A major trend in wealth management is the rise of customized products and services. Direct indexing is essentially a personalized equity or bond index. 

In terms of benefits, direct indexing gives more control over the timing of realizing capital gains for maximum tax-efficiency. Unlike ETFs or mutual funds, tax losses can be harvested and then used to offset capital gains with direct indexing. According to research, this can boost after-tax returns between 1% and 2%. 

It also allows clients to invest in a way that aligns with their values and/or unique financial situation. This could mean not including stocks from a particular industry, such as tobacco or firearms. It also allows for better risk management, as exposure to certain stocks or sectors can be more effectively managed. 

In terms of drawbacks, a major chunk of direct indexing’s benefits are due to tax savings. However, this is less relevant in a retirement account. Another complication is that short-term losses cannot offset long-term gains. 

Another is the ‘wash sale rule’ which means that investors cannot sell and then repurchase the same security within 30 days. One workaround is to buy securities with similar factor scores to remain consistent with the underlying benchmark. 

Finally, direct indexing has become available to a wider group of investors in recent years due to technology and low-cost trading. However, it’s still most impactful for investors in a higher tax bracket, long-term capital gains, and large, concentrated positions. 

Finsum: Direct indexing is increasingly popular, especially as it’s becoming available to more investors. However, the strategy is most applicable for investors in a higher tax bracket, large concentrated positions, and long-term capital gains. 

In the past two years, retirement investors have funneled over $20 billion into US exchange-traded funds (ETFs) that limit both gains and losses, challenging traditional insurance products. These "buffered" ETFs capitalize on derivatives to cushion the effects of extreme market swings and have grown popular since their 2018 debut, especially after the market turbulence of 2020 and 2022.

The draw of buffered ETFs lies in their downside protection, which has become increasingly attractive to investors seeking to safeguard their retirement savings. Financial advisers in the US have embraced these ETFs, driving $10 billion in net inflows in both 2022 and 2023, while taking market share from the $3.3 trillion annuities market and costly structured notes.

This has grown not only the size but the scope of the market with 200+ defined outcome ETFs in the US, totally a staggering $37bn. In turn new competitors like BlackRock and AllianceBernstein are joining the competition to try and capitalize on the gains from First Trust and Allianz. 

Finsum: The uniqueness of buffer ETFs really is in how they integrate derivatives to drive performance and outcomes and can present nearly all in one solutions. 

Financial advisors frequently turn to bonds when managing retirement investment risk, as they are traditionally viewed as a reliable hedge against stock market fluctuations. However, recent research suggests caution, with a Bloomberg report revealing that the bond market has experienced significant volatility in recent years, and the traditional hedging with fixed income might be inadequate. 

To circumvent losses from bond volatility, fixed index annuities (FIAs) can serve as an effective alternative. FIAs generally carry lower risks compared to bonds but they can do so at a reduced price with a much higher potential upside. Unlike bonds, FIAs can guarantee a lifetime income, providing a unique form of security for retirement planning.

Interest earned from FIAs is based on an external market index, such as the S&P 500, allowing investors to benefit from market gains without the risk of market volatility. This makes FIAs an appealing option for achieving a balanced and secure retirement portfolio.

Finsum: This really comes down to investor preferences, but stock-bond correlation is increasing which should give investors reasons to consider annuities. 

Pickleball is the fastest-growing sport in America. Last year, the number of Americans playing increased by 53%, for a total of 13.6 million, making it the fifth-most popular sport in terms of participation. This makes it roughly equivalent to those who played baseball (16.7 million), soccer (14.1 million), and skied (13.1 million). 

Pickleball still trails tennis (23.8 million) and basketball (29.7 million) by wider margins. However, it’s increasingly difficult to see the sport as simply a fad, especially with major investments in the space in terms of building public courts at the local level, indoor facilities, two professional leagues, expansion to international markets, etc.

Even more impressive than the 53% increase in the number of players is the 111% growth in ‘core players’, defined as those who play more than eight times a year. It’s translated into the number of public pickleball courts in the US increasing by 650% over the last 7 years. 

Private operators are also seeing an opportunity. CityPickle was founded in 2022 and currently has multiple locations in New York City, including 14 courts in Central Park’s Wollman Rink. There are also franchises in other parts of the country, including Ace Pickleball with 80 franchises awarded, Pickleball Kingdom with 140 awarded, and Chicken N Pickle with 16 locations.

Gyms and golf clubs, such as Life Time Fitness and Invited Clubs, are also investing as if pickleball is more than a fad. Life Time now has nearly 700 courts across 170 locations and has invested $60 million into building courts. The gym saw 51% growth in pickleball players at its clubs and forecasts having 1,000 courts in the near future. Invited Clubs is the largest operator of private golf clubs and has spent between $10 and $12 million in the last 3 years and has nearly 500 courts.

Finsum: Pickleball was the fifth-most-played sport in the US last year. It’s surprising since most people had never heard of the sport until a couple of years ago. Yet, serious sums of capital are flowing to it, indicating that it’s more than a fad.

While the looming demographic shift to millennials is upon the RIA community the question of which actions to take is something completely different. A massive generational wealth transfer is on the horizon, yet numerous firms find it challenging to transition from acknowledgment to action. 

Broadridge's "2024 Financial Advisor Marketing Trends Report" indicates that 78 percent of advisors target baby boomers due to their considerable wealth, but Cerulli Associates reveal that fewer than 20 percent of affluent investors retain their parent's financial advisors, underscoring a significant potential loss or opportunity.

To ready my firm for next-gen clients, I emphasize technology that boosts operational efficiency and client interaction. Investing in technology not only draws next-gen clients but also makes the firm more enduring and future-proof, ultimately resulting in higher valuations or a more robust business.

Finsum: Even millennials want a personal touch in their financial advice, but integrating technology will help you deliver optimally.