financial wellbeing.

“The important thing for parents, and increasingly grandparents, who are co-signing these loans is to go in with eyes wide open,” Wallace told Advisor Upside. “It’s also important to have a frank conversation. What is a college education really worth? How much can the family truly afford?”

Mountain of Debt

Wallace has 40 years of experience tracking education cost inflation, and while the question of paying for college has always been difficult, the situation today is “completely out of control.” Education Department data backs that assessment:

• US student loan debt totals approximately $1.833 trillion, with 42.8 million borrowers holding an average federal balance of $39,547.
• Nearly three in four (71%) borrowers report delaying major life milestones like buying a home or starting a family.

These numbers should force a hard conversation, but the most important lesson isn’t that expensive schools are always a bad idea. “Families need to be informed shoppers,” Wallace said. Unfortunately, people tend to buy first and set their budget second. They also fail to consider that state and community colleges may provide just as much opportunity for learning and career advancement as historically prestigious institutions.

“I’m not trying to be offensive, but if you graduate with $400,000 in debt and an anthropology degree, you’re in a tough spot,” Wallace said. “If would-be co-signers are worried about how the debt gets paid back, they could go a different route and contribute to a 529 account or make a gift.”

Don’t Forget the FAFSA! The other big mistake Wallace sees is when affluent families forgo filling out the Free Application for Federal Student Aid, known as the FAFSA. People often assume they are too wealthy to get any aid. That may be true for federal aid, but the FAFSA is also used as a basis for the distribution for state and institutional aid. “The last time I checked, it was something like 85% of people that fill out the FAFSA get some sort of financial aid,” Wallace noted.

What’cha gonna do with all that junk, all that junk inside your trunk?

Yeah, we realize the Black Eyed Peas weren’t talking about junk bonds when they popularized that lyric in 2005, but think of it as double-entendre. New research from The Wall Street Journal looking at the asset class over the past 50 years found results that make the question worth asking in a financial markets context. Analysts reported that while high-yield fixed income performed much like equities, surging in bull markets and lagging in recessions, they also returned almost 7.5% annually since the 1970s. Those returns averaged nearly 9% when the economy boomed, but fell to negative 2.5% in downturns. It’s an interesting play, advisors said, especially for clients who are looking for yield but prefer to find it in more defensive asset classes, like fixed income.

“The 50-year outperformance story is real, and any honest advisor has to acknowledge it,” said Matt Chancey, a CFP and founder of the advisory practice Tax Alpha Companies.

Check the Junk Drawer

Junk debt doesn’t exactly scream core portfolio, but there are a number of use cases that can benefit clients. While they’re not a primary tool, they’re not inherently bad, Chancey said. “People hear ‘bond’ and assume defensive,” he said. “Junk bonds are a different animal that happens to share the same family name.”

In a portfolio where the client doesn’t have access to private credit, junk bonds can fill a real slot. But, private credit has a similar risk profile, better yields, no daily mark-to-market volatility and is more tax-efficient. “Public junk bonds are the retail-accessible version of that exposure,” he said, adding that he usually prefers ETFs in a tax-advantaged portfolio. Remember, yields can be taxed as ordinary income. “Putting junk bonds in a brokerage account is one of the more common avoidable tax mistakes I see,” he said.

The equity-like behavior of high-yield bonds can prove problematic. Clients with long horizons that can absorb the drawdowns can be prime candidates, but not so much for clients using fixed income for ballast. “I use them sparingly and intentionally,” said Mark Stancato, CFP, of VIP Wealth Advisors. He allocates between 3% to 5% within the fixed-income sleeve of a 60/40 portfolio. “Where they tend to work best is in stable or improving economic environments,” he said. “Where they disappoint is exactly when investors need bonds to behave defensively.”

Interest rates also play a role, according to the WSJ report:

• With rising interest rates, the average high-yield debt fund delivered an annualized return of just under 3% with about 6% volatility.
• Those same funds returned almost 12% with just over 11% volatility when rates were falling.

Junk Happens. Junk bonds are often thought of as a stock proxy with higher returns, but less risky than stocks, said J. Christopher Boyd of the Wealth Enhancement Group. He uses ETFs or mutual funds that offer broad diversification, solid management and ease of trading.

“Management is essential and well worth it in this category of investing,” he said. His firm has a more cautious economic outlook today, and is moving away from the category in the near term. “Like most things in investing, it’s rarely an all-or-nothing decision,” Boyd said.