In 2023, the US annuity market flourished amid strong economic conditions and heightened investment security concerns, reaching an unprecedented milestone with sales hitting a record $385 billion, as reported by Limra's US Individual Annuity Sales Survey. 

Helping drive home this surge were fixed indexed annuities also witnessed robust growth, reaching $95.6 billion in sales, while traditional variable annuities faced a decline, recording their lowest sales figures in both quarterly and annual comparisons.

This annuity renaissance, a 23 percent increase from 2022, was also aided by the fixed annuity segment, which soared by 36 percent to $286.2 billion, marking a second consecutive year of record-breaking performance. Additionaly, traditional variable annuities were outstripped by registered index linked annuities for the first time ever.

Finsum: Index annuities are having an edge in the current macro environment with volatility looming but investors wanting higher return.

Managing investments can be overwhelming for advisors amidst their busy schedules, but model portfolios offer efficiency, diversification, and transparency, allowing advisors to focus more on their clients. Advisors have the option to create their own portfolios or use third-party models, with the former being more popular as it allows them to tailor investments while maintaining efficiency. 

The primary benefit of model portfolios is the quick and efficient implementation of advisors' best ideas, essential for business growth. While clients benefit from the advisors' expertise, there may be instances where they desire investments outside the model, requiring advisors to balance client preferences with their investment strategies. 

Overall, model portfolios streamline investment management, enabling advisors to concentrate on building strong client relationships and providing personalized financial guidance.

Finsum: Models not only meet the clients’ needs but they give more opportunities to develop a relationship with clients to better understand financial concerns. 

With signs that inflation is starting to tick higher and renewed concerns about the stability of banks, many investors are looking to shield their portfolio from a rise in volatility. As 2022 demonstrated, rising inflation creates conditions that are unfavorable for stocks and bonds. 

One way that investors can protect their portfolios is to increase their allocation to fixed index annuities. They can help investors reduce risk while still allowing for accumulation. A fixed index annuity (FIA) functions similarly to a traditional annuity as it guarantees some payment while allowing for deferral of taxes. However, the key difference is that it also tracks a specific index to allow for appreciation of the principal as well. 

Unlike fixed income or equities, there is much less downside risk and sensitivity to interest rates. Essentially, the FIA will not see any loss of principal in the event that the index suffers losses. However if the index has positive returns, the FIA will capture some portion of the upside. 

Thus, FIAs can help reduce portfolio risk and shield investors from disastrous scenarios especially if they are in or near retirement. At the same time, it ensures that the portfolio is also protected against inflation, reducing the risk that a retiree will outlive their savings.

Finsum: Risks to the outlook have been steadily rising in 2024 as inflationary pressures are once again building, and there are renewed concerns about the health of the banking system. Here’s why fixed indexed annuities are an effective way that investors can diversify and de-risk their portfolios.

According to recent SEC filings from LPL Financial and Cambridge Investment Research, it’s clear that M&A activity remains robust. Lately, it’s the independent broker-dealers that have been the most aggressive in terms of dealmaking. 

For instance, LPL Financial revealed that it made 19 acquisitions in 2023 using its ‘liquidity and succession’ program for a total of $190 million although this could rise as high as $297 million depending if certain criteria is met. Currently, LPL is a leading broker-dealer with over 21,000 advisors. 

Previously, broker-dealers offered succession plans for retiring financial advisors. A new development is that these broker-dealers are buying up their own advisors’ books. The most notable recent example is LPL buying one of its own branches, Financial Resources Group Investment Services which managed $40 billion in assets. 

The catalyst for this trend is the entry of private equity buyers into the marketplace which is increasing pressure on independent broker-dealers to retain the books of their existing advisors. According to Carolyn Armitage, an industry consultant, “Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that’s a more diversified way to earn money on those assets.”

Finsum: The M&A market for financial advisors’ practices remains heated. Private equity buyers are a new force and willing to pay large multiples. It’s forcing independent broker-dealers like LPL to be aggressive in order to ensure that existing advisors’ assets don’t migrate to a different platform. 

Recent bond market volatility has caused discomfort for fixed-income investors, but it presents an opportunity for active management to potentially enhance returns. 

Despite efforts by the U.S. Federal Reserve to tighten monetary policy and curb inflation, uncertainty remains as to the future direction of interest rates. This uncertainty has led to fluctuations in bond yields, creating both challenges and opportunities for investors. 

By focusing on quality and liquidity, particularly in areas such as agency mortgage-backed securities, active managers can navigate these challenges effectively. As the market evolves, active management offers the flexibility to capitalize on changing conditions and uncover pockets of opportunity, potentially outperforming despite ongoing uncertainty.

Finsum: Macro uncertainty is giving active managers an upper handed in bond markets, and it could lead to additional alpha.