(New York)

Any seasoned market veteran will tell you that today’s hottest thing might very well turn into the epicenter of tomorrow’s crisis. Tech stocks led to the Dotcom crash, structured credit led to the Financial Crisis. Now ask yourself, what is the hottest product of the moment? The answer is simple: ESG stocks. ESG is nebulous as an asset class since it crosses many boundaries, but in reality, a lot of the new ESG AUM has flowed directly into large cap tech stocks. This means that a lot of the buying going on in large cap tech is just de facto ESG buying.

FINSUM: ESG is a surging category and a lot of Dollars are flowing in. Since the term and its actual meaning are still vague, a lot of the money flows into tech, which is almost universally seen as ESG friendly. When might the music stop?

(New York)

Going independent is a huge choice. Not only do you have client risk, income risk etc, but one of the big underappreciated challenges is simply getting paid. Once you are truly running your own business, cash flow on a consistent basis is absolutely critical, which is why you need to have flexible and reliable billing software which can help you collect fees in a compliant way.

FINSUM: You need to have your tech stack solid as rock when going independent and collecting payment in a compliant way is beyond critical. Make sure to investigate the options!

(Boston)

Fidelity is making a renewed push into model portfolios. After launching its first model portfolios in 2018, the firm has realized that RIAs and BDs want different types of models. RIAs use models to a great degree, but don’t tend to put a whole lot of assets in them. Fidelity realized it needed to optimize its approach. According to Suzanne Daly, Fidelity’s VP of model portfolio distribution, “RIA growth is really accelerating, and in a different manner [than IBDs] … [They are] looking to blend equity and fixed income models to build a more personalized fully asset allocated unified managed accounts (UMA) model”.

FINSUM: This makes a lot of sense. RIAs used to balk at the 25 bp fee for UMAs (which goes on top of the underlying management fees), but they have recently been coming around.

(Washington)

The Department of Labor made a critical move this week in announcing a regulation that is likely to affect almost all advisors. During the Trump administration the DOL made a rule that made investing client Dollars in ESG funds very complicated from a compliance perspective. It has long been expected that the Biden administration would try to undue that rule and make one of its own. It appears that day is here as the DOL announced a new rule (the wording of which is still unclear) which would clear up the uncertainty and risk advisors have in recommending ESG funds.

FINSUM: This will become more clear in the coming days, but the bottom line is that it appears the Biden administration is trying to take the doubt/uncertainty/risk out of ESG for advisors. And good thing because demand for ESG products has surged this year.

(New York)

Retirement costs are a major pitfall for advisors, if only because clients generally underestimate them! Nowhere is this more true than in regards to healthcare. Since healthcare costs tend to increasing very significantly as one ages, it is difficult for the average person to understand just how costly medical expenses can become when they get older. To make things more complicated, the situation is highly variable for each person. For example, in a married couple, do they enroll in Medicare at the same time or are they of different ages; does one spouse still work full-time and give healthcare access to other? There are also several financial products which can help in supporting these costs, such as HSAs and annuities, both of which can help offset the inevitable costs that arise even when covered by Medicare.

FINSUM: Retirement healthcare costs need to be a critical of advisors because they are generally poorly planned for by clients’ themselves.