Wealth Management
Talks were making progress on the state and local tax reductions but they hit a wall this week. Democrats are splitting on the SALT deduction, specifically Senator Bernie Sanders has withdrawn from the previously agreed to plan. Democrats have been in agreement for a 10-year revenue neutral deduction, but Sanders wants to use the SALT deduction to be a revenue generator and use the multiple hundred billion dollars in revenue to pay for vision and dental in a Medicare expansion. The biggest disagreement is what incomes would be eligible for the unlimited benefit; Sanders wants to set the market at $400k while most democrats feel the limit should be $550k. Overall the current SALT write offs in the Build Back Better bill give up to $80k in write offs and this is too much for Senator Sanders.
FINSUM: Holding up the BBB for a SALT deduction is a small grievance. These deductions were revenue neutral which should be a bi-partisan victory.
2021 has posed its fair share of risks to the average portfolio: emerging market disruption, Covid-19 resurgence, slowing economic growth, and rising inflation. However, model portfolios are the solution advisors can utilize to mitigate this risk. Often sought after for their ability for advisors to utilize in order to spend time deepening relationships with clients, a suite of model portfolios have popped up targeted to mitigate risks. For example, EQM Capital launched a variety of modular model portfolios that are risk-based ETFs to better suit clients’ portfolio objectives and preferences.
FINSUM: Model portfolios are expanding and changing in a variety of ways, and this means they can better suit their clients whether that's for their risk level or ESG expansion.
Direct Indexing is the process of holding the stocks in the weights of the underlying Index, rather than buying an ETF that tracks an index, and this new opportunity is being adopted by financial heavyweight Charles Schwab and will be available to investors. Starting with the large-cap Schwab 1000 Index, S&P Small Cap 600 Index and MSCI KLD 400 Social Index, Schwab will be available to mix and match to customize a portfolio to hit the investor’s exact needs. However, this option won’t be available to just any investor. The indexing platform will require a $100,000 account size. Adoption of direct index investing is one piece of Schwab’s expansion into personal investing, that goes hand-in-hand with environmental, social, and governance investing and other thematic investing.
FINSUM: Schwab is the latest of Vanguard, Fidelity, BlackRock and Morgan Stanley to jump into index investing. However Schwab’s pricing format is not revealed and its advantages over a low fee ETF are not yet clear.
More...
The appetite for on-demand experiences has grown. In 2020, the global on-demand market...See More
According to the leading regulatory lawyers in our industry, advisors are about to get hit with a doozy. Faegre Drinker Biddle & Reath say that the DOL is planning to release a new fiduciary rule this spring. Since the new version of the rule is being drafted and put forth under the Biden DOL, it is widely agreed that this newest version will look much like the Obama-era rule that got thrown out by the courts. According to Fred Reish, a partner at the firm, “There will be provisions of 2020-02 that'll be moved over to it. Probably the fiduciary acknowledgement, the best interest standard and maybe specific disclosures of reasonable compensation limitation. It'll look a lot more like a fiduciary type rule than it does right now."
FINSUM: This new rule has been widely signaled but we have never had a good fix on timing, but is now becoming clear. Take note.
Annuities are more available than ever these days. Many large providers have been designing products just for RIAs and are making a big push in the area. Additionally, annuities are now easily included in 401ks. But when is it right to choose one? The overall value of annuities has declined as rates have fallen, but as rates rise, they are becoming more attractive as a source of good guaranteed income. Additionally, they offer unique tax benefits that help enhance returns. Brighthouse, for example is a leading provider of annuities and lead the industry with the FlexChoice (variable annuity) and Shield (index-linked annuities) products. Choosing the right annuity depends on your client’s goals.
FINSUM: Annuities increasingly fit into a client’s portfolio in myriad ways. In some cases for a lower wealth client, it can be a near one-stop shop to accomplish retirement goals, especially if that client is prone to not managing budgets well. In other cases, annuities can provide just a small portion of a portfolio, but do so with guaranteed income.