(New York)

401(k)s and annuities are two of the most prominent retirement savings products in the US. However, clients often have a hard time distinguishing one’s advantages versus the other (and disadvantages). In reality, they are quite different products. The only cross-over between them (for now) is that they are both geared towards retirement, and that one can cash out a 401(k) and use it to buy an annuity. The big advantage of 401(k)s is that there are no sales incentives/commissions for a client to take part in an employer’s plan, as well as the fact that they can benefit from employer’s matching their contributions, something that cannot happen in annuities. Annuities, however, have the big advantage of guaranteed income, and because of the ability to choose which annuity one buys, there is more freedom in investment selection. Both have similar terms for early withdrawals.

FINSUM: These products are also great in concert with one another. For example, using part of a 401(k) cash-out to buy a deferred annuity, allowing upside in the 401(k) and guaranteed income in the annuity. Soon enough annuities will be allowed in 401(k)s.

Advisors are a pretty conservative lot. So, while many might have heard of the DEMZ fund—the Democratic Large-cap Core Fund—they might not have given it serious thought. To start with, the fund is unlike other “political” funds (such as MAGA) because at its heart is world class fund construction and management. Merely stripping out stocks from an S&P 500 basket, like others do, will diminish returns almost by definition, so DEMZ accounts for this by creating strict parameters for weighting and caps that allow it to remain significantly diversified. And it achieves all this while remaining meaningfully cheaper than other funds in its category.

But the real reason advisors need to pay attention to DEMZ is that the future of their business might depend on it. DEMZ invests in companies that give 75% or more of their political donations to the Democratic party, and it just so happens that a lot of your big clients’ heirs have the same political leanings. Most advisors are aware that there is a high attrition rate when a head of family passes away and wealth is transferred to spouses (usually wives) and children. A big part of this is that the advisor does not seem like they can align with the inheritors’ goals and needs. In this way, DEMZ can help advisors signal to spouses and heirs that they understand their political affiliations and moral positions, and how those are fused with their investment goals. Therefore, even if you are card-carrying Republican, DEMZ is something that needs to be on your radar.

If you don’t take a look and understand DEMZ, do so at your own peril.

n.b. This content was composed and paid-for by Reflection Asset Management and is not FINSUM editorial.

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