Wealth Management
(Washington)
Biden’s big ‘death tax’ has been spooking advisors and their wealthy clients for months now, and there are very major concerns over if and when it will be implemented. Well we have good news and bad news today. The good news is that both the House Democrats and the Ways and Means commission have put forth proposals with significantly lower tax rates than Biden’s initial budget. The House Democrats, for instance, would keep all-in capital gains taxes at a max of around 28.8% (counting the surtax). The bad news is that a recent adoption by the Ways and Means Commission puts the cutoff date for any company sales that would be affected by Biden’s much bigger capital gains taxes as Sept 13th (for sales with a binding contract prior to that date).
FINSUM: Overall, the direction of the proposals is getting more favorable for the HNW community, but there is still a LONG way to go.
(New York)
Most advisors know and respect Wade Pfau, a retirement guru in our space. Well Wade has just offered a new take on annuities as part of a broader conversation on retirement income strategies. According to Pfau, “Annuities deserve an equal seat at the table with any other retirement income strategy … The whole idea that annuities mean giving up something is not true”. Pfau says that understanding a client’s retirement income preferences is key. For example, the total return approach is not for everyone, and the peace of mind of guaranteed income can be a big winner for certain clients.
FINSUM: Pfau’s one-size-does-not-fit-all view is a very apt one and it highlights how annuities could be the bedrock of a strategy for one client, and completely absent for another, with the majority being somewhere in between.
(New York)
Morningstar has become a leader in model coverage. The firm covers several hundred models and gives each multiple ratings. As the model world continues to grow, this is getting more and more useful. Here is our third installment of our coverage of Morningstar’s rankings, with the top 5 covered. The rankings: #5 is American Funds Growth (silver rating); #4 is American Funds Growth & Income (silver); #3 is American Funds Income; #2 is Vanguard Core (gold); and #1 is BlackRock Target Allocation ETF (gold).
FINSUM: There is a pretty low diversity of providers in the top 15, but this speaks to the expertise a handful of firms have developed in this space.
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(Washington)
The SEC just put out a shot across the bow of brokerage firms as it regards Reg BI. Firms and industry attorneys have been expecting the SEC to ratchet up enforcement over the coming year as the agency starts to bring Biden’s priorities into reality. However, the SEC made it very clear this week, telling firms that it is not enough to tell reps what Reg BI says, but educate them with examples of how to meet Reg BI’s requirements. Investment News summarized the SEC’s comments this way, saying “Financial firms that are failing to comply with the broker standard of conduct aren’t aligning their internal controls to meet its requirements”. The SEC is now checking to see if firms have set up a robust Reg BI compliance program, and if not, they will be in hot water”. According to Corey Schuster, assistant director of Division of Enforcement’s asset management unit, “firms may want to consider: Have you done a deep dive on conflicts? … Have you examined your disclosures regarding conflicts? And is there a need to mitigate certain conflicts of interest?”.
FINSUM: The SEC is gearing up to drop the hammer on Reg BI enforcement, which has long been expected. However, the reality of heavier enforcement and the specifics of how it is executed are very different than seemingly far-off expectations.
President Joe Biden is expected to nominate Professor Saule Omarova for the office of the Comptroller of the Currency, one of the leadership positions in banking oversight and regulation. Omarova is currently teaching at Cornell University Law School and is a critic of the role fintech is playing in the current financial system, all the way from cryptocurrency to robo-advising. Additionally, she believes regulation should be tightened across the board in banking, calling for a larger role in government supervision. She has also advocated for restructuring the Fed and having them provide consumer bank accounts. This is only the beginning of the journey as both fintech and the banking sector will lobby hard to make sure she doesn’t get confirmed for her position.
FINSUM: This would be a drastic leadership change in regulation compared to the relatively hands-off approach fintech has benefited from so far. The suggested changes to the Fed would pump shockwaves through the financial system.
(New York)
Annuities have a long and complicated past that ultimately created a less-than-stellar reputation. However, over the last few years, the asset class has undergone a transformation of newer and better products, combined with better sales practices. Now, two big elements are creating a major tailwind for the product: growing demand from retirement plan inclusion, and aging demographics. According to TIAA, TIAA “nearly nine in 10 plan sponsors who do not offer in-plan guaranteed lifetime income annuities are at least somewhat interested in offering them” (from ThinkAdvisor).
FINSUM: Baby boomers are in peak retirement years and many don’t have as much saved as they would like, so annuities have a role. Further, Gen X is aging and likes annuities more than the Boomers, so they are presenting a very fertile market as well. Accordingly, many firms are seeking more annuities participation.