Active decisions made by asset managers in creating and maintaining index-based products should be transparent to investors, and the CFA Institute has developed a framework to assist in this. This framework aims to improve transparency, communication, and investor understanding of innovations such as smart beta ETFs and direct indexing. 

It explains index-based strategies according to their level of active decision-making, placing indexing on a spectrum beyond traditional market cap weighting based on strategy, sources of returns, and level of discretion.

 Rhodri Preece, CFA, highlights the outdated nature of a simple bifurcation between active and passive investment products, emphasizing the varied design features and layers of active decision-making in index-based strategies. 

Finsum: Moreover, advisors need to be more familiar with these products because they bring solid advantages to clients.

Being an independent financial advisor gives you the freedom to design your business, but it also requires finding the right support to manage associated challenges. Choosing a broker-dealer that aligns with your business model and values is crucial for success.

In your next broker dealer, you need to make sure they can provide you with essentials for managing and growing your platform. These include client service teams, research insights and marketing expertise. 

Evaluate potential partners based on their technology, service quality, and transition support to ensure they enhance your practice. The right broker-dealer will help you thrive and achieve your business goals.

Finsum: Keep in mind a combination of what your current broker dealer is lacking and potential innovations when selecting a new BD. 

When evaluating an annuity, the advisor typically presents an illustration that outlines future values and any applicable surrender charges.

For a multi-year guaranteed annuity (MYGA), focusing solely on guaranteed values without much variability, except for potential market-value-adjustment penalties during the surrender period. On the other hand, a fixed indexed annuity features a more complex illustration, including guaranteed cash values and hypothetical future values based on favorable market performance. These annuities earn interest tied to changes in a market index like the S&P 500, offering the security of principal protection even if the index declines. However, the growth is limited, as you will only receive a portion of the index gains.

Understanding the specifics of these illustrations is vital, particularly distinguishing between the different types of value presented to clients.  

Finsum: Annuities can be complex but understanding your client’s interest can put them in the perfect vehicle. 

For those who find the pain of losing money more intense than the pleasure of making a profit, there are defined-outcome or buffered ETFs. These funds, which cap potential gains in exchange for limited losses, have gained popularity since their debut in 2018. Now numbering around 270 with $47 billion in assets, these ETFs surged in interest after poor market returns in 2022.

Buffered ETFs cater to conservative investors, including those nearing retirement, who want to stay invested in the stock market while minimizing risk. Typically offering protection for a set period, usually a year, they limit potential upside in return for a cushion against losses. Major financial firms like Innovator, First Trust, AllianzIM, and Fidelity offer these funds.

Though complex, requiring thorough explanation, these ETFs are mainly used by financial advisors for their clients, presenting a balanced investment strategy by offering various levels of risk and reward to suit different needs.

Finsum: When the probability of volatility is high a buffer ETF can be a great natural hedging solution. 

Dividend-paying ETFs offer a solid approach to generating passive income. The Schwab U.S. Dividend Equity ETF (SCHD) stands out for its robust American-made dividends and strong fundamentals. 

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) provides stability with companies that have increased payouts for 25 consecutive years. The Vanguard High Dividend Yield ETF (VYM) combines high yields with broad risk distribution, tracking the FTSE High Dividend Yield Index. 

These ETFs cater to investors seeking reliable income without the complexity of managing individual stocks. With their diverse portfolios, these funds help mitigate risk while ensuring steady dividend payouts. They represent a straightforward, efficient way to build a dependable income stream through dividends.

Finsum: Dividends are nice, but as we head into potential volatility maybe bonds are worth considering for income investors.