Wealth Management
(New York)
All the regulatory focus recently has been on the SEC and DOL, and understandably so. However, FINRA plays a big role in the lives of RIAs and BDs, and it looks poised to make a big move. FINRA is currently examining Reg BI and seeing if they believe it applies to the meme stock trading situation. In particular, FINRA is considering whether new regulations need to be put in place that govern self-directed trading which is not covered by Reg BI. FINRA says it is “committed to supporting the SEC staff’s review (announced in October 2020) of the increase in self-directed trading by retail investors that is not covered by Reg BI, and the effectiveness of existing regulatory requirements in protecting investors in those circumstances”.
FINSUM: This is still in the early stages so it is hard to tell the extent to which it may affect advisors, but it is certainly something to keep an eye on.
(New York)
What is the biggest challenge for retirement in the current era? The answer is time: people are living longer than ever, which means they need long periods of consistent income. Long term consistent income in retirement is a challenge because people need to set enough money aside and be disciplined to not withdraw too much. With all that in mind, annuities play a very special role, as they provide guaranteed income and at the same time, keep a lid on the pace of distributions, which means money will pay out throughout the entirety of retirement. Bonds used to play this role, but given ultra-low rates and high prices, they simply no longer do.
FINSUM: Given the volatility in stocks and the low rates and overvaluation in bonds, annuities have a very strong role to play in almost any portfolio.
(Washington)
This is one of the most uncertain times in recent history, and not just because of political divisiveness and the pandemic, but because many of the new administration’s policies are likely to be very different than the Trump administration’s. That extends to taxes, where there is a high degree of anxiety about forthcoming changes, most of which high earners expect to be punitive. Because there is a wide range of possible outcomes, advisors need to work hard to plan for what different scenarios might look like. Accordingly, now is the right time to beef up on tax planning staff, or at the least review your tax planning playbook and keep a close eye on the news.
FINSUM: In a year, when new tax policies are known, you want to be able to tell clients “don’t worry” we have been planning for this and you will be fine. The work to get there needs to start now.
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(Washington)
One big anxiety that has been on every broker’s mind since mid-January is: is the SEC going to be make Reg BI compliance tougher, or introduce something even worse? A lose-lose ...View the full story on our partner Magnifi’s site
(New York)
Indexed annuities are seemingly just one option from the vast annuities market available to advisors. That said, they fill a unique and interesting role. At their most basic level indexed annuities have payouts tied to the performance of specific indexes. This can be good because they can offer more income than fixed annuities, but they also come with caps that mean you don’t get to participate in anything close to the full upside of the market. If you want a little more potential return, buffered annuities are a good idea. They offer more upside on index returns in exchange for more risk on the part of investors. The “buffer” is essentially a contractual mitigation of losses. For example, if the market loses 30% in a given year, a 10% buffer means the annuity holder would on lose 20%.
FINSUM: These are essentially a more aggressive type of annuity that offers higher payouts and more risk than traditional fixed annuities. These are a good option for those who have the freedom to try to achieve more upside, or those who are afraid of inflation.
(New York)
Here is a tough fact for anyone to consider: 70% of wealthy families will lose their wealth by the second generation, and 90% will squander it by the third, according to a study by the Williams Group wealth consultancy. That means parents are fighting an uphill battle in trying to educate their children/heirs on how to manage finances. It sounds very simple to say, but education and learning the value of hard work from an early age are the best ways to ensure a successful continuation of wealth. Three top tips for clients are: be open with your family about wealth, its creation, and continuation; educate your family members about wealth creating/growth strategies; and put a lot of care into tax planning to avoid inheritance tax pitfalls.
FINSUM: Many people struggle with how to talk to their children about money, but as is often the case, the most difficult things to do are usually the most important ones.