(New York)

The bond market is a powder keg that may have only started to explode, says ING. “The bond market has been sitting on a powder keg since last week. Attitude towards duration among fixed income investors has grown cautious, to put it mildly”, says Padhraic Garvey, regional head of research for the Americas at ING. “In this context, we do not blame investors for exiting at the first sign of a sell-off”, he continued.

FINSUM: Investors are currently terrified about inflation and it is hitting Treasury yields and tech stocks squarely on the chin. Our opinion is these fears are overblown and this is a market overreaction, especially as it regards tech stocks. These stocks are losing despite the fact that underlying fundamentals strongly favor the growth of tech earnings.

(New York)

Indexed annuities are seemingly just one option from the vast annuities market available to advisors. That said, they fill a unique and interesting role. At their most basic level indexed annuities have payouts tied to the performance of specific indexes. This can be good because they can offer more income than fixed annuities, but they also come with caps that mean you don’t get to participate in anything close to the full upside of the market. If you want a little more potential return, buffered annuities are a good idea. They offer more upside on index returns in exchange for more risk on the part of investors. The “buffer” is essentially a contractual mitigation of losses. For example, if the market loses 30% in a given year, a 10% buffer means the annuity holder would on lose 20%.

FINSUM: These are essentially a more aggressive type of annuity that offers higher payouts and more risk than traditional fixed annuities. These are a good option for those who have the freedom to try to achieve more upside, or those who are afraid of inflation.

(New York)

Here is a tough fact for anyone to consider: 70% of wealthy families will lose their wealth by the second generation, and 90% will squander it by the third, according to a study by the Williams Group wealth consultancy. That means parents are fighting an uphill battle in trying to educate their children/heirs on how to manage finances. It sounds very simple to say, but education and learning the value of hard work from an early age are the best ways to ensure a successful continuation of wealth. Three top tips for clients are: be open with your family about wealth, its creation, and continuation; educate your family members about wealth creating/growth strategies; and put a lot of care into tax planning to avoid inheritance tax pitfalls.

FINSUM: Many people struggle with how to talk to their children about money, but as is often the case, the most difficult things to do are usually the most important ones.

(New York)

Asset allocation as it has traditionally been conceived has taken a beating over the last few years, and especially since the start of the pandemic. The old 60/40 allocation model has been cast aside for years, and investors are using many new techniques to allocate, such as factoring. However, one easy-to-implement and effective way to think about allocation is the balance of active and passive investments one holds. Active investments, when well done, can offer long-term outperformance. However, they also have more significant risks. Accordingly, this can be the risk/upside portion of a portfolio, while passive strategies, which are almost by definition more diversified, can be more of a hedge.

FINSUM: This not only makes sense in equities, but this consideration about active vs passive holds across different asset classes as well.

(New York)

Rollovers are obviously critical to almost all advisors, yet many don’t have seem to have gotten the memo: rollovers are changing significantly. The big change stems from the fact that Biden just let the new Trump era fiduciary rule go into effect, which was unexpected. According to the new rule, rollovers count as fiduciary advice. This is counterintuitive for many, as one leading industry lawyer, Brad Campbell from Faegre Drinker, commented “People have made the argument that rollovers cannot be fiduciary advice because it’s a one-time recommendation”. Here is the full analysis: “If you and the participant that you’re recommending rollover to, even though you advised them to do the rollover now, when you entered into that arrangement to give that advice, did both of you intend that you would meet again in the future to give more advice? To actually manage the assets or advise about managing the assets in the IRA? … If the answer is yes, we both intend to meet in the future, then DOL views it as an anticipated ongoing relationship. In other words, the beginning of an advice relationship that is fiduciary from the initial advice”.

FINSUM: This is pretty clear once you understand the logic, but on the surface it is a little hard to discern. Because no one expected this rule to actually go into effect since the election, many seem to be unprepared.