Wealth Management
The bond market has had extreme difficulties as of late, and most investors are looking to annuities for an income alternative, but what questions should they be asking themselves. The first is what is the term of the annuity? Duration and commitment play a pivotal role in how you are assessing the asset. How much is the surrender charge? Look for de-escalating surrender charges if you may get out early. How does your annuity generate interest? Many indexed annuities can be linked to the markets like the S&P 500 which can give stock exposure without as much risk. Finally, can you withdraw early, and what are the liquidity constraints? You may want to be able to have a flexible withdrawal amount in case of emergencies.
Finsum: With more investors turning to annuities, it’s critical advisors understand why they are using them as a financial vehicle.
Charles Stanley is diving deeper into ESG with a new suite of model portfolios geared at responible passive investing. Jane Bansgrove will manage the model portfolios and is the investment director of Charles Stanley’s responsible investment committee. Studies have shown that many have put more emphasis on ESG and sustainability due to the Covid-19 pandemic. The funds will be available across different risk levels with different target growth rates that correspond to them. They are designed to be low cost and efficient like many other passive ESG funds.
Finsum: Model portfolios are a natural marriage with ESG, because thematic investing caters itself to a model that can make selections.
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.
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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.
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.