Wealth Management
Capital gains taxes vary based on a lot of factors. Those dwelling in California for example may pay up to capital gains like regular income for their state taxes, which can be brutal. However, variation in income and holding duration play a large part in the total expected payments for cap gains. Finally, medicare surtaxes for those couples with over a quarter of a million in income will face additional capital gains taxes. Investors should take early precautions at the beginning of 2022 to consider how to mitigate their tax bill for the upcoming year with tax-loss harvesting. Realizing certain losses in the middle of turmoil can minimize your final tax burden.
Finsum: There are great advantages in tax-loss harvesting that you can take advantage of in crypto still, and now might be a perfect time.
Joe Curtin, head of portfolio management at Merrill Lynch’s Chief Investment Office said there is increased interest from financial advisors in adopting model portfolios. Merrill is an industry leader in MP development, and they have seen AUM pull through almost triple since 2015 in this area. Part of what’s driving the interest is thematic investing within model portfolios. Risk and return are priority concerns with thematic blankets like ESG, demographics, and big data that align with investors' interests. Merrill is planning on launching more portfolios in the future with thematic focuses. Currently, they manage 147 portfolios with around $200 billion in wealth.
FINSUM: MPs are seeing wide adoptions because of their ability to easily tackle themes that 21st-century investors want in their portfolios.
Sure the Fed is beginning to taper, and with that comes rising interest rates. However, for the end of 2021, it was the near-zero interest rates that pushed investors out of fixed-rate annuities, and into variable index annuities and RILAs. Fixed-rate annuity sales plummeted in the final quarter while the aforementioned variable products all grew by 10%. Sales in annuities grew by a staggering 16% in 2021, however, a lot of that growth was generated by a much lower 2020 due to the pandemic. Investors will look to shift back into fixed-rate products if rates begin to normalize or hit higher historical levels.
FINSUM: Look for fixed-rate annuities to make a come back in later 2022 because as interest rate hikes are coming and investors will capitalize on relatively higher real rates.
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Fidelity made a splash with its announcement of a $5,000 minimum direct indexing product a couple of weeks ago, and there has been a rush by Vanguard, JPMorgan, and BlackRock to acquire direct indexing firms. Goldman has been a long-time investor provider of direct indexing services, in fact over 20 years ago. Goldman specialized in wealthier clients with a minimum investment of $250,000. Goldman offers software tools for clients to use to add and drop stocks from indices. Most of the time they do this for tax purposes but sometimes clients customize by dropping equity sinners like fossil fuels or prisons. Goldman's direct indexing is a form of active management with higher fees than passive funds, but certainly more futures.
FINSUM: The advent of direct indexing for all will be an interesting follow as lower minimums become the new norm.
CEO Ron Kruszewski made waves when he announced the $1 trillion goal for client AUM for the wealth division at Stifel. Growing existing clients and recruiting are going to be two main goals as to how Kruszewski outlined how they plan to get there. Currently, the 2,300 brokers at Stifel manage less than half of their trillion-dollar target. Recruiting has been a critical part of their current growth growing by almost a quarter in the previous year, but competitors like Raymond James had almost four times the broker headcount when it crossed the $1 trillion AUM mark.
FINSUM: Recruiting shapes how a company drives revenue as higher-end recruits, making many stories, have wealthier clientele.
Many individuals overlook the value of a health savings account as they are preparing for retirement, particularly as healthcare costs are rising rapidly. High deductible plans have a number of tax advantages because they grow tax-free and can be used for out-of-pocket expenses well into retirement. Additionally, these HSA accounts come with many of the options and more than traditional retirement accounts and are easily moveable. Finally, these accounts have no rollover cap if funds move to an additional year.
FINSUM: HSAs are a great retirement vehicle, however, chronic investors with chronic illness should avoid high deductible plans that HSAs benefit.