Displaying items by tag: regulations
The Biden administration has put a number of new policies that are affecting annuities, and while some of them may be unintentional a number of companies may be moving to offshore havens to escape the pressure. Annuity issuers are being acquired by private companies and then becoming nomadic firms that are mainly housing themselves in Bermuda. The current Build Back Better act will affect annuity and insurance contracts with updates to the base erosion and anti-abuse tax. Additionally, many annuity issuers aren’t positive that the variety of retirement vehicles that are offering annuities might not be so great moving forward. Finally, low yields in are tricky for annuity issuers because they rely on traditionally high yield debt to finance the pseudo insurance contracts.
FINSUM: Annuities are one of the oldest financial contracts, it’s bizarre how much new regulation is being sprung on them in 2021.
Environmental, Social, and Governance standards have, up until this point, been an opt-in style strategy to give an edge in debt and equity markets, but that could all be changing. The CEO of Norges Bank Investment, the world's largest stock owner, says that corporate life is only going to be more difficult for firms that don’t meet ESG standards. Market pressures are going to rapidly change and firms will have a difficult time raising finances, maintaining employees, and retaining customers if they aren’t part of a green future. Norges plans to utilize its market power to apply a lot of pressure, one such way is by giving companies expectation documents. They believe companies won’t be profitable in the long run if they don’t commit to ESG.
FINSUM: This strategy of pressuring companies through divestment has been shown to not necessarily be effective in holding them accountable and transitioning them into a greener world.
There is a growing sentiment to regulate the technology sector, and that push isn’t isolated to just the U.S., the rest of Europe is planning on changing regulations as well. However, despite this potential crackdown on the fastest growing sector for over two decades, Morgan Stanley remains bullish on many digital advertising companies like Alphabet, Meta Platforms, Snap, and Pinterest. While Morgan Stanley says there is a bear case, the base case is quite positive for tech companies and the odds of extremely tight regulation cracking down are long. The worst case scenario would be if the U.S. adopted some Euro area approaches to regulation, and whistleblowers would become commonplace in tech.
FINSUM: The moderate regulation scenario is already priced into tech stocks in the U.S. so unless Congress fully revamps its regulation tech stock looks to be bullish.
Congress continues to look for ways to fund the $1.85 trillion bill that aims to spend on social and climate policy. While they have already considered objectives that would align the U.S. with the G20’s global minimum tax rate, the current bill will also affect wealthier individuals’ retirement vehicles. Congress will put limits on large accounts for individuals or couples with $10 million dollar retirement balances. The newest Build Back Better bill also eliminates the ‘backdoor’ Roth IRA by minimizing rollovers and conversions. The date for the former rule change isn’t until Dec. 31, 2028 but the backdoor loophole is set to close Dec. 31st of this year in the current bill.
FINSUM: Substantial changes to savings and retirement could be coming in the upcoming legislation, and investors should be aware of how these changes could affect their retirement vehicles.
Former Harvard bankruptcy professor Elizabeth Warren is trying to reestablish support of tighter regulation on yet another financial industry sector. Looking to alleviate financial irresponsibility, the bill restricts PE from enforcing new loans on companies in order to withdraw dividends. Additionally, the bill creates a number of protections for workers that prohibit outsourcing and secure severance pay in the event of bankruptcy. Companies like Sports Authority, Shopco, and Gymboree all filed for bankruptcy under PE the debt Warren is trying to prohibit. Warren failed to draw the appeal across the aisle previously with the bill, but is hoping to gain more traction this time around. Opponents say the bill will draw down on private funding for new and small businesses and could harm the ability to make new hires or expand their workforce.
FINSUM: Regulation like this will undoubtedly harm some small businesses but the protection and benefits could out way those restrictions, however the bill won’t likely get enough traction in its current status to reach the oval office.