Wealth Management
President Biden announced he is going to nominate Michael Barr, former Assistant Secretary of the Treasury and current dean of the University of Michigan's Public Policy School, for the Feds Vice Chairman of Supervision. Previously nominated Sarah Bloom Raskin pulled her nomination with harsh criticism from Republicans because she argued the Fed should discourage lending to traditional energy companies. Barr will be stepping into a difficult role but has experience in Government. He helped create the Consumer Financial Protection Bureau. Critics have said that Barr had been easy on bank regulations during the Obama admin and others were suspicious as to his role with Lending Club and Ripple Labs.
Finsum: This is a relatively new position but it has critical regulatory power for the financial system.
Inflation is now everyone’s primary concern, including the Fed. A strategy to outpace inflation is to find an income strategy that can keep up. Closed-end funds with high returns are a great way to do this. Virtus AlllianzGI Diversified Income & Convertible Fund is a great option as it has an 8.96% yield and has averaged over 8% in the last 5 years. Calamos Convertible & High Income is also a great option along with Advent Convertible and Income. Investors looking to rely on Treasury inflation-protected securities have gotten hammered because the rising yield has destroyed their value, and TIPS funds have equally suffered.
Finsum: High yield corporate debt is a great pace to look for yield right now, and is less sensitive to Fed risk than many other bonds.
Firms have quickly ramped up the incentives to recruit and retain financial advisor talent, but those efforts are even stronger for women and minority groups. Merrill Lynch chair of Diversity and Inclusion said the “war for talent is alive and well” and they are trying hard to hire women and people of color in their ranks. No firm is outright saying they are paying women more money in advisor roles, rumors are trickling out that women are seeing higher salaries in order to be attractive to firms. There has been a huge increase in press events and speeches pairing ‘women’ and ‘wealth management’ from major brokerages. UBS, Edward Jones, and Merril Lynch have set high bars for their target percentage of their advisors are women or people of color.
Finsum: Women are an extremely valuable part of financial firms and efforts to attract and retain them will only intensify.
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Larry Swedroe, Chief Research Officer for Buckingham Strategic Wealth, said investors are paying for elevated valuations due to the huge swell in inflows to ESG and the ‘greenium’ on assets. He calls for ESG to continue to outperform before leveling off and underperforming afterward. Swedroe has been criticized for this thought process because of the success of sin stocks, but he contends sin stock success has really been due to outside factors. The best thing to do in the short run according to Swedroe is to perform the fundamental value analysis but check ESG criteria afterward to get an extra boost in price.
Finsum: If greeniums are due to greenwashing, ESG could be in dangerous territory when regulation inevitably shows up.
The Secure act 1.0 has made it a feature of your retirement 401(k) to show exactly what the value of your portfolio converted to an annuity upon retirement at 67. The secure act is one factor that is spurring interest in annuities. The other driving factor is extremely volatile markets which have more investors concerned about a guaranteed plan. Still, drawbacks include inflation, which can eat away at a fixed pie and that risk is at an all-time high, as well as complexity where investors feel burdened. The bottom line is an investor will need $100k for a $440 monthly check, $400k for a $1,760 monthly check, and a million dollars for $4,400 monthly.
Finsum: Consider different annuity products like variable annuities that better match the concerns that are biggest for you as an investor.
President Biden’s 2023 federal budget levy’s a new ultra-wealthy tax that would apply 20% total income tax on those with a net worth of more than $100 million. Notably in the deal, it opens the window to tax unrealized capital gains or any asset growth. The bill is expected to meet a brick wall in congress however as even moderate Dems will have a difficult time supporting it. Biden’s selling point is the expected $360 billion in payments toward the deficit in the next decade. However, the senate proposed a very similar bill last year that was shut down by congress.
Finsum: Taxing unrealized gains is a slippery slope, and hopefully would never trickle down to different wealth classes.