Wealth Management
Direct indexing is one of the fastest growing market segments and investors surveys confirm that customization is king of the modern landscape. Curulli Associates forecasts that direct indexing will grow faster than ETFs and mutual funds. Custom indexing has a legg up on traditional ETFs when it comes to volatility because investors can harvest losses as the market takes dips. With traditional ETFs investors have to just eat the losses as they slow the long run growth of the fund, but micro dips can be maximized by taking advantage for tax purposes, say industry quants.
Finsum: It's clear that direct indexing has advantages over traditional ETFs, but even when compared with their fees the tax savings is worth it for direct indexing strategies.
There has been an explosion of annuity interest by investors, a lot of that is being driven by the low-interest-rate environment and increased uncertainty more broadly. Health is a key factor in an annuity purchase, but a healthier individual will receive lower payments so they may want to delay their annuity purchase. If you are seeking a deferred annuity, however, then you may want to purchase it sooner and annuitize later in order to grow the value if it has a guaranteed interest. Finally, inflation can eat at the value of a fixed annuity which means it might devalue your payment stream later on. The optimal purchased time for a fixed annuity is generally a couple of years post-retirement: 70-75. A deferred annuity should be purchased much younger, the optimal age being in the mid-40s.
Finsum: Consult a financial advisor as to which annuity timeline makes the most sense for your portfolio.
Wells Fargo’s recruiting efforts have been no secret, but it looks like it is starting to pay off. In Q1 of 2022 they brought in over $5.4 billion in assets under management. Wells had seen advisors flee as a result of various public scandals in the last few years. They had lost 1.5% of their advisors in Q4 of 2021 and 8.5% in the whole year prior. The firm has said they are more pleased with their recruiting efforts as of late, but they are still putting forth efforts in the hiring process to retain and recruit advisors.
Finsum: Wells Fargo may be turning a new leaf and the bonuses related to advisor recruiting and retention are bringing in more assets.
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The U.S. is seeing 30-year records on inflation, and whole generations of American’s have never seen inflation this high. Even worse inflation is even more elevated for healthcare services. Healthcare inflation is expected to be nearly 12% for the next two years according to HealthView Services. This could be a huge hole in retirement savings as a couple of retirees today can expect to spend over $85k on healthcare, those retiring in a decade over $160k and those in the next two decades just shy of $260k. Moreover, social security won’t be enough as the cost of living adjustment doesn’t track healthcare inflation or even standard inflation. Meaning healthcare costs will eat away at most of Social Security.
Finsum: HSAs are more valuable than ever given these ridiculous healthcare inflation costs.
There has been a serious increase in interest in annuities during the pandemic, but overall the product suffered as retirements got put on hold. Bond market disruption has increased that excitement and Legal and General, a British provider, is expecting a big turn around with the pandemic in the rear view. They have already seen a 5% uptick in since the onset of the pandemic. A full recovery is underway and retirement is back on the agenda for many investors, which makes annuities attractive again. Additionally data around savings rates and flows are trending positive for annuities as well.
Finsum: Annuities are just the better alternative for many retirees when the interest rates and inflation are in the position they are now.
Model portfolios have been a surprisingly quick growing tool for the financial industry in the last year, and Morgan sStanley’s Wealth Management is capitalizing by adding a series of new model portfolios. These strategies will have hefty minimums of $750k to $1.5 million and are targeting tax and direct indexing strategies from the recently acquired Parametric. This was a key reason Morgan Stanley acquired Parametric last year to rapidly develop and deploy direct indexing strategies. Overall the portfolios have acquired $150 million in assets since their inception in January.
Finsum: Financial companies took a page out of tech companies playbook by just acquiring the companies that might align with them and allow the to quickly scale when it came to direct indexing.