Displaying items by tag: wealth management

(New York)

A new survey by the Money Management Institute and AON has come up with some interesting findings as it relates to client satisfaction with their advisors. One of the most intriguing findings was that clients say they wished their advisors used more goals-based financial planning. Goals-based planning is the idea that you plan around clients’ individual life goals (e.g. saving enough money to pay for children’s college) and then continually report to clients how they are doing in those areas. Incorporating values into their financial planning is another area where clients say advisors could improve.

FINSUM: Many advisors already do this, but there is likely room for improvement, especially as it relates to reporting. Very few invest and save just for the sake of accumulation without a plan for their money, so reporting on the key areas they are making progress towards is a good step. There are even funds that specialize in helping aid goals-based investing.

(San Francisco)

The wealth management market is already in shock from Democrats’ tax proposal—think top tax rates of over 65% for high tax states. Remember that a large majority of states charge taxes on residents, including big ones like New York and California, where large numbers of America’s wealthy reside. Now, California, the largest and one of the most influential states in the union, has just put out a proposal for taxing wealth, not income. The plan comes from the state’s legislator. Here are the basics of the plan: “The state would apply a 0.4% rate to all net worth above $30 million for single or joint filers. The tax would apply on wealth above $15 million per spouse for married taxpayers who file separately. Net worth would include all assets and liabilities held globally by a taxpayer”, according to Barron’s.

FINSUM: Two eye-opening things here. Firstly, Democrats have a veto-proof supermajority in the state legislature, so passing this will be much easier than elsewhere. Secondly, how much will this influence other states? It was easy to see how left-leaning states influenced others as it regarded state-level fiduciary rules.

(New York)

The wealth management industry has a long-standing issue that has recently been re-highlighted by some new research studies. That issue is that financial advisors—who are overwhelmingly male—tend to have unconscious biases which lead to miscommunication, poor judgments, and bad experiences for female clients. According to Merrill Lynch, one of the big changes in household investing is the increasing involvement of women. For instance, women under 45 are twice as likely as average to be the financial decision maker in their home, and 4.5x more likely than women over 55 to consider themselves knowledgeable about investing. In meetings with heterosexual couples, advisors are still focusing most of their attention on men, which is frustrating to women. Male advisors also often mistakenly assume the couple’s finances are integrated and they are investing from the same account.

FINSUM: It is no surprise that the issues exist in wealth management, as they seem to be present in all industries. Our sector seems pre-disposed to the issue given the overwhelming majority of older male advisors.

(New York)

The term “hybrid annuity” gets thrown around in casual conversation all the time, unfortunately including in sales pitches to clients. However, one would be better off calling it what it is—a fixed index annuity. “Hybrid annuity” gives a false sense of the product, lending the impression that there is full principal protection AND unlimited upside. The reality, of course is that while principal protection full exists, there is quite limited upside that is constrained by the annuity contract.

FINSUM: A contractually limited 4% max annual upside via an option contract on an index is not unlimited upside.

(New York)

One of the most commonly asked client questions about annuities is “what is the best age to buy one?” The answer, as advisors know, is that there isn’t one; it depends on your financial goals and circumstances. That said, there are a couple things to bear in mind. Firstly, those in their mid-40s or younger should almost certainly not consider annuities (outside of some variable annuities) because they have the time to take additional risk (and get the additional growth) of direct exposure to the market. On the other end, annuity availability for those 80 and older declines rapidly. Accordingly, depending on circumstances, the sweet spot is likely in that range.

FINSUM: Annuities seem to be best bought for what they guarantee, not what they might offer, as downside protection and income protection are truly the name of the game.