Wealth Management
Investors need to be more active with their finances and taxes as they enter retirement because it's not the time to coast as many presume. One of the areas retirees underestimate the costs of retirement and permanently puncture their safety net is in healthcare. Hefty premiums hit most Americans due to the Affordable Care Act once you hit 50, and most Americans who retire before Medicare will face a shocking bill. There are lots of healthcare tax credits available for those with low and middle incomes, and bigger benefits if healthcare costs breach 7.5% of adjusted income. Finally, Roth conversation ladders will dramatically impact your healthcare costs.
FINSUM: It’s critical to be informed about all of the tax benefits those approaching or entering retirement can take advantage of pre-Medicare.
Diversity, Equity and Inclusion approaches are key parts of finding new financial advisor talent in today's world. Comments at the CFP Board by Akeiva Ellis stressed that firms evaluate their DEI policies and procedures, and more importantly the culture if they want to hire and retain employees. Executives at T. Rowe Price have emphasized plans for advancement within the company as a strategy to retain employees. Specific step by step paths that allow them to know their metrics and execute are the best way to retain and attract talent. Finally, underserved groups don’t often have the same access to the personal feedback that allows them to flourish so specific habits surrounding performance are critical for keeping diverse talent.
FINSUM: DEI is becoming a critical part of recruitment and retention, and an edge up could provide the strongest advisors in the market.
Biden recently made his pick for a critical new position at the DOL: head of the Employee Benefits Security Administration. Lisa Gomez has been nominated and is likely to get bipartisan confirmation. Gomez is seen as critical to the redrafting of the fiduciary rule that is taking place at the DOL. Most industry insiders expect the new version of the fiduciary rule to be much tougher, more akin to the original Obama era rule than the currently in-effect Trump version.
FINSUM: The reality is that if a critical new person is being brought on board to lead the effort, it is likely to push back the timeline, or so says Brad Campbell, leading regulatory lawyer at Faegre Drinker, a leading law firm in our space.
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Direct and Custom Indexing is swallowing up the financial world interests like ETFs have over the last 20 years, but this new trend isn’t without its drawbacks, specifically for retirees. Most investors will utilize direct indexing to weed out stocks they don’t want or minimize their tax burden, Lawrence Tint formerly of BGI voiced some critiques of custom indexing. Tint believes the tax advantage over traditional indexing is minimal because of the turnover in the funds. Additionally direct indexing will have higher fees and even if brokers don’t charge for fees investors will incur the bid-ask spread costs. Finally, direct indexing will make it very hard for income investors to reinvest dividends in a way to mirror the existing or custom index, and the more custom the index the more likely the traditional problems of stock pickers will riddle the custom portfolio.
FINSUM: These drawbacks to direct indexing provide a more complete view of the pros and cons to the financial trend, but it still has a leg up in tax loss harvesting over traditional ETFs.
Model portfolios allow the feel of tailored experience with the ability to hit wider audiences by addressing the specific risks, features or scenarios investors are concerned about. WisdomTree has been a leader in model portfolio development by providing options across diverse assets such as equity, fixed-income, strategic multi-asset, growth oriented, and dividend options. On top of this they build out scenario focused funds.Their fixed income funds are focusing on shorter duration quality bonds while dipping into alternative credit. They have also developed a variety of international funds that focus on developing countries in order to meet the needs of investors worried the U.S. equity market is too overvalued.
FINSUM: Model portfolios are giving advisors a strong option for targeted concerns that face their clients like volatility and inflation.
The roaring post comeback of equities post pandemic has been wonderful but investors have few places to turn to mitigate their tax bill, except for the bond market. All major categories in the S&P 500 were up this year, and enjoying the broader rally. Bonds have suffered and so have many bond ETFs however, the glimmer of hope is how they can contribute to help offset tax loss. Bond ETF holders will already be in a better position just given their construction and exposure to taxes, and investors are also jumping between fixed income ETFs to manage fees as some ETF managers are cutting in order to synchronize for the tax loss harvesters. However, the 2-3% fall off in bond ETFs won’t be enough to entirely offset the equities rally this year.
FINSUM: This is the perfect time to capture low fees in bond ETFs because they are mainly a tax vehicle at this moment and return is secondary.