FINSUM

FINSUM

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With signs that inflation is starting to tick higher and renewed concerns about the stability of banks, many investors are looking to shield their portfolio from a rise in volatility. As 2022 demonstrated, rising inflation creates conditions that are unfavorable for stocks and bonds. 

 

One way that investors can protect their portfolios is to increase their allocation to fixed index annuities. They can help investors reduce risk while still allowing for accumulation. A fixed index annuity (FIA) functions similarly to a traditional annuity as it guarantees some payment while allowing for deferral of taxes. However, the key difference is that it also tracks a specific index to allow for appreciation of the principal as well. 

 

Unlike fixed income or equities, there is much less downside risk and sensitivity to interest rates. Essentially, the FIA will not see any loss of principal in the event that the index suffers losses. However if the index has positive returns, the FIA will capture some portion of the upside. 

 

Thus, FIAs can help reduce portfolio risk and shield investors from disastrous scenarios especially if they are in or near retirement. At the same time, it ensures that the portfolio is also protected against inflation, reducing the risk that a retiree will outlive their savings.


Finsum: Risks to the outlook have been steadily rising in 2024 as inflationary pressures are once again building, and there are renewed concerns about the health of the banking system. Here’s why fixed indexed annuities are an effective way that investors can diversify and de-risk their portfolios.

 

According to recent SEC filings from LPL Financial and Cambridge Investment Research, it’s clear that M&A activity remains robust. Lately, it’s the independent broker-dealers that have been the most aggressive in terms of dealmaking. 

 

For instance, LPL Financial revealed that it made 19 acquisitions in 2023 using its ‘liquidity and succession’ program for a total of $190 million although this could rise as high as $297 million depending if certain criteria is met. Currently, LPL is a leading broker-dealer with over 21,000 advisors. 

 

Previously, broker-dealers offered succession plans for retiring financial advisors. A new development is that these broker-dealers are buying up their own advisors’ books. The most notable recent example is LPL buying one of its own branches, Financial Resources Group Investment Services which managed $40 billion in assets. 

 

The catalyst for this trend is the entry of private equity buyers into the marketplace which is increasing pressure on independent broker-dealers to retain the books of their existing advisors. According to Carolyn Armitage, an industry consultant, “Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that’s a more diversified way to earn money on those assets.”


Finsum: The M&A market for financial advisors’ practices remains heated. Private equity buyers are a new force and willing to pay large multiples. It’s forcing independent broker-dealers like LPL to be aggressive in order to ensure that existing advisors’ assets don’t migrate to a different platform. 

 

Recent bond market volatility has caused discomfort for fixed-income investors, but it presents an opportunity for active management to potentially enhance returns. 

 

Despite efforts by the U.S. Federal Reserve to tighten monetary policy and curb inflation, uncertainty remains as to the future direction of interest rates. This uncertainty has led to fluctuations in bond yields, creating both challenges and opportunities for investors. 

 

By focusing on quality and liquidity, particularly in areas such as agency mortgage-backed securities, active managers can navigate these challenges effectively. As the market evolves, active management offers the flexibility to capitalize on changing conditions and uncover pockets of opportunity, potentially outperforming despite ongoing uncertainty.


Finsum: Macro uncertainty is giving active managers an upper handed in bond markets, and it could lead to additional alpha. 

Friday, 08 March 2024 05:11

Improving Diversity With Direct Indexing

Direct indexing, increasingly popular among investors, particularly benefits those with concentrated company stock positions by allowing them to replicate index performance while retaining control over individual securities. 

 

This strategy, once reserved for the ultra-wealthy, has become accessible and affordable for investors at all levels due to recent technological advancements. Through customization based on preferences and goals, direct indexing offers diversification and risk management, crucial for those with concentrated stock holdings. 

 

Tax efficiency through strategies like tax-loss harvesting further enhances its appeal, maximizing future value potential for investors. With its ability to reduce risk and enhance performance, direct indexing presents a compelling option for investors looking to protect and grow their assets.


Finsum: It used to be infeasible to use direct indexing, but technology improvements are giving smaller investors the edges in tax and diversification that was reserved for the ultra wealthy.

Boston-based wealth management firm NDVR has introduced a cutting-edge solution allowing financial advisors to efficiently manage and optimize client portfolios. The updated NDVR Portfolio Lab streamlines portfolio construction and management, catering to RIAs, family offices, and high-net-worth individuals. 

 

Through advanced technology, advisors can tailor investment strategies and asset allocations to meet each client's unique needs and goals, while also providing outcome forecasting for more personalized portfolio adjustments. The platform's household wealth optimization feature enables the creation of diversified portfolios across various account types with automatic deployment, alongside capabilities for optimizing tax-advantaged account distributions and providing actionable insights through "what-if" scenarios. 

 

NDVR offers a range of strategies, including custom indexing and tax-advantaged fixed income solutions, aiming to empower advisors to enhance client outcomes and foster long-term relationships with innovative portfolio solutions.


Finsum: Tailoring solutions that meet clients’ needs will allow for better portfolio optimization and construction.

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