(New York)

Annuities have seen major growth in popularity since the pandemic began—a 40% tumble in stock prices when a huge portion of Americans are about to retire will do that. Annuities sales have risen, and advisors—especially those new to selling them—may be asking themselves if the products are good fit for all clients. The answer is a resounding “maybe”. The reality is that almost all portfolios can benefit from a portion being put in a product with guaranteed lifetime income. However, the degree of exposure depends hugely on the client’s wealth, spending habits, self-control (as it relates to withdrawing from investment accounts), and even personality. According to the head of a leading firm in the annuities space, “I think that, in general, an annuity makes sense for most people. The only true way to guarantee lifetime income is through an annuity contract with an insurance company”.

FINSUM: For the wealthy and those with great self-control an annuity is an excellent hedge against big losses. For the rest, it can be a critical component that preserves lifetime income.

(Washington)

Many advisors may not have realized it yet, but the new COVID relief package passed by Congress recently has many benefits for upper middle class Americans and even those in the mass affluent category (which constitute tens of millions of clients for advisors). Other than the $1,400 checks, there are also two lesser known details advisors need to be aware of. If a client qualified for a check last time, but did not get one, they can claim the money they would have been entitled to as a credit against their taxes. It is a bottom line deduction that comes directly out of taxes owed. If no taxes are owed, they should get the credit as a refund check Additionally, the package offers enhanced child tax credits. This is $3,600 per child under 6 years old, and $3,000 per child between 6 and under 18 years old. The latter used to be for those under 17, so this helps those with 17 year-old children. Finally, those who have student loans that will be forgiven will not have to pay taxes on the forgiven amounts, which is a massive benefit for those who qualify.

FINSUM: There is a lot more to this package than many realize. Advisors should take a deeper dive to see what applies to their clients.

(New York)

There might be a great migration in the cards for bonds. While many have spoken of a broad migration into equities that occurred over the last year, a smaller scale change might be about to occur within bonds. Treasuries have been getting hammered, and corporate bonds are appearing increasingly attractive to investors for a number of reasons. Firstly, their durations tend to be much shorter, meaning they have significantly lower interest rate risk—crucial right now. And secondly, with the economy picking up, earnings and business health are looking brighter and brighter.

FINSUM: Aviva Investors thinks corporate bonds have a nice pathway to gain. While rates are working against corporate bonds, the fundamentals are strong. If yields finally stabilize under 2%, it is easy to imagine investors piling into corporate bonds as the recovery strengthens.

(New York)

Commodities have been doing great this year. The big rise in demand coupled with weak supplies because of COVID have led to a surge in prices. However, one bright spot—metals—might have some trouble looming on the horizon. There is increasing speculation that the US may scrap pennies. If that happens, it could put a dent in the copper and zinc markets. This dent would not only come from a lack of new demand, but the fact that pennies would be taken out of circulation and recycled. This would amplify the effect by boosting supply to the system and lowering demand for newly-mined metal.

FINSUM: This might have a strong psychological effect even though the total quantity of zinc from pennies accounts for less than 4% of total annual output.

(New York)

In an eye-opening “expose” type article, for CIO of Blackrock’s ESG division went on the record saying that ESG was largely just hype and had little substance behind it. According to former CIO Tariq Fancy, “In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community”. The comments ran in USA Today on March 16th.

FINSUM: The reality is a little more complicated. ESG does suffer from a great deal of greenwashing, and firms—at first—did little to genuinely integrate ESG into their decision-making. Over time, they have taken greater account of real ESG factors in investment selection, but at the same time much of what constitutes “ESG” and “green investment” is muddled and unclear. There is a reporting issue that the whole industry suffers from—there is not enough data to separate good from bad companies—and thus much of the investment selection gets generalized according to industries (e.g. tech is good, energy is bad), which is so broad as to be almost useless.

(New York)

Are annuities a good deal? This is a seemingly simple question with an incredible range of answers. The reality is that the answer depends on who you ask. If your main consideration is stable income in retirement with little risk to principal, then the answer is a resounding yes. If you are looking for great upside great and are not concerned with losses of principal, then the answer is no. And therein lays the most important part of annuities—they need to fit client goals. Studies show that despite the lack of “fit” for some clients, annuities do add value to almost all portfolios, even if clients are often reluctant to buy them.

FINSUM: Annuities are about to be allowed into 401(k)s, which is a big growth opportunity for the space. Insurers are going to have to keep honing their positioning and messaging to appeal to retail buyers directly.

(New York)

The prospect for rising inflation has been terrifying the market, and investors need a way to play it. April gold futures peaked at $1750 on intraday trading after the recent Federal Reserve decision to leave the federal funds rate unchanged, and that tells investors something important: gold may be the way to go. Moreover, Powell said the fed funds rate would remain unchanged until 2023, even if economic news improved. The Fed even plans to tolerate higher than 2% inflation given inflation has averaged well below the Fed’s Target the past year. This was enough to spike gold prices as investors are now as concerned about future inflation as many investors see the commodity as a hedge. Treasury yield rises had many investors worried the Fed would preemptively tighten, and Gold was down before investors realized how committed the Fed was.

FINSUM: Spreads between inflation-indexed and nominal bonds (TIPS spreads) indicate that rising yields are driven by inflation risk. Gold is one of the most assured hedges against future Inflation.

(St. Louis)

Stifel is a well-regarded firm in our industry. However, one characteristic of it that doesn’t work for all brokers is that they have an employee model. This runs counter to many of the independents with whom Stifel often gets grouped. Well, that looks like it is about to change as the firm has just hired a leading executive away from Wells FiNet in order to grow Stifel’s independent side, which currently stands at only 90 advisors, or only 4% of their total advisors. The firm is rebranding its independent arm to Stifel Independent Advisors and is looking to recruit new advisors to join.

FINSUM: This seems long overdue in our eyes. Stifel is a great brand and there is untapped interest for advisors to join them as independents.

(Washington)

Brokers, advisors, anyone covered by Reg BI, look out for a crackdown by the SEC. Former chief of FINRA, Susan Schroeder, says that enforcement is likely to start soon (i.e. this year) and may be “very aggressive”. According to Schroeder, “Early enforcement actions will be predicated on things like policies and procedures, but by past SEC standards, that is very aggressive”, and if the enforcement actions “are predicated on things like inadequate training or failures to have policies and procedures, from a legal theory perspective, that’s aggressive”.

FINSUM: So any way you cut it, SEC enforcement of the DOL rule this year looks like it is going to be intense. Brokers beware.

(New York)

The annuities world is generally not what most advisors would describe as “exciting”. Annuities are crucial products which fill a valuable void for millions of clients, but there is nothing in the space akin to a sizzling thematic ETF. However, New York Life recently launched a very interesting product that brings a degree of flexibility to the space that has never been available before. Their new Index Flex offering combines the benefits of variable annuities with those of index and fixed annuities, and very excitingly, allows holders to move between the two. Index Flex is essentially a hybrid product that combines the predictability of an index-linked annuity with the upside potential of a variable annuity. Taken as a whole, this is a combination of benefits that is only available at NYL.

FINSUM: As our advisor readers will know, we cover annuities to a significant extent and this new product launch is pretty rousing to see as the ability to shift between strategies is a highly unusual and beneficial feature for clients.