Direct indexing continues its ascent and is forecast to exceed $1 trillion in assets within the next decade. In essence, direct indexing retains the primary benefits of passive investing while allowing for greater tax efficiency and personalization. 

It achieves this by buying the actual components of an index in a separately managed account (SMA). This means that tax losses can be harvested by selling losing positions and reinvesting the proceeds into positions with similar factor scores to ensure that the benchmark continues to be tracked. According to research, direct indexing can boost after-tax returns by 1 to 2% due to these savings. The effect is even more potent in periods with elevated volatility.

Direct indexing also allows for more customization to account for a client’s unique situation. For instance, if an investor has an oversized position in a specific company, that company would not be included in the index, and/or the specific sector could be underweighted. Similarly, if a client is sitting on large, unrealized gains, direct indexing can help reduce the tax burden while helping to construct a more diversified portfolio.

Direct indexing can be a way for advisors to give clients a strategy that accomplishes their financial goals in the long term, reduces tax payments, and aligns their investments with personal values and/or situation. This can help differentiate advisors in a competitive market and create a richer experience that leads to a stronger and deeper relationship with clients. 

Finsum: Direct indexing continues to experience rapid growth as it offers the benefits of passive investing with more tax efficiency and customization. For advisors, it also presents an opportunity.

The number of alternative investment options continues to increase, and many now consider it an essential ingredient to optimize portfolios. However, there are significant challenges that come with evaluating these investments, given that there is more complexity and advisors have less experience with the asset class.

The benefits of alternatives are higher returns, especially in high-rate, high-inflation environments, and less correlation to equities and bonds. The two biggest drawbacks of alternatives are reduced liquidity and price discovery. There are additional potential tradeoffs, such as limited transparency, higher fees, and restrictions on redemptions. Further, some alternatives use leverage or derivatives, which can increase tail risk during certain periods.  

Therefore, it’s important to study how the investment performed during periods of market volatility, such as 2020 or 2008. With some illiquid investments, the asset may look like it’s outperforming until actual transactions start taking place at lower levels. Many skeptics contend that the diversification and volatility-mitigating effects of alternatives are overestimated due to the absence of mark-to-market pricing. 

Another consideration is that evaluating alternatives has a qualitative element. This includes studying the reputation and track record of the management team. Overall, advisors and investors should understand that many of the traditional tools and methods used to evaluate public investments are not suitable for alternatives. 

Finsum: Alternative investments continue to grow and are increasingly a core part of many investors’ portfolios. However, there are many unique challenges that come with evaluating these investments. 

Spring often marks a period of transition for financial advisors, where opportunities for change abound. While the optimism of the season is commendable, it's important to acknowledge that not everything is within reach. Spring serves as a moment for introspection, especially regarding career paths. For advisors, contemplating a shift to a new firm or business model can be daunting, requiring consideration of clients, staff, and the plethora of options available.

However, the abundance of choices can lead to analysis paralysis, necessitating a focused approach. Advisors should consider their priorities, including client service, autonomy, and income growth, as they navigate the landscape of potential moves. The key questions are: what I might not have that I want going forward, and what do you already possess that you will want to maintain?

From traditional wirehouses to independent broker-dealers and RIA aggregators, each option presents its own set of pros and cons. The evolving RIA aggregator market, with its financial backing and potential for future liquidity events, adds a new dimension to the decision-making process. Ultimately, the complexity of the financial services industry highlights the importance of thorough research and leveraging expertise when considering a career transition.

Finsum: Consider the improvements of advanced technology and flexibility of hybrid work when pondering a transition as well.

Annuity vendors experienced robust performance in Q1, with traditional variable annuity sales rising by 13% year-over-year to $14.5 billion, benefiting from strong equity market performance. Overall annuities amassing $113.5 billion in sales, marking a 21% surge compared to Q1 2023. Although falling slightly short of the Q4 2023 pinnacle, preliminary findings from LIMRA's U.S. Individual Annuity Sales Survey reveal this quarter's sales accounted for 84% of the total U.S. annuity market, the highest first-quarter performance since the 1980s. 

Bryan Hodgens, head of LIMRA research, attributed this trend to favorable economic conditions and heightened investor interest in securing retirement income guarantees, foreseeing continued resilience in annuity sales despite potential regulatory and economic challenges ahead. Variable annuities are expected to tack on another 10% through the end of the year.

Fixed-rate deferred annuities reached $48 billion, a 16% increase from Q1 2023, driving over 42% of the total annuity market. Fixed indexed annuity sales hit a record high of $29.3 billion, up by 27% year-over-year. Income annuity sales soared to a quarterly high, with SPIA sales reaching $4 billion and DIA sales reaching $1.1 billion, up by 19% and 35% respectively.

Finsum: Bond rates could be coming down as the Fed starts to ease rates and other retirement vehicles will become more attractive.

Research from Nuveen's indicates that when it comes to advisor recruiting employers can boost their competitiveness in talent acquisition and retention by optimizing employee benefits. With the growing strain of succession planning for financial advisors this could be a key strategy to attracting talent. Among the recommendations is the expansion of benefit offerings to include family planning, caregiving assistance, and tuition aid, fostering a more diverse and engaged workforce.

By reframing benefits as investments rather than mere expenses, employers can potentially amplify returns on investments while addressing employee needs comprehensively. Clear communication and education about benefits are emphasized as essential for maximizing their impact, as evidenced by the findings that only 30% of employees are highly satisfied with their retirement plans.

Furthermore, disparities in benefit satisfaction and confidence in retirement prospects were observed across racial and generational lines, underscoring the need for tailored approaches. In conclusion, by aligning benefits with the diverse needs of employees, employers can drive productivity, efficiency, and overall workforce satisfaction, crucial elements in succession planning for advisors.

Finsum: The bottom line is no longer the bottom line when it comes to attracting new talent in the advisor space and benefits could offer a needed boost to recruiting.