Wealth Management
In the age of ETFs, many advisors may have a harder time justifying their fees to their clients however a new study shows that the fees alone can be justified by an advisor's ability to manage the tax burden of their clients. The primary method by which an advisor can add alpha to the portfolio is by appropriating funds for their most tax-efficient purposes, such as putting taxable bonds in a tax-deferred account and allocating growth stocks to a tax-free account like a Roth. Advisors also can edge out by advising about how to optimally tax-loss harvest when it comes to their portfolio’s crypto holdings. The main way to capitalize is through taking advantage of crypto’s status as property in the wash rule.
Finsum: Everyone is dying to hold crypto right now, but most haven’t made it big; tax-loss harvesting with the Wash rule exception is an edge as long congress doesn’t adjust the rules.
The Biden administration’s SEC has lept from one sub-financial industry to the next whether it's crypto or ESG, but now they are gonna take a closer look at private equity and other ‘alternatives’ like hedge funds. The process is mainly would limit what retirees and savers have opportunities in private equity and hedge funds through their plans and limit them to accredited investors. Alternatives have taken off in the last few years and the SEC is looking to increase transparency and possibly limit access. They are cautioning other companies from putting PE in retirement portfolios.
Finsum: This limited access could take the many savers and retirees out of the huge gains in PE over traditional equity markets, and might only hurt the general public.
Annuities have had rapidly growing interest in the post covid era, and this has been especially true for variable annuities. What makes variable annuities attractive is inflation and interest rate risk which will elevate their value, however, for annuities providers and insurers, this is represented as risk. In an action to mitigate those risks Aegon, the parent company to Transamerica, engaged in a buyout program that ended in January. In total 18% of annuity holders capitalized on buybacks to settle their portfolio. Transamerica also expanded its hedging strategies to ensure against interest rate and equity risk for the remaining balance of its variable annuity portfolio.
Finsum: Recent legal changes have drastically affected the insurance and annuity industry which has been key to their growing demand, in addition to the covid-19 pandemic and rising subsequent unemployment.
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According to a recent ThinkAdvisor article, 2022 is expected to be another record-setting year for launches and fund flows, mostly actively managed ETFs. Interestingly, RIAs are seen introducing their own ETFs, based on their proprietary investment models.
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Vanguard turned the investing world upside down with the advent of index-based investing. In 2022 there could be a new predominant investment vehicle taking the reigns: custom indexing. However, this fad has failed to create traction globally the way it has in the US. The two keys that are preventing custom indexing from reaching the same level of success globally are technology and taxes. CI relies on the software tools and facilities to manage this algorithmic portfolio construction, and lots of global firms aren’t there yet. Additionally, tax-loss harvesting makes custom indexing wildly popular in the US, but those same advantages don’t exist in the fiscal structure of other countries.
Finsum: Many of the industry giants are buying up custom indexing firms left and right which will get rid of the technological barrier in custom indexing for countries around the globe.
Edward Jones and LPL are two industry titans in terms of total advisor employment, but these firms are moving in drastically different directions when it comes to talent acquisition and development. Once Jones had a 30,000 advisor target but since the pandemic, they have scaled back recruitment efforts and shifted strategy. This had their numbers dwindle by 2% year over year to 18,823 brokers. LPL on the other hand has doubled down on recruiting efforts and saw its head count surge by 15%. What drove this growth was a combination of new recruiting models and full-service firms and acquisitions. However, despite losing advisors Jones saw revenue grow by 22% from 2020 to 2021, because the rising markets increased the fee-based revenue.
Finsum: There are lots of transitional costs from squirting new talent: training, legal, etc in the short run this can eat at the bottom line when trying to grow.