Lions Bridge Financial Advisors(LBFA) is an independent financial services firm located in Newport News, VA,providing investments and financial services to families and businesses in 29states across the US. Lions Bridge usesthe research, technology, and resources of LPL Financial, one of the largestindependent financial services firms in the country, to create personalizedplans for clients. Jayne Di Vincenzo,president of LBFA, differentiates the firm by providing superior integrity,knowledge, and personalized client service. LBFAoperates in the financial services industry in the United States, an industrywith 6.08 million individuals employed and $1.223 trillion of U.S. grossdomestic product.
(Select USA, 2016) Financial advising falls under the asset management category within thissector. Currently, “U.S. asset managersare meeting the pension management needs of over 60% of the global retirementmarket” with U.S. pension assets amounting to $24.
5 trillion at the end of2015. This amount increases to $51.1trillion with the inclusion of mutual funds and insurance assets. (SUSA, 2016). The financial services industry is expectedto grow, with a 12% increase in employment by 2018.
(SUSA, 2016) Oneof many strategies Lions Bridge Financial Advisors uses as a part ofindividuals’ investment plans is annuities. These annuities are heavily marketed, and wholesalers constantly pitchthem to advisors. Annuities are productswhich guarantee a client a sum of money paid on a future date or series ofdates for a specified time. Theseannuities can be broken down into four general categories: variable, fixed,indexed, and income. Clients can choosefrom these four different types based on their overall needs and risktolerance. However, there are both prosand cons of choosing to invest in an annuity. Oneof the best features of investing in an annuity is that it provides an individualwith a guaranteed income, either for life or for a set amount of dates.
According to the Motley Fool, this can be avery reassuring attribute for individuals who may be worried about running outof money in their lifetime. (Motley Fool, 2016) Many people are naturally risk-averse, and the guarantee of paymentsfrom an annuity causes them to be attractive. The size of these payments is established based on factors such as thelength of the payments and the type of annuity. An individual can choose to either receive a guaranteed sum in the formof a fixed annuity, or receive a payout based on the performance of theannuity’s underlying assets (a variable annuity).
(CNN, 2016) The decision to invest in these lies in therisk aversion of individuals. Anotherpositive aspect of annuities is that annuities are tax-deferred, meaning thatthe money invested in the annuity is not taxed until it is withdrawn. On top of this, there is no limit to how muchmoney can be placed in an annuity: this gives an advantage to wealthyindividuals who place money in an annuity account, as they are able to compoundyear after year without being taxed. (CNN, 2016) The combination of no tax and an unlimitedcap gives annuities an advantage over other investment plans, such asIndividual Retirement Accounts (IRA’s).
Despitehaving their advantages, there are multiple disadvantages to investing in anannuity. One of the most commondisadvantages is the commission received by the wholesalers offering theannuity. These charges can be very high-up to as much as 10%. (CNN, 2016) Inaddition, annuities cost more than other types of investment. According to the Wall Street Journal,”guarantees are never free, and any contract that offers guaranteed income oraccumulation or principal will always carry heftier fees than an investmentthat requires you to bear all of the risks.
” (Pechter, 2016) The tax advantages associated with annuitiesoften come with strings attached, as well. It is more difficult to access your money from an annuity account thanit is other accounts. (Pechter, 2016) Thefinal major disadvantage of annuities is the high “surrender fee” for earlycancellation of an annuity contract. Withdrawing from a contract within the first few years of buying it isexpensive- “the surrender charge typically runs about 7% of your account valueif you leave after one year”. (CNN, 2016) Some annuities charge even greater fees,meaning an individual who invests in one must be sure that it is the properinvestment strategy for them. Accordingto the Bureau of Labor Statistics, there are 249,400 personal financialadvisors employed in the U.S.
(2014) With intense competition to attract and retain clients, financial advisingfirms must differentiate themselves and use multiple sales strategies to marketto these individuals. One of these strategies,used by companies such as Lions Bridge Financial Advisors, is the utilizationof websites, social media, and smartphone apps in order to drive traffictowards an advisor. FMG Suite, aspecialized marketing group for financial advisors, offers these services inorder generate the most return for “automated ‘smart’ marketing”. According to FMG, “research shows that 61% ofInternet users research products online before purchasing”.(FMG, 2016) This means that users will most likely spendtime researching a potential financial advisor, too. Advisors must make sure their websites areinformative, attractive, and easy to use, as this can lead to more traffic frompotential clients. In addition towebsites, social media allows advisors to connect with more potential clientsthan ever before, as seen in the 1.
71 billion monthly Facebook users currentlyactive online. (Facebook, 2016) Advisorscan post information about their services, market client events, and drivetraffic to their website to attract potential customers. Social media is allowing markets to tracktheir online presence, with major websites (i.e. Twitter and Facebook)providing up-to-date information on the number of views and clicks on certainposts. Thefinal strategy used to attract and retain clients is interpersonal relationshipbuilding between an advisor and the client. Taking a client-oriented approach allows advisors to have success in thelong run- it has shown to result in “higher profits and customer satisfactionas well as well as long-term business relationships.” (Bergeron, 2008) Lions Bridge Financial Advisors prides itselfin excelling at this type of relationship building: they use tactics such assending out handwritten birthday cards and hosting free client events in orderto connect with individuals and maintain the personal touch and relationship.
These interpersonal connections result in theformation of trust, which leads to clients staying with an advisor and givingthem more control. Accordingto “Determinants of Portfolio Performance”, asset allocation is the primaryfactor in determining a portfolio’s return variability. (Brinson, Hood, Beebower, 1995) Asset allocation involves dividing aportfolio into different asset categories, such as stocks, bonds, andcash. Allocation is important becausediversification can greatly reduce the risk of an individual’s portfolio-simply put, it prevents you from “putting all your eggs in one basket”. Theunderlying cause of asset allocation is to diversify an individual’s money inorder to reach their financial goals at a level of risk which they findcomfortable. For the most part,individuals who are older should put less money in the stock market and investmore in bonds. These clients aretypically closing in on retirement and have a low risk tolerance.
Younger people, on the other hand, have alonger investing horizon, meaning they can take on more risk. They can allocate more money toward equityholdings in order to potentially generate more profit. Even if their portfolio performs poorly oneyear, they still have plenty of time to make up the difference.
(CNN, 2016)There are twolevels within allocation to consider when investing: between asset categories,and within asset categories. (Security and Exchange Commission, 2016) In addition to spreading out your investmentsamong stocks, bonds, and cash equivalents, you also want to diversify withinthose groupings. For example, anindividual should not invest all their stock in one sector of the economy, suchas energy; if this sector performs poorly, there will be a large loss in theportfolio. Instead, they should spreadout their investments across multiple sectors by investing in a wide range ofcompanies and industries. However,achieving this balance can be challenging, causing some investors to diversify”through the ownership of mutual funds rather than through individualinvestments from each asset category.
” (SEC, 2016) A mutual fund involves many investors whoseinvestments are pooled together in order to invest in diverse securitiesthroughout the financial market. Whilethe details of asset allocation vary for everyone, there is always one factthat remains constant- diversification is key.Lions BridgeFinancial Advisors deals with annuities, marketing strategies, and assetallocation on a daily basis. Like manyadvising firms across the country, they must constantly keep up with the wantsand needs of clients, as well as the daily demands of the market.
In this constantly changing financialenvironment, knowledge of every aspect of the financial services process (includingthese three topics) is critical.