Wealth Management
Annuities have had rapidly growing interest in the post covid era, and this has been especially true for variable annuities. What makes variable annuities attractive is inflation and interest rate risk which will elevate their value, however, for annuities providers and insurers, this is represented as risk. In an action to mitigate those risks Aegon, the parent company to Transamerica, engaged in a buyout program that ended in January. In total 18% of annuity holders capitalized on buybacks to settle their portfolio. Transamerica also expanded its hedging strategies to ensure against interest rate and equity risk for the remaining balance of its variable annuity portfolio.
Finsum: Recent legal changes have drastically affected the insurance and annuity industry which has been key to their growing demand, in addition to the covid-19 pandemic and rising subsequent unemployment.
According to a recent ThinkAdvisor article, 2022 is expected to be another record-setting year for launches and fund flows, mostly actively managed ETFs. Interestingly, RIAs are seen introducing their own ETFs, based on their proprietary investment models.
Did you launch a new fund in 2021 or are you thinking about launching one in 2022?
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Vanguard turned the investing world upside down with the advent of index-based investing. In 2022 there could be a new predominant investment vehicle taking the reigns: custom indexing. However, this fad has failed to create traction globally the way it has in the US. The two keys that are preventing custom indexing from reaching the same level of success globally are technology and taxes. CI relies on the software tools and facilities to manage this algorithmic portfolio construction, and lots of global firms aren’t there yet. Additionally, tax-loss harvesting makes custom indexing wildly popular in the US, but those same advantages don’t exist in the fiscal structure of other countries.
Finsum: Many of the industry giants are buying up custom indexing firms left and right which will get rid of the technological barrier in custom indexing for countries around the globe.
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Edward Jones and LPL are two industry titans in terms of total advisor employment, but these firms are moving in drastically different directions when it comes to talent acquisition and development. Once Jones had a 30,000 advisor target but since the pandemic, they have scaled back recruitment efforts and shifted strategy. This had their numbers dwindle by 2% year over year to 18,823 brokers. LPL on the other hand has doubled down on recruiting efforts and saw its head count surge by 15%. What drove this growth was a combination of new recruiting models and full-service firms and acquisitions. However, despite losing advisors Jones saw revenue grow by 22% from 2020 to 2021, because the rising markets increased the fee-based revenue.
Finsum: There are lots of transitional costs from squirting new talent: training, legal, etc in the short run this can eat at the bottom line when trying to grow.
Capital gains taxes vary based on a lot of factors. Those dwelling in California for example may pay up to capital gains like regular income for their state taxes, which can be brutal. However, variation in income and holding duration play a large part in the total expected payments for cap gains. Finally, medicare surtaxes for those couples with over a quarter of a million in income will face additional capital gains taxes. Investors should take early precautions at the beginning of 2022 to consider how to mitigate their tax bill for the upcoming year with tax-loss harvesting. Realizing certain losses in the middle of turmoil can minimize your final tax burden.
Finsum: There are great advantages in tax-loss harvesting that you can take advantage of in crypto still, and now might be a perfect time.
Joe Curtin, head of portfolio management at Merrill Lynch’s Chief Investment Office said there is increased interest from financial advisors in adopting model portfolios. Merrill is an industry leader in MP development, and they have seen AUM pull through almost triple since 2015 in this area. Part of what’s driving the interest is thematic investing within model portfolios. Risk and return are priority concerns with thematic blankets like ESG, demographics, and big data that align with investors' interests. Merrill is planning on launching more portfolios in the future with thematic focuses. Currently, they manage 147 portfolios with around $200 billion in wealth.
FINSUM: MPs are seeing wide adoptions because of their ability to easily tackle themes that 21st-century investors want in their portfolios.