Direct indexing, along with ESG and active funds, has been the dominant narrative in 2021, but that could be the case going forward. Morgan Stanley published a report predicting direct indexing to grow by over 300% to a $1.5 trillion industry. Companies like BlackRock, JPMorgan Chase, and Vanguard (among many others) are racing to bring a previously exclusive opportunity to more investors. The biggest advantage is taking advantage of the individual stock ownership by realizing losses for tax purposes, which studies have shown can increase portfolio returns by about 1%. Realize this comes at a cost because this has a more active tilt to it which comes with higher fees and costs. This could be a net benefit as direct indexing costs are about 0.17-0.27 percentage points higher on average and clearing the tax returns.

FINSUM: To the layperson direct indexing is the active wolf in sheep’s clothing, but they take more advantage of tax-loss harvesting than traditional active investing, benefiting their clients.

Biden was expected to come into the presidency with a tough regulation on Wallstreet. However, the snail’s pace with which Biden replaced key financial regulatory figures, hindered the quick change many expected, but now many officials are in place and change is coming. One of the biggest areas of the crackdown will be on stable coins and other digital currency as the federal government views them as systematically risky. Additionally the Biden admin will begin constricting new fintech lenders, who many in the admin see as pseudo-banks without any of the stringent regulation that affects the real banking industry. This is all part of larger changes that will take a more restrictive stance on Wallstreet undoing a lot of friendlier policies from the Trump administration and will include other central topics like climate change.

FINSUM: With many regulators now in place real change could be coming to the street, the tech-related products which are viewed as unregulated to this new administration.

Muni ETFs have set a record for inflows this year drawing a whopping $83 billion. Bond buyers are fleeing the low yield big government debt with inflation risk and flocking to Muni funds which have more attractive fees and still have some after-inflation yield. Active funds are seeing a large uptick as a subsegment with big winners like JPMorgan Ultra-Short Muni Income ETF, and new active funds are popping up at a fast rate. Institutional investors see lots of growth in active fixed-income ETFs as more investors are chasing outperformance in a stagnant bond market. 

FINSUM: As the Fed comes down on the treasury market, muni’s are in a prime position to get yield pass through to fight against inflation.

Millions of Americans are reliant on the social security payments as they shift into retirement, and while SSA boosted the amount in checks by 5.9% it pales in comparison to the record CPI numbers. The CPI climbed at a jaw-dropping 6.8% in November, which skims a healthy amount from the bottom line. Another large factor eating at people’s retirement social security is Medicare Part B premiums and are cost-of-living reducer. Medicare Part B premiums will subtract 29% percentage points from the Social security Take home over the next 30-years. Finally, retirees should be wary that their prescriptions are covered by Medicare because otherwise, they will be a hefty retirement expense.

FINSUM: It’s outrageous that social security and other retirement accounts aren’t keeping pace with the actual costs of retirees, and needs to factor into investment decisions.

The 2019 Secure Act paved the way for types of assets to be added into 401(k) plans by limiting the legal liability of partners. Since then it’s been a series of new companies announcing the addition of annuities to retirement plans. However, this is a huge chunk of money in the form of a deferred income that advisors won’t necessarily be managing. A growing number of advisory firms are concerned as large amounts of traditional investment being managed by advisors will now be tied up in annuity contracts. A peek behind who the major lobbyist for 2019 secure reveals its mainly insurance companies limiting their liability and existing retirement vehicle supporters like Fidelity. Finally, this could be bad for clients as many institutional investors can get better deals on annuity prices for their clients.

FINSUM: While the care act will undoubtedly affect annuity demand, it could adversely affect advisors in their client’s retirement future.