Wealth Management
(New York)
With interest rates so low there has been increasing interest in the role that annuities can play for those near or entering retirement. Bonds just aren’t playing the dual roles of safe haven and income source that they once did, and annuities are a naturally inheritor of that role for the foreseeable future. However, one thing that many are not clear about is how well fixed and variable annuities can work together. While fixed annuities offer guaranteed income, they are susceptible to inflation. Accordingly, many retirees might also want to have some upside that will allow their payouts to move higher. Enter variable annuities, which can offer enhanced income in up markets (but do risk lower payments in down markets).
FINSUM: Fixed and variable annuities work well as a pair. The portion invested in fixed offers guaranteed income, while the variable portion offers upside potential.
(Washington)
President Biden wasted no time in appointing a new Department of Labor chief. He has named Martin Walsh as Secretary of Labor. Walsh is currently the mayor of Boston and his history offers some insights into what his agenda may be. The Democrats have made very clear that one key component of their agenda is to undue the current DOL 2.0 rule and revamp it with a much stricter Obama era-like rule. That said, the naming of Walsh slightly complicates that picture. He was a union leader in Massachusetts and Biden has celebrated that Walsh is the first union member to lead the DOL in over half a century. Therefore, most think his immediate focus will be on workers’ rights issues and the gig economy rather than on wealth management.
FINSUM: It is hard to say how this will play out, but the naming of Walsh certainly makes it seem like a new rule may be slower in coming than some have feared.
(New York)
The market has been a bit choppy to start the year, including a loss over the last five days. See the full story here on our partner Magnifi's site.
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(New York)
Any way you slice it, 2021 seems like it will be a good year for munis, and not because the financial condition of municipalities is so great (it isn’t!). One of the main reasons why is the incoming administration and Congress. Between Biden’s stimulus plans and the now Democrat-controlled Senate, the odds for large amounts of local and state financial support from the federal government are quite high. This part of equation is well understood, but there is a second aspect of the Democrats’ plans that will also be beneficial to munis: they plan to raise taxes on the wealthy. Higher taxes on the wealthy would directly increase demand for munis bonds, which means they should have a tailwind this year.
FINSUM: The part about increased taxes and how it drives muni demand has not been discussed enough. We think this is an excellent angle and combined with financial stimulus, should set up a couple years of smooth sailing.
(New York)
Here is a non-sensical but fully logical sentence for you: bonds just aren’t “bonds” right now. What we mean is that bonds simply aren’t fulfilling their long-understood role any longer. They yield very little and have a great deal of risk—both the opposite of their traditional role. So where can advisors turn? One increasingly interesting area is annuities, and fixed index annuities in particular. They offer the downside protection investors need, and upside participation everyone wants. Principal is never put at risk to the market, but interest from the initial purchase is used to participate in upside. In other words, you have principal protection with some upside potential—just like bonds have traditionally been used.
FINSUM: Fixed index annuities seem to be a very good alternative to bonds in the current environment.
(New York)
There are so many things for a broker to consider before going independent. Aside from all the main ones that are usually discussed—compensation, freedom with clients etc—another key concern is branding. Many brokers have trouble leaving the big name on their business card behind when changing firms. Even advisors who are already at RIAs have a big choice to make in changing their branding. All of this highlights a key point: branding and marketing matter a great deal when going independent, and the support the new RIA provides is critical. Essentially, an important question to ask your potential new RIA is what kind of branding and marketing support they provide to help you transition existing clients, but also acquire new ones.
FINSUM: Marketing and branding are crucial areas where RIAs can vary wildly. Those with strong offerings will empower advisors to acquire new clients and grow AUM, where weak offerings can lead to client attrition and few new opportunities.