Wealth Management
Annuity sales in 2023 were up 22% compared to the previous year, reaching $355.4 billion. The biggest contributor to this growth was the independent sales channel, which now accounts for 40.6% of all annuities sold, totaling $156.2 billion. In 2022, independent agents and brokers accounted for 38.7% of sales. They also accounted for 74% of all fixed indexed annuity sales.
The growth in total annuity sales is due to rising interest rates and the large number of Baby Boomers who are entering or nearing retirement. In terms of categories, income annuities saw the largest increase in sales, at 45% for single premium immediate annuities and a 97% increase for deferred income annuities.
While most categories saw growth, traditional variable annuities were an exception, as sales dropped by 17%. In contrast, registered index-linked annuities displaced some of these sales as the category had a 15% jump in sales. These annuities offer investors downside protection and limited upside and total $47.4 billion in sales in 2023.
Keith Golembiewski, the head of annuity research at LIMRA, believes that RIAs are a source of future growth for variable annuity sales. These annuities offer upside potential and allow for deferral of taxes, making them ideal for older clients. Currently, RIAs are a small but growing source of annuity sales.
Finsum: Annuity sales hit new record highs in 2023. Some major reasons are an uncertain economic outlook, Baby Boomers nearing retirement, and high interest rates.
In the face of escalating inflation, Americans are increasingly longing for the retirement security once provided by pensions, a sentiment reflected in a survey revealing widespread concerns about the reliability of existing retirement plans such as 401(k)s.
This shift away from traditional pensions stems from their expense and risk for companies, leading to the widespread adoption of defined contribution plans like 401(k)s, which place the onus of retirement planning on employees. However, the recent surge in inflation has exposed the vulnerabilities of 401(k)s, particularly for older adults nearing retirement.
To address this, there's a growing interest in annuities, which offer a guaranteed income stream and can be seen as a modern iteration of traditional pensions. Annuities, available in various forms including fixed and variable, provide retirees with a way to insure their income stream, offering stability in an uncertain financial landscape and potentially bridging the gap left by the decline of pensions and shortcomings of 401(k)s.
Finsum: Annuities can offer a more secure return and replace the void left by pensions for many Americans.
2024 has proven to be a much more challenging year for financial markets than 2023. Entering the year, the consensus was that the economy would continue to weaken, inflation would keep trending lower, and the Fed would be proactive and aggressive in cutting rates.
Clearly, this has not happened. Amid this new paradigm, allocators are understandably looking to make appropriate adjustments to portfolios. Here’s why they should consider increasing exposure to active strategies.
With fixed income, active investing can allow for precise exposure to a specific theme. For instance, those who don’t believe that inflation will keep trending lower may want to have higher exposure to short-duration debt. Another benefit is that active managers are able to quickly change strategies depending on how events develop, which makes them particularly useful in the current environment. This means that holdings can be optimized for the current environment of ‘higher for longer, but then managers can quickly pivot once the Fed actually starts cutting rates.
Active strategies can also be useful in other asset classes, such as international equities, which currently appeal to many investors due to favorable valuations relative to US equities. With active management, there is more focus on bottom-up, fundamental-focused analysis, which can result in more alpha in less efficient markets. Further, it can also lead to more diversification and risk management than is typically found with passive investing.
Finsum: The first quarter of 2024 has had several unexpected developments. Here’s why allocators should consider active management to navigate this tricky environment.
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iCapital, headquartered in New York and a sizable user base of over 100,000 financial advisors and 560 asset managers, has rolled out its latest offering, the portfolio construction tool, on the iCapital Marketplace.
Dubbed Architect, this tool equips advisors to delve into alternative assets such as private equity and hedge funds, alongside structured investments, to fine-tune client portfolios. Architect boasts capabilities to simulate past performances, discern macroeconomic influences on portfolio returns, and align future projections with client objectives.
This initiative aims to bridge the gap between traditional portfolios and alternative investments, historically kept separate. Now accessible to a broader audience, including users via a collaboration with Morningstar, Architect underscores iCapital's commitment to empowering advisors with flexible tools for better client service.
Finsum: Easy access to alternatives in portfolio construction gives clients better access to uncorrelated returns.
This time last year, UBS was embarking on its takeover of the distressed Credit Suisse. Understandably, this slowed its pursuit of other M&A targets. However, the bank is now ready to target larger wealth management firms.
UBS CEO Sergio P. Ermotti recently spoke at the Morgan Stanley European Financials conference. He sees the bank targeting US wealth managers for acquisitions in an effort to boost the profitability of this division. His goal is to narrow the gap between UBS and its rivals following a 72% decline in the unit’s Q4 earnings.
However, many are skeptical about UBS’ strategy given the aggressive moves made by competitors in the last few years. According to Larry Roth, the managing partner at RLR Strategic Partner, “UBS could be late to the M&A party, which already has significant, well-run firms that are having success in this area.” Further, attractive targets are likely to have multiple bidders and rich valuations.
Another concern is that there is no guarantee that these large acquisitions will work. A recent example is UBS’ attempted purchase of Wealthfront for $1.4 billion in January 2022 with the intention that it could help the bank recruit Wealthfront’s younger clients. The deal was scrapped by regulators and shareholders.
Acquisitions are essential for UBS to fuel growth, given its challenges in retaining talent. UBS's advisors generate more than $1 million in average annual revenue and fees. This makes them an appealing target for RIAs or independent broker-dealers with more earnings potential.
Finsum: UBS is betting on a more aggressive M&A strategy to bolster its US wealth management division. Yet, many believe that the bank’s efforts may not succeed given higher valuations for attractive targets and recruiting challenges.
Navigating social media poses considerable challenges for financial advisors, firm executives, and other professionals, where every post and interaction can potentially impact their professional reputation. However, there's a new strategy emerging, emphasizing the importance of prioritizing the personal aspect first, according to April Rudin, founder and CEO of The Rudin Group.
This shift represents a departure from previous conventions that primarily emphasized showcasing professional backgrounds. Rudin suggests that delving into personal beliefs, passions, and backgrounds can serve as effective conversation starters and entry points for new business opportunities and recruitment efforts.
While maintaining professionalism remains paramount, there's an increasing recognition of the value in showcasing one's personality and individuality within the confines of firm guidelines. As social media continues to play an integral role in professional networking and client engagement, Rudin's advice underscores the importance of authenticity and human connection in the digital realm.
Finsum: Standing out in a world of increased AI and robo advisors could mean putting more personality into your practice.