Wealth Management
Someone say ‘yeesh?’
Well, it wouldn’t exactly come out of left field considering how difficult it is to conceive of more challenging circumstances for fixed income investors, according to lazardassetmanagement.com.
After all, bear in mind the cocktail of incoming fire it’s facing: burgeoning inflation, spikes in the rates, shutdowns. On and on it goes, sparking volatility and forcing returns for broad fixed income market indices into negativity,
Sure, with volatility comes risk. But it also can kindle opportunity. So, instead of ducking it, it could be that by facing it, eye to eye, investors in fixed income will reap the benefits.
Meantime, among the ultra rich, it’s not just about feasting on caviar and chugging the finest wines. They’re also fretting about a possible recession, according to barrons.com.
So, what are their advisors doing in turn? According to a survey of family offices conducted by UBS, they’re moving toward more defensive holdings, like high quality, short duration fixed income. A total of 239 family offices were surveyed by the wealth manager. The family offices had a net worth of $2.2 billion.
In an article for SmartAsset, Patrick Villanova clarifies some misconceptions about annuities and whether they are protected in the event that the insurance company which issued the annuity goes out of business.
Annuities are essentially an insurance contract that offers a guaranteed income in exchange for payment. These can only be issued by insurance companies which means that there is regulation at the state level and protection for buyers. Unlike bank deposits, there is no federal guarantee.
In essence, each state has a guarantee organization, composed of insurance companies operating in the state. In the event of an insurance company going out of business, the organization will make sure that outstanding claims are good.
However, it’s important to understand the exact amount that is protected. In most states, it’s up to $250,000 per person. More often, the failing insurer’s claims would be bought by competitors who would make good on the contract.
Investors interested in an annuity should also check how various insurance companies stack up in terms of ratings by authorities. Typically, insurers with lower ratings will offer higher yields, reflecting the greater risk.
Finsum: Annuities are seeing a surge in interest given higher yields and market volatility. Here are some points to understand about various risks and protections.
A financial advisor practice’s long-term success is dependent on building a pipeline of prospects given that attrition and turnover is a given. While there are many paths to accomplishing this goal, one of the most effective is social media. In an article for WealthManagement, Doug Wilber shares some tips on how advisors can leverage social media.
This is especially true for advisors looking to connect with Generation Z and Millennials as these demographics are more comfortable and receptive to messages on these platforms relative to traditional media. Social media also gives advisors an opportunity to share their expertise, personality, and build trust with potential prospects.
On social media, authenticity is the most important metric. Over time, an advisor can build relationships with potential clients. According to surveys, about half of investors say social media influences who they choose as their financial professional.
Another benefit of social media is that these channels are on 24/7 which means that these interactions can happen at any time. These platforms also have infinite scale which means that the effort of producing content is the same with a small or large audience.
Finsum: Having a social media strategy is essential for financial advisors who want to bolster their pipeline of prospects and/or connect with Millennials and Generation Z.
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In remarks at the BNY Mellon Pershing Institute covered by InvestmentNews’ Jeff Benjamin, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes that the SEC is doing many investors a disservice by preventing them from investing in private markets.
Clayton served as SEC Chairman under former President Trump between May 2017 and December 2020. He drew some differences from his tenure and the current administration, noting that “it’s pretty clear we’re in a very highly business-skeptical and commercial-skeptical regulatory environment.” Currently, Clayton serves as the nonexecutive chair at Apollo Global Management.
Clayton also sees alternative investments as another area where the SEC is being overly restrictive, and it’s hurting retail investors by depriving them of opportunities that are available to institutional and high net-worth investors. He said that it’s hypocritical that retail investors are able to buy leveraged ETFs or options but not private investments that have significantly less risk.
In order to make alternatives available to all investors, he said that regulators would have to change their approach, and asset managers would also have to introduce appropriate products.
He did acknowledge a conflict of interest, since Apollo has a major presence in private markets.
Finsum: At a recent conference, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes alternative investing needs to be further democratized.
Markets often behave unexpectedly. This is certainly the case in 2023 as many have been caught off guard with strong equity markets which have sent stocks to their highest levels since the middle of last year. The S&P 500 is now nearly 20% above its October low which many would deem a new bull market.
In an article for TheStreet, Jim Collins, the founder of PortfolioGuru, discusses a model portfolio that would do very well if this unexpected return to normalcy continues. His strategy involves buying preferred shares of regional banks which have been among the hardest-hit parts of the market. The preferred shares do offer generous yield but have major upside in the event that interest rates move lower, easing the inverted yield curve which is proving to be a major challenge for the sector.
Collins says that this model portfolio is essentially a bet that the US’ financial system will remain stable and continue functioning well, meaning that we have passed the worst part of the crisis. He believes that the portfolio has considerable potential for capital gains in addition to hefty dividend payments.
Finsum: Jim Collins shares a model portfolio that would particularly benefit if the crisis for regional banks is over and a return to normalcy is imminent for financial markets.
In an article for ETFTrends, James Comtois discusses how investors can capitalize from volatile markets with direct indexing. In recent days, volatility has plunged following the successful resolution of the debt ceiling which avoided a potentially catastrophic default. However, investors should continue to be wary given rising recession risk, geopolitical tensions, and still uncomfortably high inflation.
While volatility is painful for all investors, direct indexing is one way that investors can profit from it unlike with index funds. With direct indexing, an investor owns the actual stocks in the index. Due to this, losing positions in the account can be sold which can be used to offset gains from winning positions to reduce tax liabilities. Subsequently, these losing positions are replaced with similar ones to maintain diversification and faith with the underlying index.
Notably, this strategy works even in years when the index was up. And, it works even better in conditions like 2023 when we have indexes with healthy gains albeit with considerable volatility. Further, many services now will automatically scan portfolios to identify rebalancing opportunities. And, the more frequent the scans, the more alpha that can be uncovered.
Finsum: While market volatility has died down in recent days, it’s inevitably going to come back. Find out how direct indexing allows investors to capitalize during volatile markets.