Wealth Management
(Washington)
Biden has officially made his new SEC pick—Gary Gensler. And while the nomination has not gotten much press, what comes next may. Many fiduciary advocates and those on the left are making a big push for a change to Reg BI, and not just in terms of its actual content, but the name itself. “New suitability standard” is a name that has been floated for example. One industry lawyer, Brian Hamburger, put it this way, “Brokers, as they are registered as brokers, are representative of products; they derive their powers by way of a selling agreement between product manufacturers or investment products; and the dealer component, where they have an obligation to distribute that as appropriate to customers … That is a far cry from having to act in a client’s best interest”.
FINSUM: Most readers here are probably thinking “who cares what it is called”, but that is not the root of the matter. Rather, the name may be a symbolic first step of a major overhaul and the creation of a true fiduciary standard by the SEC.
(New York)
If there is a product that looks like it has a great ten-year horizon ahead of it, it might just be annuities. Just like eSports and electric vehicles seem to have a great demographic trend behind them, annuities will ride a wave of retirees into great success. However, that is not the only tailwind. The other is ultra-low interest rates, which have completely upended the role of bonds in a portfolio. They yield very little and have a great deal of risk. Understanding that, annuities have a very interesting role to play, as between the three major types: fixed, variable, and fixed index, they offer a range of options that can help replace bonds. Fixed annuities offer set guaranteed income, variable give banded income but offer some upside, and fixed index work as a hybrid between the two.
FINSUM: Annuities have gotten a bad reputation over the years because of some high fees and bad actors, but product suites have gotten better. They can really round out a client’s need for low volatility income.
(New York)
Imagine you are an advisor at a big brand name broker-dealer or wirehouse. As much as you might gripe about your ever-changing compensation plan or the structures the firm puts in place, one thing you really like is that the logo on your business helps you win clients. Naturally then, losing that logo is a big challenge, both in terms of marketing, but also in terms you one’s own psychology. Therefore, when going independent it is critical to consider the marketing support you may receive. Many RIAs have next to none, or at least not much more than off-the-shelf options. However, some RIAs differentiate themselves through branding and marketing, such as leading investment concepts or customized marketing that empowers each advisor.
FINSUM: This might sound silly, but when considering whether to join an RIA google their name and check the Google News tab. Find key terms on their site (e.g. do they have any trademarked words?) and do the same. The firm’s marketing prowess will quickly become clear.
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(New York)
Annuities have seen a pickup in interest over the last year. At first this was because of the big drop in markets last spring, but as the year progressed annuities picked up steam because of ultra-low interest rates, which effectively rob retirees of income. For those who want rock solid guaranteed steady income, fixed annuities work best. But for many, especially those can afford some risk to the exact of income they will receive, variable annuities can work very well. Most variable annuities have a couple critical features—they allow you some degree of investment selection, if not total control, and they often guarantee your principal (though not interest income). What this allows is higher payouts if the market does well, but still a guarantee you won’t lose your principal. For those who want the safety of an annuity, but still some income upside because of market growth, variable annuities can be a good choice.
FINSUM: Annuities have some strong demand behind them right now and only seem likely to do better as rates stay low and more Boomers enter retirement.
(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.