Companies have been rethinking how they do business across industries, geographies, etc. Remote vs. hybrid vs. in-office, fractional executives, outsourcing, you name it. But we think a huge change is also coming to the world of financial advisors — we’re calling it “Fixed Income as a Service.”
We believe subadvisory services like Fixed Income as a Service are, quite simply, the future of work for many financial advisors.
The Fixed Income challenge
Fixed income markets are a thorny lot. There are ~65,000 individual issuers in the municipal market with a whole host of broker-dealers you have to build relationships with to trade on those bonds effectively. On the taxable side, there are another 3,000+ issuers. To trade with confidence requires a thoroughness and attention to detail that’s time-consuming and costly.
The granularity and complexity of the market can be overwhelming if this isn’t what you do all day, every day. Every bond has an associated risk — and not just maturity and/or duration, but convexity, tax status, risk of default, etc. How are you navigating those risks while also delivering optimal returns to your clients? Do you have the depth of experience to perform credit reviews on individual bonds? Have you successfully navigated a bond default before?
These are questions that cause headaches for many financial advisors.
To that end, if you’re a financial advisory firm and your clients want to own fixed income instruments, you probably need a dedicated person (or persons) on staff who do only that. That person(s) comes with a sizable salary, insurance premiums, benefits, etc.
On the cost front, you also have to contend with technology issues. Trading in fixed income instruments basically necessitates Bloomberg Terminal access (a costly outlay to be sure) as well as a subscription to a portfolio software management platform to help manage the inherent risks in underlying bonds.
Some firms try to solve for this by hiring multiple managers across commingled and separately managed accounts. But being a multi-manager allocator introduces a host of new complexities (e.g. initial and ongoing due diligence, transparency concerns, operational inefficiencies, etc.).
For many financial advisors, though, fixed-income isn’t exactly a core business concern — you want to offer expertise and investment options for your clients who want fixed income exposure, but it’s unlikely to make up a majority of your business any time soon. So time spent wading through fixed income markets and managers turns into time spent not focused on your core business.
All this adds up to a secondary business concern that takes up time, money, resources, mental capital, and on and on.
So what should you do about it?
Financial advisors can find value by partnering with a firm that offers fixed income subadvisory services (Fixed Income as a Service) as a core competency — a proverbial outsourcing of the fixed income desk for investment firms.
The business case for Fixed Income as a Service
For starters, if you outsource your fixed income desk, you don’t have to hire in-house staffers that are niche subject matter experts with all the associated costs that go along with it. You also bypass the technology cost outlays as well as the headache of vetting bonds, building broker-dealer relationships, managing shifting risk profiles in real time, etc.
For a predictable and affordable fixed fee, you can offload 100% of the headache, resources, time, and mental capital to subject matter experts who eat, sleep, live, and breathe fixed income.
You also benefit by building a direct relationship with a manager and partner on your specific mandate(s); together, you can build custom portfolios to meet your individual clients’ needs. This affords you a deeper understanding of your entire fixed income book of business while freeing you up to focus on your individual clients.
At City Different Investments, we have dedicated fixed income managers with a combined 50 years of experience navigating a variety of economic cycles. We have an extensive network of broker-dealer relationships and the ability to execute trades competitively. We have the technical platforms to support the full lifecycle of fixed income investments. In short, we can handle all the back end so you can focus on your core business.
To go a step deeper, we do not get paid by broker-dealers to send business to a particular provider — our objective is the best execution for your end clients. Advisors are our clients; we do not compete with you for your end clients, so we only succeed when we make you look as good as is humanly possible. There are no hidden fees, but rather a transparent, fixed pricing model that makes it easy to see and predict your cost outlay.
If your clients have questions, we have the answers – and you get them directly from our Portfolio Managers Chris and Sweta. We partner with you to create a seamless onboarding process. Our continuous support begins with that onboarding and continues throughout the lifetime of our partnership with frequent and timely communication and reporting.
We firmly believe Fixed Income as a Service is the future for financial advisors — drop us a line, and Chris or Sweta just might make a believer out of you too.
The services discussed may not be suitable for all investors. The views expressed and all information contained herein have been prepared by City Different Investments for informational purposes only and should not be considered investment advice or a recommendation to invest in any particular security, strategy, or investment product. The information contained herein has been prepared without regard to any particular party’s investment objectives or financial condition, and City Different Investments is not soliciting any action based upon it. The views expressed herein are solely the opinions of the Firm. This communication does not constitute a solicitation to invest money nor a recommendation to buy or sell certain securities and should not be relied upon for, accounting, legal, or tax advice. Please consult with a qualified professional for this type of advice. City Different will only render investment advice when properly registered to do so, and under the terms of a legal agreement between parties. City Different Investments is an SEC registered investment adviser. Registration as an investment advisor does not imply a certain level of skill or training.