Wealth Management
The 2019 Secure Act was THE critical piece of legislation for annuities in the 21st century, but that could change with the upcoming LIFE Act which is working its way to voting. Where the secure act made legal production of annuities easier and allowed them to be a part of retirement plans, the LIFE Act will allow annuities to be a 50% asset allocation by default from employers. Currently, the LIFE Act has strong bipartisan and posts a strong potential of passing, this would allow investors to double their baseline investment in annuities where it was previously capped at 25%.
Finsum: The ultra low rate environment has many investors more interested in turning to annuities for income than almost any other time before.
Russia’s invasion of Ukraine has triggered tons of sanctions from the west and many of those cut off Russian companies or Russian financers. Direct indexing has been put in one of the best positions of many financial products as they had some of the tiniest exposure to ADRs. With a meager 1% exposure, these portfolios have been left in a fairly healthy position all things considered. Meanwhile, major index companies like MSCI and FTSE Russel have raced to remove any Russian securities. Moreover, Vanguard and BlackRock as well as other major mutual funds were given until May 25 by the Treasury to find an off-shore buyer for Russian stocks. Direct index company dimensional funds have added Russia to a DNP list and have committed to rid of all their Russian stocks.
Finsum: Many funds were able to quickly dump Russian stocks, however, energy prices could be a more difficult problem to navigate.
Model portfolios have been a hot topic with advisors and asset managers over the last couple years. Models tend to have nice benefits for both advisors and fund providers as they save advisors time gather up assets for managers. To back this up a new survey by Escalent shows that models are growing in popularity. Models are growing in number and in assets but they are primarily expanding among a small group of advisor power users. 4 out of 5 advisors say they don’t plan to expand their model use in the near term. The power users on the other hand say they love models because they free up their time to grow their client base and spend time on other planning.
FINSUM: Models are a major opportunity for advisors since they can outsource a very time consuming task—portfolio construction—thus freeing time and capacity to take on more clients.
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Wealth technology is rapidly changing, and the landscape could be very different in the next 30 years. Princeton Economist Burton Malkiel said that a combination of the ‘democratization of investing’ and technology is pushing down fees and cutting costs. Overall he sees wealthfronts and betterments taking center stage, which include products like direct indexing. These practices not only help with tax management and rebalancing but they have lower costs than traditional active management. This sort of investment strategy will only grow as wealth management and financial management converge and FinTech companies change the way industry stalwarts operate.
FINSUM: Direct/custom indexing is one of the most interesting products because of the cheaper hybrid setup that really integrates technology to make management easier.
Fidelity has just taken a big step in the direct indexing game. Direct indexing has been very hot across the asset management space over the last 12-18 months and has mostly been marketed so far as a high-minimum service for advisors to customize portfolios to client desires. Now, with a product called FidFolios, Fidelity is poised to launch a service to let mom and pop investors customize their portfolios with a minimum of just $5,000.
FINSUM: This was bound to happen. Most advisors may see this as a threat to their value proposition, but we more see it as a validation of the utility of direct indexing for clients. Advisors should take this as a sign of confidence that they should offer direct indexing to clients!
Financial firms have tried desperately to increase recruiting efforts in the last year or two. While companies like Wells Fargo concentrated on incentive-based tools around retention and recruiting Ameriprise Financial has taken a technology approach. In partnership with Seismic, they have ramped up the suite of technological offerings in order to track, grow, and run their business. The biggest tools offered are LiveDocs, LiveSend, and Interactive Content which all augment their services in order to allow them to compete with larger companies They see their automation efforts as a superior offering to purely financial incentives and it resulted in over 2% growth in the last year.
Finsum: A new approach to advisor recruiting by Ameriprise could definitely give their advisors an edge over competitors and lead to more long-term growth in recruits.