Why FAs Should Hedge Against Declining AUM: Financial Advisors' Daily Digest

by: SA Gil Weinreich


Hedging strategist argues RIAs should hedge their own businesses against an AUM-reducing market decline.

Your humble correspondent passes the torch to an esteemed colleague for next week's Passover holiday.

Investing expert Lance Roberts reveals the "greatest advice" he gives to folks about to retire.

If a market downturn shrinks your AUM and your clients flee to cash (thus, further reducing your fee basis), you're looking at a serious reduction in revenue. SA contributor Robert Boslego puts it this way:

"Although RIAs with AUM revenue models rarely think that they are in the commodity business, their income fluctuates with asset prices just as an oil producer's revenues fluctuate with oil prices."

While not predicting the timing of the next downturn, Boslego suggests advisory firms can take actions now to protect against this revenue-jeopardizing eventuality.

Indeed, your humble digest editor has in like fashion hedged against his own impending absence during the upcoming Passover holiday by recruiting the resourceful and talented Robyn Conti, who has graciously volunteered to supply advisors with relevant links over the course of the next week. If you are not already subscribed to Robyn's feed, please do so now - if for no other reason than to receive her own highly engaging bimonthly digest addressing income issues.

Below, please find links of interest to advisors, starting with a fascinating post on the transition from accumulation to distribution that we discussed yesterday (you might want to check out all the interesting reader comments):