The $2 trillion Build Back Bill pushed through a contested House of Representatives last week and the climate and social-focused stimulus bill have a complicated tax code in order to garner support. BBB features a dynamic tax system with moving parts that evolves as years develop. Most significant of which is a tax break of about 5.4% relative to current legislation for those earning more than $1 million a year. This tax breaks scales down in income down to $75k, but spikes below that. However, this tax break is very temporary as the lion’s share of the legislation will be paid by higher income individuals. There are other benefits for the rich such as SALT relief, but by and large, starting in 2023 higher corporate taxes and a bump in personal income taxes of 5% will begin to take effect.

FINSUM: Biden’s BBB could be a bad storm of events for the economy where stimulus boosts inflation and higher taxes keep markets and real growth from keeping up.

Financial giants are snatching up direct indexing clients as fast as they possibly can, but they need to do more work to solidify their position with investors. Cerulli Associates is predicting direct/custom indexing will grow at a shocking 12% growth in the next five years which will outpace both mutual funds and ETFs for example. Part of what is responsible for that growth is lower exchange costs which make it possible to hold the underlying asset in an index that was previously untenable for anyone outside the ultra-wealthy. In order to fully realize the benefits of a direct indexing fund, directors will have to be like goldilocks of customization but not straying too far from the fundamental index. However, direct indexing is giving managers their best opportunity in years to take back the reins for clients and outperform ETFs and index platforms. Without a doubt tax loss harvesting is the best edge a director will have in customizing a direct index for their clients and it's the necessary part of how to stand out in the crowded space of custom indexing.

FINSUM: Investors should be in an open dialogue as to their clients preferences in diverging from the underlying index when customizing. The ship can steer quickly in the wrong direction.

ESG has been the hottest investment subculture of the last 5 years, and greenwashing was largely concerned with investors being skittish, but greenwashing has now metastasized and regulators are watching. Deutsche Bank AG’s asset management team DWS rode the wave as hard as any investment firm but now the U.S. The Department of Justice, the SEC, and Germany's BaFin are looking into the company's ESG claims. Whistleblowers have spurred the investigation and now Asoka Woehermann, the leader of the operation, is coming under pressure. This marks a new and more uncertain future for ESG, one that could have regulators holding a tighter leash over financial firms moving forward. DWS has reiterated they have done nothing wrong or steered investors in the wrong direction.

FINSUM: This is a major test for financial firms and forward-looking tools could be a difference-maker to keep regulators from targeting the next financial firm.

In their latest strategy release Morgan Stanley is pulling no punches about its projections for 2022, warning investors to unload and underweight U.S. Stocks, Bonds and Treasuries. They see tightening monetary policy, high inflation, and higher valuations all scaring them from a more bullish U.S. stance. They see the S&P dropping to almost 6% below its current levels. In order to find the gains they need they suggest investors look to Euro-area and Japanese companies, where they are bullish on equity prices. They also see commodities providing some portfolio relief. However, Morgan Stanley’s economists aren’t predicting a rate rise until 2023, and they see the Fed being more dovish than the broader market expects.

FINSUM: Conflicting messages inside Morgan Stanley. If Monetary Policy doesn’t over tighten then don’t expect a sluggish year in the U.S.

Model portfolio provider FE Investments is launching two new products: initial income retirement portfolio and long term retirement portfolio. The initial income portfolio is designed to mitigate risk in the early stages of retirement and has a low correlation with stocks. The second portfolio aims to keep investors from running out of finances throughout retirement with more equity exposure by targeting growth over a longer horizon. Both portfolios are trying to help retirees with the decumulation of their portfolios as they begin to retire. Overall this will expand the products they can extend to their customers. FINSUM: Model portfolios are giving investors better options than ever to target the risks they want exposure to in their finances whether that's retirement risk or anti-inflation strategies.