With direct indexing continuing to gain steam, the strategy isn’t just for the ultra-wealthy anymore, according to two panelists at the recent ETF Exchange conference in Miami. According to Randy Bullard, global head of wealth management at Charles River Development, any investor with more than $150,000 can benefit from these custom portfolios. Bullard stated that “Today an advisor might use direct indexing for clients with complex and unique investment policy requirements, but in the future, direct indexing won’t be such a niche thing.” Ben Hammer, head of client development for Vanguard Personalized Indexing, agrees and said “personalized indexing” can benefit many investors. For Hammer, direct indexing is simple, “It’s an individual account that’s managed to track an index. The individual owns the securities, which gives them flexibility to do things that they can’t with a fund. For example, when individual stocks are down, the investor can tax-loss-harvest them to offset gains elsewhere in their portfolio.” Hammer also noted that direct indexing can give advisors an “additional edge“ in their business. He stated, “They can utilize this to really establish an excellent tax profile for a client that might have some complications or give them an extra bit of customization.” However, Bullard acknowledged that direct indexing right now is for equities, not other asset classes.

Finsum:According to two panelists at the recent ETF Exchange conference, any investor with over $150,000 in assets would benefit from direct indexing, as would advisors by providing them an “additional edge“ in their practice.

Putnam Investments recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series for the retirement savings marketplace. The suite invests in actively managed ESG-focused ETFs managed by Putnam. The funds implement a similar retirement glidepath philosophy as the firm’s other target-date offering, Putnam Retirement Advantage. The series offers vintages for every five years from 2025 through 2065, along with a maturity fund. The Putnam Global Asset Allocation team, which also manages Putnam Retirement Advantage, is responsible for the glidepath and both the tactical and ETF allocations of the Putnam Sustainable Retirement target-date suite. The series was developed in part to respond to the growing interest in sustainable investing within the defined contribution retirement market according to Steven P. McKay, Putnam’s Head of Global Defined Contribution Investment Only. Robert L. Reynolds, President, and Chief Executive Officer, of Putnam Investments, said the following as part of the announcement, “As the retirement marketplace continues to evolve and grow, there is tremendous appetite for meaningful product innovation that creates greater choice of offerings to help working Americans achieve their financial goals.” The funds will invest in ETFs across asset classes managed by the firm, including:

• Putnam Sustainable Future ETF (NYSE Arca: PFUT)
• Putnam Sustainable Leaders ETF (NYSE Arca: PLDR)
• Putnam ESG Core Bond ETF (NYSE Arca: PCRB)
• Putnam ESG High Yield ETF (NYSE Arca: PHYD)
• Putnam ESG Ultra Short ETF (NYSE Arca: PULT)
• Putnam PanAgora ESG Emerging Markets Equity ETF (NYSE Arca: PPEM)
• Putnam PanAgora ESG International Equity ETF (NYSE Arca: PPIE)

Finsum:Putnam recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series that invests in actively managed ESG-focused ETFs managed by Putnam.

The case for model portfolios has never been better. Investment managers are expanding their model portfolio offerings while turnkey asset management platforms continue to grow. Since portfolio management is just one piece of a financial plan, why wouldn’t advisors want to take advantage of model portfolios to free up time to spend with their clients? However, some advisors have a reason for resisting this trend and insist on managing portfolios themselves. For instance, Ryan Johnson, managing director at Buckingham Advisors told InvestmentNews, “By managing our own portfolios, we’re adding value.” Johnson added that they feel they have a lot of control over the individual stock selection, especially when it comes to tax planning. Paul Schatz, president of Heritage Capital also mentioned control as to why he builds client portfolios from scratch. He stated, “Control is a huge driver.” Robert Steinberg, chief executive at RIA Blue Chip Partners told the magazine that they focus on individual securities since “clients are more involved, it’s easier to tax-loss harvest, they know what they own.” While a 2020 research report from InvestmentNews cited numerous reasons for outsourcing portfolio management such as freeing up time, some advisors still see portfolio management as a core component of financial planning. The report also listed the top reasons for not using a model portfolio such as investment research strength, flexibility, and cost.

Finsum:While model portfolios continue to gain steam among financial advisors, there are still some that prefer to build portfolios themselves due to control, adding value, and getting clients more involved.

According to data from the insurance trade association Limra, annuity sales hit $310.6 billion in 2022, surpassing the prior annual record of $265 billion, set in 2008. That year the U.S. was in the midst of the Great Recession, while the S&P 500 index lost 57% from its peak. In 2022, the S&P 500 posted its largest loss since 2008, ending the year down 19.4%. Since annuities hedge risks such as market volatility, they became quite popular last year with investors. Annuities also benefited from the Fed raising interest rates, which created a better return on investment. Plus, U.S. bonds, which typically act as a safe haven for investors when stocks falter, suffered their worst year on record last year. This left very few options for savers looking for safety and a return. Investors were especially bullish on fixed-rate deferred annuities. Total sales of fixed-rate deferred annuities last year hit $112.1 billion, more than double the sales from 2021. They also broke the prior annual record from 2002, when investors bought $80.8 billion, according to Limra data. Indexed annuities also had a record year, with sales of $79.4 billion, an 8% increase on its 2019 record. However, variable annuities, which are generally tied to the stock market, saw annual sales of just $61.7 billion, the lowest since 1995.

Finsum: With a volatile stock market, rising interest rates, and the worst year on record for bonds, annuity sales had a record year, with fixed-rate deferred annuities and indexed annuities also posting annual sales records.

Model portfolios have been gaining ground with advisors. Close to $350 billion in assets sat in model portfolios as of March 2022, according to a Morningstar report in June. That’s a 22% increase over the prior nine months. But how do advisors incorporate model portfolios into their business? In a recent article, ThinkAdvisor asked different advisors how models fit in their practice. Erik Nero, founder, and president, of First Step Wealth Planning LLC, thinks they are a boost to small firms. He uses them for close to all of his clients except the client portfolios that need more customization. Kyle Simmons, lead financial planner, at Simmons Investment Management uses his own model portfolio but warns advisors not to get attached to models, as clients can come in with legacy holdings and tax consequences. Jan Pevzner, principal, of Gotham Block LLC finds models to be a great starting point for a “generic client” as it can save you a lot of time. Jon Ulin, CEO of Ulin & Co. Wealth Management uses models in addition to comprehensive planning for clients, which isn’t typically provided by robo-advisors. Nate Creviston, manager of wealth management and portfolio analysis, at Capital Advisors, does not use model portfolios at all as they lack tax awareness and believes each client deserves a customized portfolio unique to their needs and goals.

Finsum: With model portfolios gaining ground with advisors, ThinkAdvisor interviewed several advisors on how models fit or don’t fit into their practice.