What better way to celebrate last week’s record-setting VIX spike than adding on another derivative? 

The Chicago Board Options Exchange is launching new options trades on its futures contracts for the highly popular Volatility Index, which itself is built on options placed on the S&P 500. (Deep breath, everyone.) The VIX, also known as Wall Street’s fear gauge, measures broad investor sentiment by tracking options. Since those options are often used to hedge positions, more contracts mean more investor uncertainty — and that usually spells a rollercoaster ride for the markets. 

Attaching options to futures contracts adds another layer of sophistication, but the exchange says it can also help protect investments against market turbulence. It’s one of the most meta ways to invest in the world’s most recognizable index.

Failure Is Not an Option

While the product seems like something out of “Black Mirror,” it adds to a slew of new and upcoming Cboe derivative investments that are attempting to tap into record levels of options trades worldwide. The total volume of global trading reached 137.3 billion contracts in 2023, up 64% from the previous year, according to data from the Futures Industry Association.

“There are several compelling reasons to invest,” said Brian Andrew, CIO at Merit Financial Advisors. “Due to the VIX’s historical negative correlation to the equity markets, these options can be used as a diversification tool.” While the funds will likely gain the most traction with investor that are already using Cboe’s futures marketplace, it also allows everyday investors to speculate on market sentiment, economic data, and geopolitical events, he said.

Another advantage is that traditional VIX options are traded in securities accounts overseen by the Securities and Exchange Commission, while the options being placed on future contracts are regulated by the Commodity Futures Trading Commission, according to a company release. That may open up the products to new investors.

At the Money. Investors just love to keep their options open. Last year marked the sixth consecutive year of record-setting trading activity in the global listed derivatives markets, according to FIA’s research. North America was the one of the most-active region globally:

• Interest rate futures and options volume rose 18% globally to 6.1 billion contracts, according to the study.
• Open interest, which measures the number of outstanding contracts, hit a record 1.25 billion contracts, up 15% from 2022.

Automated advice platforms were supposed to upend the industry. Here comes the next generation, maybe.

Robo-advisors are gaining plenty of traction as incumbents and newcomers flood the market. Almost every financial services provider, from industry stalwarts like Vanguard to relative upstarts like PortfolioPilot, has some combination of digital options available to customers. But with advancements in artificial intelligence, new tools and deeper personalizations may soon be at investors’ fingertips. Executives are hoping the next generation of platforms will have the power to reshape the online advice industry.

“There’s a massive opportunity there,” said Alexander Harmsen, CEO of Global Predictions, a tech firm that launched a “Gen-2” robo-advisor PortfolioPilot in 2022. “Millennials in particular are looking for personalization and opinionated insights on their finances — and are actively avoiding human financial advisors,” he told The Daily Upside.

PortfolioPilot has connected $20 billion worth of assets to its platform in just two years, and recently, it closed a $2 million seed funding round. The platform claims to provide an AI assistant and personalized recommendations from an insights engine in just minutes, according to its website.

Not the Droids You’re Looking For

Some of Wall Street’s biggest banks haven’t found the same success — and some have had downright failures. In December, JPMorgan Chase announced it was shutting down its auto-investing option due to lack of demand. And this April, Goldman Sachs struck a deal to transfer clients from its robo-advisor Marcus Invest to Betterment.

“I’m not surprised they’re bowing out,” Harmsen said. The original independent robos have not been the disruptors people originally expected, he said, calling them part of a wave of first-generation products. “It feels like a race to the bottom across the industry, with everyone competing on fees,” he said.

Machines Are Just Cheaper. Ultra-high-net-worth individuals — those with investable assets worth at least $30 million — still want a human in power, but robo-advisors might be a good option for relatively lower-net worth investors. “We can avoid the absolutely massive variable costs that come from salaries for ‘frontline’ financial advisors,” he said, adding that most costs for a traditional RIA don’t come from generating “meaningful” financial advice.

Harmsen said his product would be most useful to fairly seasoned investors with net worths between $100,000 and $5 million, and that the median user has about $450,000 on the platform. If you get enough of those folks, he said, that can sustain a business.

A popular newsletter platform is becoming the latest online theater for financial advisors to get in front of new clients. 

Substack, where writers can build an audience via blogs and podcasts, has become a hot new place to reach clientele. Whether that’s via free or paid products, the tools are quickly transforming how advisors reach out to prospective clients — and, for some, turning into a lucrative side gig. 

Substack launched in 2017 and currently boasts more than 35 million active subscribers; over 3 million pay for content. While there are financial newsletter products available to readers for free, some advisors are charging monthly for access to their insights and premium content. Some of the more notable financial Substack accounts include Brinker Advisor, The Boock Report, and The Advisor, among many others.

Build Your Stack

Newsletters are an age-old way for advisors to talk to clients. Generally advisors inform investors about what’s going on in the financial world and how their portfolios are being kept safe and sound each month or quarter. That’s a great way to maintain relationships with current clients, but what about attracting new ones?

“I’ve seen the value in sharing thoughts online to make me more discoverable and to make it easier for prospects to understand how I’m thinking about financial matters,” the Atlanta-based advisor Russ Thornton, who runs the “Wealthcare for Women” substack, told WealthManagement.com last month. More than 9 in 10 advisors use online platforms or social media tools for business and marketing purposes, according to a Putnam Investments survey released last year. 

Like and Subscribe. Much of advisors’ social media presence is concentrated on LinkedIn, which is known for being a space for professional and career-oriented content. But, the next generation of clients may be active on other forums as well:

• According to a CFA Institute survey, 37% of Gen Z investors (those born between 1997 and 2012) cite social media influencers as a major factor in their decision to start investing.
• Roughly half of all the finfluencer (financial influencer) content out there can be classified as investment guidance: Individual stocks, index funds, and ETFs are the most commonly discussed topics. 

Be a Good Finfluencer: Advisors can’t just go spouting off financial advice and predictions willy-nilly. The Financial Industry Regulatory Authority has rules against that, but they’re easy enough to follow: no false or misleading claims, exaggerated statements, or material omissions. Essentially, don’t say anything online you wouldn’t say in your office.