Wealth Management
(Washington)
Many advisors may not have realized it yet, but the new COVID relief package passed by Congress recently has many benefits for upper middle class Americans and even those in the mass affluent category (which constitute tens of millions of clients for advisors). Other than the $1,400 checks, there are also two lesser known details advisors need to be aware of. If a client qualified for a check last time, but did not get one, they can claim the money they would have been entitled to as a credit against their taxes. It is a bottom line deduction that comes directly out of taxes owed. If no taxes are owed, they should get the credit as a refund check Additionally, the package offers enhanced child tax credits. This is $3,600 per child under 6 years old, and $3,000 per child between 6 and under 18 years old. The latter used to be for those under 17, so this helps those with 17 year-old children. Finally, those who have student loans that will be forgiven will not have to pay taxes on the forgiven amounts, which is a massive benefit for those who qualify.
FINSUM: There is a lot more to this package than many realize. Advisors should take a deeper dive to see what applies to their clients.
(New York)
Are annuities a good deal? This is a seemingly simple question with an incredible range of answers. The reality is that the answer depends on who you ask. If your main consideration is stable income in retirement with little risk to principal, then the answer is a resounding yes. If you are looking for great upside great and are not concerned with losses of principal, then the answer is no. And therein lays the most important part of annuities—they need to fit client goals. Studies show that despite the lack of “fit” for some clients, annuities do add value to almost all portfolios, even if clients are often reluctant to buy them.
FINSUM: Annuities are about to be allowed into 401(k)s, which is a big growth opportunity for the space. Insurers are going to have to keep honing their positioning and messaging to appeal to retail buyers directly.
(St. Louis)
Stifel is a well-regarded firm in our industry. However, one characteristic of it that doesn’t work for all brokers is that they have an employee model. This runs counter to many of the independents with whom Stifel often gets grouped. Well, that looks like it is about to change as the firm has just hired a leading executive away from Wells FiNet in order to grow Stifel’s independent side, which currently stands at only 90 advisors, or only 4% of their total advisors. The firm is rebranding its independent arm to Stifel Independent Advisors and is looking to recruit new advisors to join.
FINSUM: This seems long overdue in our eyes. Stifel is a great brand and there is untapped interest for advisors to join them as independents.
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(Washington)
Brokers, advisors, anyone covered by Reg BI, look out for a crackdown by the SEC. Former chief of FINRA, Susan Schroeder, says that enforcement is likely to start soon (i.e. this year) and may be “very aggressive”. According to Schroeder, “Early enforcement actions will be predicated on things like policies and procedures, but by past SEC standards, that is very aggressive”, and if the enforcement actions “are predicated on things like inadequate training or failures to have policies and procedures, from a legal theory perspective, that’s aggressive”.
FINSUM: So any way you cut it, SEC enforcement of the DOL rule this year looks like it is going to be intense. Brokers beware.
(New York)
The annuities world is generally not what most advisors would describe as “exciting”. Annuities are crucial products which fill a valuable void for millions of clients, but there is nothing in the space akin to a sizzling thematic ETF. However, New York Life recently launched a very interesting product that brings a degree of flexibility to the space that has never been available before. Their new Index Flex offering combines the benefits of variable annuities with those of index and fixed annuities, and very excitingly, allows holders to move between the two. Index Flex is essentially a hybrid product that combines the predictability of an index-linked annuity with the upside potential of a variable annuity. Taken as a whole, this is a combination of benefits that is only available at NYL.
FINSUM: As our advisor readers will know, we cover annuities to a significant extent and this new product launch is pretty rousing to see as the ability to shift between strategies is a highly unusual and beneficial feature for clients.
(New York)
One of the challenges with annuities, whether as an annuities salesman or as an advisor explaining them to clients, is how to position them. The most fundamental utility of an annuity is the idea that it can provide income for life. In other words, the client can have peace of mind that they will have income even if they live to be 120. In this way, an annuity is not a market-based investment in the traditional sense, but rather it is an insurance contract. For advisors this concept will be second nature, but for clients this is not as clear. Accordingly, the main value of the annuity is not specifically in the income it provides, but in the risk mitigation it offers against very long lifespans for clients.
FINSUM: If you are active in annuities this might sound like a broken record; if you aren’t, it is a useful line of thinking. Either way, everyone needs to be reminded!