Wealth Management
According to data from the insurance trade association Limra, annuity sales hit $310.6 billion in 2022, surpassing the prior annual record of $265 billion, set in 2008. That year the U.S. was in the midst of the Great Recession, while the S&P 500 index lost 57% from its peak. In 2022, the S&P 500 posted its largest loss since 2008, ending the year down 19.4%. Since annuities hedge risks such as market volatility, they became quite popular last year with investors. Annuities also benefited from the Fed raising interest rates, which created a better return on investment. Plus, U.S. bonds, which typically act as a safe haven for investors when stocks falter, suffered their worst year on record last year. This left very few options for savers looking for safety and a return. Investors were especially bullish on fixed-rate deferred annuities. Total sales of fixed-rate deferred annuities last year hit $112.1 billion, more than double the sales from 2021. They also broke the prior annual record from 2002, when investors bought $80.8 billion, according to Limra data. Indexed annuities also had a record year, with sales of $79.4 billion, an 8% increase on its 2019 record. However, variable annuities, which are generally tied to the stock market, saw annual sales of just $61.7 billion, the lowest since 1995.
Finsum: With a volatile stock market, rising interest rates, and the worst year on record for bonds, annuity sales had a record year, with fixed-rate deferred annuities and indexed annuities also posting annual sales records.
Model portfolios have been gaining ground with advisors. Close to $350 billion in assets sat in model portfolios as of March 2022, according to a Morningstar report in June. That’s a 22% increase over the prior nine months. But how do advisors incorporate model portfolios into their business? In a recent article, ThinkAdvisor asked different advisors how models fit in their practice. Erik Nero, founder, and president, of First Step Wealth Planning LLC, thinks they are a boost to small firms. He uses them for close to all of his clients except the client portfolios that need more customization. Kyle Simmons, lead financial planner, at Simmons Investment Management uses his own model portfolio but warns advisors not to get attached to models, as clients can come in with legacy holdings and tax consequences. Jan Pevzner, principal, of Gotham Block LLC finds models to be a great starting point for a “generic client” as it can save you a lot of time. Jon Ulin, CEO of Ulin & Co. Wealth Management uses models in addition to comprehensive planning for clients, which isn’t typically provided by robo-advisors. Nate Creviston, manager of wealth management and portfolio analysis, at Capital Advisors, does not use model portfolios at all as they lack tax awareness and believes each client deserves a customized portfolio unique to their needs and goals.
Finsum: With model portfolios gaining ground with advisors, ThinkAdvisor interviewed several advisors on how models fit or don’t fit into their practice.
On Tuesday, the Securities and Exchange Commission announced its examination priorities for 2023. The agency said it is going to focus on Regulation Best Interest, ESG, the new marketing rule, and a host of other issues. When it comes to investigating Reg BI violations, the SEC will zero in on advisors’ recommendations on complex investments such as derivatives and leveraged ETFs, and high-cost and illiquid products such as annuities and nontraded REITs. According to the division, SEC examiners analyzing Reg BI will look at investment advice and recommendations, disclosures made to clients, the processes firms have in place for making best-interest recommendations, and the kind of factors that are considered in light of an investor’s profile, including their goals and account characteristics. The report stated, “Examinations may also focus on recommendations or advice to certain types of investors, such as senior investors and those saving for retirement, and specific account recommendations, such as retirement account rollovers and 529 plans.” The division will also be focusing on the SEC’s new marketing rule, which reached its compliance date last November after taking effect in May 2021. Examiners will be looking at whether advisors have adopted written rules and procedures that “are reasonably designed” to prevent rule violations. Several experts also believe that SEC examiners will expect firms to apply Reg BI standards to ESG recommendations.
Finsum:The SEC's Examinations Division released its annual Exam Priorities this week, detailing its areas of focus for 2023, which includes Reg BI, ESG, and the new marketing rule.
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There’s no question that ETFs are a popular way to gain access to the market. They’re low-cost and tax efficient when compared to mutual funds. But, according to a new research paper, ETFs are not the most profitable after taxes are paid. That distinction belongs to large baskets of individual stocks that aren't found in a fund. The paper, which was posted recently by Roni Israelov, the president and chief investment officer of NDVR, and Jason Lu, a research economist in the economic modeling division of the International Monetary Fund, sought to quantify tax-loss harvesting, the strategy of selling losing assets to offset taxable gains that arise when selling winning ones. The paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs. In a recent interview, Israelov said "You make more money harvesting single stocks across an entire portfolio than you do in an ETF." The paper adds to a growing body of wealth management firms that have been promoting the merits of tax-loss harvesting and boosting the case for direct indexing, a strategy in which investors chose a basket of securities that mirror an index, but is personalized to their specifications.
Finsum: A new research paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs, boosting the case for direct indexing.
Robin Döttling, an assistant professor of finance in the Rotterdam School of Management at Erasmus University in the Netherlands, and Sehoon Kim, an assistant professor at the University of Florida’s Warrington College of Business, authors of a recently published academic study, found that individual investor demand for socially responsible investing “is highly sensitive to income shocks” and economic stress. The professors went through mutual fund flow data and surveyed investors' views of and expectations for sustainable investing. The study focused on the periods immediately before and after the COVID pandemic went global in early 2020. The results show that when times get tough for individual investors, helping to save the planet takes a backseat to selling funds that they believe may lose more during a downturn. When an economic shock results in incomes shrinking, investors become more risk-averse. In the authors’ words, “We start to view the emotional or nonfinancial appeal of ESG investing as ‘costly’ and ‘unsustainable’ if it means forfeiting returns.” However, the study found that demand for ESG investments from institutions such as pension funds remained more robust. Their actions are typically constrained by investment mandates and are often slower to respond to market shocks. In addition, those investors don’t have to face the same kind of pressures that individual investors deal with during COVID lockdowns and job losses.
Finsum:A recently published academic study conducted before and after the COVID pandemic found that individual investors sell ESG investments during economic downturns, while the demand for ESG remains robust among institutional investors.
Category: Wealth Management
Keywords: investors, ESG, covid, mutual funds
During a recent ThinkAdvisor FMG sponsored webcast titled “How to Drive and Close More Leads in 2023,” Samantha Russell, chief evangelist at FMG, and Susan Theder, chief marketing, and experience officer at the firm, outlined ways advisors can improve their lead generation efforts this year. Both Russell and Theder believe that holding webinars and other events is a great way to generate leads, but have found that only 23% of advisors are utilizing them. They recommend that advisors pick topics that go beyond financial issues as most people are not thinking about their financial issues all the time. For instance, Theder said that in the “most successful webinars I’ve seen, advisors do combine multiple different professions.” So, an advisor could talk about wellness and bring on a nutritionist, an estate planner, and a mental health professional and have a discussion that covers more than just the financial aspect. They also recommend picking topics that are timely. For instance, during February, tax issues are a great topic to discuss. They also suggest keeping the webinars short. Russell says “Between 30 and 60 minutes is really ideal for a webcast or webinar.” In terms of marketing your webinar, make sure you’re really specific with the title. Russell and Theder also recommend sending at least three promo emails and use Google Reviews if your firm allows it for SEO purposes.
Finsum:During a recent ThinkAdvisor webcast, Samantha Russell and Susan Theder of FMG recommend utilizing webinars to generate leads this year.