Sweeping changes to the financial regulatory landscape are coming quickly. Stemming from changes to the interpretation of a Trump-age exemption are widening the regulatory umbrella. The U.S. The Labor Department is pushing a variety of accounts including annuities to be included in this expansion. Hidden and/or lofty fees in these areas are the source of the concern and lawmakers want the ‘best interests’ of investors in mind. Many companies are sprinting to align themselves with the regulation. Complying will include recordkeeping requirements, new policies and procedures, and new disclosures.

FINSUM: The drastic changes to regulation will really start to come in at the start of the year, and could monumentally alter the annuities market.

Model portfolios are being adopted by advisors at lightening speed, and that is turning itself into one of the fastest growing asset classes. This year model portfolios upped their holdings to $4.9 trillion, almost a 29% increase from the prior year. Companies like BlackRock have really leveraged model portfolios to fight inflation and changes to their portfolios yielded billions in inflows earlier this year. They aren’t just used to hedge against inflation they are being used to pick out ‘fallen angel’ corporate bonds which have a chance to ditch their junk bond status. Model portfolios allow for these tweaks which can more rapidly adjust to the macro changes in the economy.

FINSUM: Model portfolios give investors wider access to more quantitative methods which can outperform in the more volatile times like we are in now.

ETFs have been a fee destroyer since their inception, and advisors/companies have been forced to either play along or bleed AUM. However, direct/custom is putting the power back in in the hands of the advisors. BlackRock, Vanguard, and Morgan Stanley are all buying their way into the direct indexing craze. Direct Indexing is giving investors and advisors the best of both active and passive investing worlds. While stock picking might not have the best record, starting from a base index and then stripping or adding based on preference could give investors. Custom Indexing can be for a preference for/or against a stock but more importantly it gives investors the reins when it comes to their tax burdens.

FINSUM: Direct Indexing is the goldilocks solution to the low fee/advisor specialty conundrum, and will be the dominant trend in investing over the next decade.

Talks were making progress on the state and local tax reductions but they hit a wall this week. Democrats are splitting on the SALT deduction, specifically Senator Bernie Sanders has withdrawn from the previously agreed to plan. Democrats have been in agreement for a 10-year revenue neutral deduction, but Sanders wants to use the SALT deduction to be a revenue generator and use the multiple hundred billion dollars in revenue to pay for vision and dental in a Medicare expansion. The biggest disagreement is what incomes would be eligible for the unlimited benefit; Sanders wants to set the market at $400k while most democrats feel the limit should be $550k. Overall the current SALT write offs in the Build Back Better bill give up to $80k in write offs and this is too much for Senator Sanders.

FINSUM: Holding up the BBB for a SALT deduction is a small grievance. These deductions were revenue neutral which should be a bi-partisan victory.

With 2021 almost coming to a close it's worth looking back at the biggest ESG funds of the last year, and three have stood out in a very saturated market. Goldman’s Future Planet Equity ETF is an active fund that addresses environmental problems and has raked in $107m since its launch in mid-July. Invesco’s MSCI Sustainable Future ETF focuses on corporations utilizing natural resources more efficiently and has outperformed the previous Goldman’s Future Planet fund by 4.7% since July. Finally, the Humankind U.S. Stock ETF is an ESG focused fund that is weighted by proprietary data and varies greatly from the traditional cap-weighted ETF. HKND has raised over $106 million since its launch in February.

FINSUM: These are stand out performers in a highly saturated market, equity focused ETFs are the route to take as far as ESGs.