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Thursday, 26 March 2020 13:27

Jobless Claims are Staggering

(New York)

Today is a stark reminder of the differences between the view from Main Street and the view from Wall Street. US weekly jobless claims were leased this morning and broke the all-time record of weekly losses by almost 500%. The previous record was 695,000 jobs lost in 1982. This week’s figures was 3.28m. Yet despite the shockingly grim number, stocks are rallying heartily as investors bet the government’s stimulus will be a cure-all.

FINSUM: This is a great example of how the market only cares about actual vs predicted numbers. Investors figure the 3.3m losses were already priced in, so presumably there is upside. The reality of where things head is anyone’s guess.

Thursday, 26 March 2020 13:26

Merrill Lynch Gives Advisors a Break

(New York)

Merrill Lynch is giving its herd of advisors a break on their incentive compensation. Brokers at Merrill have a piece of incentive compensation which gives them a bonus if at least 30% of clients use three specific services. But instead of making the cut off for meeting those quotas July of this year, they have extended it to January 2021, giving brokers an extra 6 months to meet those goals. Merrill Lynch says that the change will allow advisors to focus on best serving clients in this volatile period.

FINSUM: Even with the six-month extension, given the market volatility, it will likely be difficult to cross-sell clients into new products.

Wednesday, 25 March 2020 12:50

Beware of a Market Rout Tomorrow

(New York)

Yes, the market had an unbelievable day yesterday. It was so good in fact, that it reminds one of all the things bad about the current situation—markets don’t rise 11% unless there is a huge crisis going on. At the time of writing, markets are pretty flat today, but tomorrow could be a doozy. US weekly jobless clams get released tomorrow morning and will be one of the first tangible signs of how the economy is trending under the coronavirus lockdown.

FINSUM: Many analysts are saying we might hit 30% unemployment, depending on how long this general virus lockdown lasts. Tomorrow could be the first sign of things to come and markets may react sharply.

Wednesday, 25 March 2020 12:49

Some Annuities are Sellable

(New York)

Many people who are thinking about annuities don’t realize that many of them are sellable products—they don’t necessarily have to be held forever (even if that is often the best strategy). So which annuities are sellable and which aren’t? In general, SPIAs (single premium immediate annuities), DIAs (deferred income annuities), and QLACs (qualified longevity annuity contracts) are not sellable; VAs (variable annuities), FIAs (fixed index annuities), and MYGA (multi-year guarantee annuities) are usually sellable. Each of those latter products have surrender charge time periods in them, so it may cost something, but it does mean money is not locked in them forever.

FINSUM: Since selling would usually not be the best idea, this is more of a peace of mind factor than anything else, in our opinion.

(New York)

Many RIAs across the country are worried right now. With fee levels often tied to AUM, revenue seems likely to take a ~30% hit this year. That is enough to break many RIAs, especially those who were previously running only 10% profit margins. So how can RIAs cope? Firstly, those who have been very tight on budgets are in better shape. Those who were operating at 30% profit margins should be okay. A few of the key aspects to consider right now are: reaching out to vendors to “share the pain”, changing compensation structures towards lower fixed pay and more incentive-based pay, and switching to a quarterly budget, which will better align expenses and income.

FINSUM: We might go through a long period of lean times, so RIAs need to act fast to get their fixed costs under control.

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