Annuities are more available than ever these days. Many large providers have been designing products just for RIAs and are making a big push in the area. Additionally, annuities are now easily included in 401ks. But when is it right to choose one? The overall value of annuities has declined as rates have fallen, but as rates rise, they are becoming more attractive as a source of good guaranteed income. Additionally, they offer unique tax benefits that help enhance returns. Brighthouse, for example is a leading provider of annuities and lead the industry with the FlexChoice (variable annuity) and Shield (index-linked annuities) products. Choosing the right annuity depends on your client’s goals.

FINSUM: Annuities increasingly fit into a client’s portfolio in myriad ways. In some cases for a lower wealth client, it can be a near one-stop shop to accomplish retirement goals, especially if that client is prone to not managing budgets well. In other cases, annuities can provide just a small portion of a portfolio, but do so with guaranteed income.

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.