Wealth Management
(Washington)
Brokers, those that are dually-registered, pretty much anyone covered by Reg BI, you should be on the lookout for a pending crackdown by the new Biden administration-led SEC…see the full story on our partner Magnifi’s site
(Chicago)
There is a very large, but little-discussed issue when going independent. When you move from being an employee advisor to an independent, your health insurance situation can be difficult. Not only is there the issue of keeping your health insurance intact immediately following your departure, but you also need to establish a significant health insurance plan with an insurer that can support your current and future employees. So it is good news to hear that the Financial Services Institute has launched a new program aimed at helping advisors with this transition. Not only will the FSI help with transitioning, but they can also provide cost savings.
FINSUM: This seems like a very good idea. This is an issue for everyone transitioning to owning a small business, not just advisors. Learn more here
(New York)
Model portfolios provided by third parties have become increasingly popular for advisors, but separating the best from the rest is no easy feat. To help out advisors, Morningstar now has rankings and guides (see them here). Here are five of the top picks from Morningstar: BlackRock Target Allocation ETF, Vanguard CORE, American Funds Growth & Income, American Funds Tax Aware Growth & Income, BlackRock Multi-Asset Income. Other interesting options include the State Street Strategic Asset Allocation and T.Rowe Price Active.
FINSUM: The world of model portfolios has been proliferating enough that scoring and guidance is very useful (just think how hard ETF selection would be without screeners!).
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(New York)
Annuities have seen major growth in popularity since the pandemic began—a 40% tumble in stock prices when a huge portion of Americans are about to retire will do that. Annuities sales have risen, and advisors—especially those new to selling them—may be asking themselves if the products are good fit for all clients. The answer is a resounding “maybe”. The reality is that almost all portfolios can benefit from a portion being put in a product with guaranteed lifetime income. However, the degree of exposure depends hugely on the client’s wealth, spending habits, self-control (as it relates to withdrawing from investment accounts), and even personality. According to the head of a leading firm in the annuities space, “I think that, in general, an annuity makes sense for most people. The only true way to guarantee lifetime income is through an annuity contract with an insurance company”.
FINSUM: For the wealthy and those with great self-control an annuity is an excellent hedge against big losses. For the rest, it can be a critical component that preserves lifetime income.
(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.