Wealth Management
(New York)
While yields have been rising over the last few weeks, the reality is that they are still near historic lows, and far below the level most retirees need in order to earn decent income, especially given how risky bonds currently appear. So, in this very difficult environment annuities have emerged as a good option, but how to take best advantage of them when rates are so low? There are a few options, but the best one is “laddering”, or buying multiple annuities over time in order to not commit your entire pot of capital at a time when rates are so low. Additionally, some annuities offer dividend payments on top of regular payouts, which can provide extra income.
FINSUM: One of the big worries right now is putting a big pot of money into annuities, only to see rates and payouts rise in a couple years. Hence laddering is good strategy.
(New York)
If there were ever a product built for steady retirement income, it is fixed annuities. With the big decline in fixed pensions, fixed annuities have become a must-have option for many retirees who need guaranteed income. They are the simplest annuity—principal and income are guaranteed, but rates are fixed. In other words, the insurance company is bearing the risk, so they get the upside, but the customer gets peace of mind. Therefore, the basic utility of annuities is to support everyday income in retirement. There are other uses too, especially in the current market environment. For example, “Right now, some fixed annuities make an attractive alternative to both bonds and CDs in a portfolio, due to the principal guarantees and interest rates offered”, says one financial advisor at Stack Financial Services.
FINSUM: The most important thing to remember is that annuities have utility in most portfolios, but they should only ever be just a portion of a portfolio. They suffer from illiquidity and are very susceptible to inflation, but they also have guarantees that no other asset class can offer.
(Washington)
In what comes as a surprise to the entire industry, President Biden’s administration has just let the Trump-era version...View the full story on our partner Magnifi’s site
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(Washington)
The meme stock frenzy is one of the best things that could have happened to broker reps. Why is that you might ask? Because it probably just distracted the new leadership of the SEC for about a year. The meme stock frenzy has dominated headlines and become a Democratic cause, which means newly nominated SEC chief Gensler will likely be focusing on that immediately upon taking over. Bitcoin is another emerging issue given the huge run-up in prices and public focus. Reg BI is obviously very important, but may become second fiddle because of the other, more newsworthy issues.
FINSUM: This makes perfect sense. It seems likely that the SEC might not move as fast in Reg BI changes because of Robinhood/meem stocks. As evidence of this, look no further than Reg BI hawk Barbara Roper, who has recently been talking more about Robinhood.
(New York)
Annuities are a widely available and popular product, and they are heavily utilized by retirees whose main focus is income. Therefore, it would make sense that tax planning around that income would be more of a major consideration—especially because annuities have some peculiarities as it regards taxation—but in general it does not seem to be an explicit topic. One of the first things to remember is the difference between qualified and nonqualified annuities—the former being in retirement plans, the latter not. Both require mandatory withdrawals after age 72. It is critical to remember that only interest, not principal is taxable when withdrawing money from a nonqualified plan. This is a big danger zone that some retirees fall into. Two other important notes: annuity interest used to fund long-term care insurance can be used tax free; and spouses can assume ownership of an annuity in the event of the death of their spouse tax-free.
FINSUM: For advisors who readily deal in annuities, this info will be second nature. However, there are a lot of advisors who are just starting to get into annuities and this info will be quite useful.
(Washington)
In what comes as a surprise to the entire industry, President Biden’s administration has just let the Trump-era version of the Fiduciary Rule go into effect. Almost everyone in wealth management thought Biden would surely use his administrations powers to stop the rule’s enactment, but they elected to let it go into effect as of this Tuesday, accompanying the announcement with positive and supportive language. The industry’s reaction was immediate and positive, while consumer advocates were disappointed as they were hoping for a more stringent rule from the Democratic administration.
FINSUM: Frankly, we take this as an incredibly positive sign for the wealth management business. This is a big signal to us that the Biden administration is not going to be as onerous and impractical on the regulatory front as many might have feared.