The world’s top money managers would like to personally invite you to a very private party.

State Street and Apollo’s latest exchange-traded fund packages private credit — traditionally the playground of the world’s rich — into an indexed product for everyman. It was quickly heralded as a “breakthrough” for the asset management industry during its launch last week. But are advisors ready to trade in their tried-and-true index funds for actively managed private investments?

“The concept is promising,” said Aaron Cirksena, CEO of the advisory firm MDRN Capital. “But let’s see how it actually performs before we start calling it revolutionary.”

Liquid Diet

Some $6 trillion in assets are now expected to pour into private credit over the next decade as new strategies, many targeting retail investors, are adopted by asset managers, according to research from McKinsey. For clients who want exposure, cost-effective and liquid ETF structures might just fit the bill. State Street’s fund, the SPDR SSGA Apollo IG Public & Private Credit ETF (PRIV), is generally expected to hold between 10% to 35% in private credit with the rest in publicly traded debt, according to Bloomberg. As of Monday, it had attracted just over $50 million in assets.

But for those truly looking for private market benefits, there are plenty of other options available, said Ben Loughery, CFP and founder of Lock Wealth Management in Atlanta. And private funds make up just a small portion of a well-diversified portfolio. “If investors already view this as money they won’t need to tap into, why not go directly to the real thing rather than a hybrid ETF structure?” He said. “You just need to coach clients on the illiquidity trade-off.”

Keep in mind, the products might not be suited for your run-of-the-mill retirement savers, but a more affluent clientele that can “stomach” the illiquidity, Cirksena said. “Just because it’s in an ETF doesn’t mean it’s automatically liquid, cheap, or low-risk,” he said. “Advisors need to read the fine print.”

Save Some for Me. Advisors should be particularly careful when it comes to most non-traded assets, like hedge funds, venture capital, and private equity, said George Gagliardi, CFP and an advisor at Coromandel Wealth. By the time the investments open up to Main Street, the quality of what is being offered is far below what sophisticated investors are able to access. In other words, the smart money usually gets first crack at the best products.

And, while private investments have a certain allure, advisors are better off preaching long-term, buy-and-hold strategies that are supposed to be boring. “Stay away,” Gagliardi said. “If one wants financial excitement, go to Las Vegas with $500 in your wallet and no credit or debit cards to limit the losses.”

The Trump 2.0 administration is expected to ease up on everything from crypto enforcement to showerhead flow rates. Soon, it could also impact how Americans receive retirement advice.

Last week, a federal judge for the US Fifth Circuit Court of Appeals granted the Department of Labor a 60-day pause in its appeal process regarding the 2024 Retirement Security Rule, also known as the Fiduciary Rule. Finalized under the Biden administration, the rule aimed to expand the definition of “fiduciary” to include more retirement advisors, but was blocked by a federal judge in Texas in July after facing lawsuits from multiple financial services groups. While Biden’s Labor Department appealed that decision, the Trump administration may opt to accept the original ruling. The latest stay will give new political appointees at the agency time to plan their next move.

“For many of the lifers, and the non-political appointees, who have been at the DOL for a long time, this is their baby,” said Rob Sichel, a partner at the K&L Gates law firm, adding that new political appointees will likely abandon the appeal.

Back to the Future

After a lengthy back-and-forth history that dates back to the Obama administration, the latest pause was expected by experts, who believe the outcome will look a lot like it did under the first Trump administration. This latest iteration of the rule has been highly disputed:

• Nine insurance trade groups sued the Labor Department in May, arguing the rule was flawed and unconstitutional, similar to the failed 2016 rule. 
• In June, the Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (SIFMA) filed another lawsuit, claiming the rule would limit investors’ access to advice and education.

One of the most material financial decisions many people will make in their lives is whether to roll over their workplace retirement plan to an IRA and hire an advisor, Sichel said. “At the heart, it’s a rollover rule,” he told Advisor Upside.

Clients’ Best Interest. Despite the rule likely not coming to fruition yet again, Sichel said many in the wealth management industry are already holding themselves to a higher fiduciary standard. “Most advisors want to do the right thing for their clients, regardless of litigation.”

Advisors are warming up to generative AI.

Some 85% of advisors said artificial intelligence has helped their practices, up from just 64% last year, according to a new survey from Advisor360. Around three-fourths of respondents said the benefits of generative AI tools were immediately noticeable. In fact, researchers found a “clear shift” in advisors’ attitudes toward AI compared with just a year ago. “Advisors are hungry for Gen AI-enabled tools that can boost their business,” Advisor360 President Darren Tedesco said in a statement.

And, wealth managers aren’t just dabbling with the tech to tighten up the occasional email, either. Some of the top use cases for generative AI include predictive analytics, marketing strategies, and administrative tasks, the survey found. It’s a major opportunity for advisors that can find ways to add the new tools into their workflows.

Read more.