Wealth Management
(New York)
One of the challenges with annuities, whether as an annuities salesman or as an advisor explaining them to clients, is how to position them. The most fundamental utility of an annuity is the idea that it can provide income for life. In other words, the client can have peace of mind that they will have income even if they live to be 120. In this way, an annuity is not a market-based investment in the traditional sense, but rather it is an insurance contract. For advisors this concept will be second nature, but for clients this is not as clear. Accordingly, the main value of the annuity is not specifically in the income it provides, but in the risk mitigation it offers against very long lifespans for clients.
FINSUM: If you are active in annuities this might sound like a broken record; if you aren’t, it is a useful line of thinking. Either way, everyone needs to be reminded!
(Washington)
Every year around this time, advisors can get a special look at what the SEC’s policy priorities are likely to be for the rest of the year. This takes on special significance this year since we have a new administration in place. The way to get the insight is to look at what focus the SEC applies to their regulatory exams, and this year they are quite interesting. SEC exams for 2021 will focus on Reg BI (not such a surprise), but also climate, ESG, and Crypto, among other topics.
FINSUM: Quite an interesting list, but one very notable absence: meme stocks/social media. This is important because some think the SEC will turn its gaze to that area, which might have delayed focus on Reg BI.
(New York)
Annuities have been doing very well ever since the pandemic began, and the reasons make total sense: high volatility and ultra-low rates which have rendered bonds a very poor source for retirement income. With that in mind, it is no wonder that protection-focused annuities have been seeing heightened sales. 2020 actually saw a significantly higher volume of protection-focused annuities sales than 2019, despite the fact that overall wealth and liquidity fell considerably at the start of the pandemic. The big driver of demand was the huge fall stock indexes experienced early in the pandemic.
FINSUM: This makes a lot of sense as a huge percentage of Americans are approaching retirement and 2020’s market gave them a terrible fright. We expect this trend to continue.
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(New York)
All the regulatory focus recently has been on the SEC and DOL, and understandably so. However, FINRA plays a big role in the lives of RIAs and BDs, and it looks poised to make a big move. FINRA is currently examining Reg BI and seeing if they believe it applies to the meme stock trading situation. In particular, FINRA is considering whether new regulations need to be put in place that govern self-directed trading which is not covered by Reg BI. FINRA says it is “committed to supporting the SEC staff’s review (announced in October 2020) of the increase in self-directed trading by retail investors that is not covered by Reg BI, and the effectiveness of existing regulatory requirements in protecting investors in those circumstances”.
FINSUM: This is still in the early stages so it is hard to tell the extent to which it may affect advisors, but it is certainly something to keep an eye on.
(New York)
What is the biggest challenge for retirement in the current era? The answer is time: people are living longer than ever, which means they need long periods of consistent income. Long term consistent income in retirement is a challenge because people need to set enough money aside and be disciplined to not withdraw too much. With all that in mind, annuities play a very special role, as they provide guaranteed income and at the same time, keep a lid on the pace of distributions, which means money will pay out throughout the entirety of retirement. Bonds used to play this role, but given ultra-low rates and high prices, they simply no longer do.
FINSUM: Given the volatility in stocks and the low rates and overvaluation in bonds, annuities have a very strong role to play in almost any portfolio.
(Washington)
This is one of the most uncertain times in recent history, and not just because of political divisiveness and the pandemic, but because many of the new administration’s policies are likely to be very different than the Trump administration’s. That extends to taxes, where there is a high degree of anxiety about forthcoming changes, most of which high earners expect to be punitive. Because there is a wide range of possible outcomes, advisors need to work hard to plan for what different scenarios might look like. Accordingly, now is the right time to beef up on tax planning staff, or at the least review your tax planning playbook and keep a close eye on the news.
FINSUM: In a year, when new tax policies are known, you want to be able to tell clients “don’t worry” we have been planning for this and you will be fine. The work to get there needs to start now.