Wealth Management
The U.S. Department of Labor's proposed redefinition of what triggers fiduciary status for retirement plan advisors and providers is drawing intense scrutiny from industry professionals, with concerns about its potential impact on information access and plan creation.
Prior to the January 2nd deadline for public comments, prominent figures like Ed Murphy, president and CEO of Empower, have voiced their opposition. A central worry surrounds the chilling effect of the new definition on certain conversations between providers/advisors and plan sponsors/participants. Fear of inadvertently triggering fiduciary status may lead many to withdraw from such communication, effectively cutting off a crucial source of information for those navigating retirement and plan decisions.
Murphy's point, highlighted in a recent planadviser.com article, illustrates this concern: "The proposal would create obstacles to plan creation and could effectively ban many sales conversations between providers and plans or individuals."
However, Tim Hauser, the DOL's deputy assistant secretary for program operations, maintains that the proposal is not meant to regulate routine "hire me" (sales) discussions. He has actively sought industry suggestions on language revisions to better clarify this intent.
Finsum: Defined Contribution professionals share their concerns with the Department of Labor regarding their proposed rule regarding what communication triggers fiduciary status.
For advisors contemplating switching to a new broker-dealer, carefully evaluating the candidate firms' technology platforms is essential. Their robustness and capabilities can directly influence both advisor success and client trust. Below are three areas to consider.
The Roadmap to Tomorrow: Does the broker-dealer prioritize continuous investment in platform upgrades and new features? Do they have a clear vision for the future of their tech offerings? Knowing where the firm is headed is as essential as knowing where it currently stands.
Growth without Growing Pains: Platforms should facilitate growth, not hinder it. Assess the platform's scalability. Can it handle your growing client base and evolving service needs? Can it be customized to your specific workflows and strategies?
Trusting the Vault: Advisors cannot afford to gamble with client security. Investigate the firms' cybersecurity protocols and data privacy policies. Are they robust and up to date? Do they prioritize data encryption and access control? A single security breach can shatter client trust and an advisor's reputation.
Choosing the right broker-dealer is more than finding the highest paycheck. By evaluating the firms' tech infrastructures, advisors can determine which platform will best enable their growth while safeguarding their client's sensitive data.
Finsum: Select a tech-forward broker-dealer for growth and security in your advisory practice. Evaluate for scalability, innovation, and client data protection.
Gold prices ended the year on a strong note by making all-time highs and finished the year with a 13% gain. Next year, the outlook remains bullish due to expectations that real interest rates will decline as inflation falls and the Fed shifts to a dovish policy, leading to increased demand. JPMorgan has a year-end forecast of $2,300.
Some of the factors that could lead to gold outperforming are the economy being weaker than expected which could lead to more aggressive cuts by the Fed. Additionally, there is a risk that geopolitical tensions could inflame even further whether it’s in the Middle East or the conflict between Russia and Ukraine. Budget deficits in the US remain high for the foreseeable future with another close and contentious presidential election on the horizon.
Another positive catalyst for gold prices is that central banks are net buyers. According to the World Gold Council, they will purchase between 450 and 500 tons in the upcoming year. This is in addition to strong investing demand from ETFs which have seen substantial increases in assets over the past year.
The major risk to the outlook is if the economy remains robust enough so that the Fed can keep the fed funds rate elevated for a longer period of time. During the last 2 ‘soft landings’, gold had a total return of -1.6%, while Treasuries returned 16% and equities were up 33%.
Finsum: Gold prices are flirting with all-time highs. Recent catalysts for strength include geopolitical turmoil and expectations that the Fed is in the midst of a pivot.
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It’s an interesting time for fixed income given the recent rally and optimism around inflation falling enough to cause a change in Fed policy. In conversations with clients, Nicholas Bragdon, Lord Abbet’s Associate Investment Strategist, discussed some common themes that are emerging.
The first is that many clients report feeling satisfied with earning 5% returns in deposits and have no desire to make a change. While returns on cash are the highest in decades, the same is true across the fixed income universe even in short-duration assets like short-term corporate debt. Historical data also shows that being overweight in cash leads to long-term underperformance while also leading to reinvestment risk in the event that the Fed does start cutting rates.
Another common concern among clients is that they believe they will have sufficient time to make changes to their portfolio if the Fed does start cutting rates. However, history shows that it’s quite difficult to time these changes in rate policy.
In fact, last year at this time, the consensus was for the economy to fall into a recession in the second-half of the year, leading the Fed to start cutting rates. In reality, markets are too efficient and will have already priced in a bulk of gains by the time the Fed actually starts easing. Thus, investors should consider moving from cash or short-duration fixed income into intermediate or longer-duration to take advantage of the changing environment.
Finsum: Fixed income markets are at an interesting place, following a strong rally to end the year amid anticipation of a change in monetary policy. Here are some common client concerns.
According to Broadridge Financial, we are on the cusp of a meaningful shift in the wealth management universe as direct indexing represents the next evolution of passive investing. Over the last 20 years, we have seen exchange traded funds (ETFs) displace mutual funds as the primary vehicle for investing. Now, Broadridge believes something similar is happening with direct indexing.
Some of the major reasons for this are low trading costs, fractional shares, and technology advances which make it accessible and practical for investors with much lower amounts to invest. Direct indexing assets are forecast to rise at a 12.4% rate over the next few years, outpacing ETFs, mutual funds, and SMAs. As a result, it’s becoming imperative to offer this service to clients who are particularly amenable to its tax optimization and personalization features.
Despite these trends, Broadridge reports that only 47% of executives and advisors were familiar enough with direct indexing to complete a survey about the subject. Additionally, only 14% of advisors currently recommend it to clients. According to the firm, advisors and practices should move quickly to embrace this technology as it has the potential to be a source of differentiation and value for clients. Client interest is especially high among Millennials and Generation Z due to their desire to align their investments with their personal values.
Finsum: Broadridge Financial conducted a survey of advisors and executives about direct indexing. Despite promising long-term trends, it found that many are still not acting to embrace this opportunity.
Blackrock remains the heavyweight when it comes to the ETF market in terms of total assets and issues, but rivals are catching up. As of November of last year, Blackrock managed 32% of total assets in the US ETF market, a slight drop from 33.7% at the same time last year. This figure was at 39% just 4 years ago.
Blackrock’s major rival in ETFs is Vanguard. While Blackrock has ETFs for nearly every category, Vanguard is focused on fixed income and equities while sticking to its reputation for low costs and diversification. Recent flows into ETFs have favored cheap index funds which is one factor in Vanguard taking some market share. Vanguard has seen its market share rise from 25% to 29% over the last 4 years.
The story is different in Europe, where Blackrock retains its dominance. As of November 2023, the firm had 44% of total ETF assets, and this figure was unchanged over the last 5 years despite the European ETF market more than doubling. Overall, Blackrock has $9.1 trillion in assets and is expected to have net inflows of over $250 billion.
Blackrock has the benefits of a first-move advantage in Europe and has developed relationships with institutions. In Europe, investing continues to be driven by institutions rather than retail traders.
Finsum: Blackrock remains the clear, global leader in ETFs. However, Vanguard is catching up especially in the US, where its index funds are seeing rapid growth.