Wealth Management
In an article for Forbes, Jon McGowan discusses how five out of the eight insurance companies, who were among the early signers of the agreement, are leaving the United Nations’ Net-Zero Insurance Alliance due to antitrust concerns and a backlash regarding ESG.
The alliance was formed in 2021 to encourage the insurance industry to proactively work on solutions towards climate change. The goal was to get to net-zero emissions by 2050 by promoting change of internal practices and to use investment decisions to encourage other stakeholders to reduce their emissions as well. It also mandates disclosures of decisions related to climate change and is modeled on financial disclosures that are required by the SEC.
This has raised antitrust concerns given the coordination of companies within an industry. It also has led to opposition due to the recent, heated pushback against ESG investing which has intensified with Republicans taking over Congress. At the statehouse level, Republicans have also mobilized to ban use of state funds from using ESG factors in investment decisions.
Finsum: Insurers are leaving the UN Net-Zero Insurance Alliance due to antitrust concerns and the backlash over ESG investing.
In an article for ETFTrends, Tidal Financial Group discussed the major challenge facing financial advisors. Clients want customized and personalized services, but growing the practice requires creating standardization of systems and processes and finding efficiencies.
These conflicting demands tend to create a lot of stress for advisors and can limit their growth and effectiveness. Too much personalized service will impede your ability to attract new clients and grow the business while too many efficiencies will lead to unsatisfied clients and ultimately retention issues.
Model portfolios can help advisors resolve this dilemma. They can help you offer more personalized services to clients without taxing an advisors’ time and resources. These models can be used for a variety of purposes such as reducing tax liabilities, values-based investing, more complex strategies, etc.
Instead of spending time on portfolio management, advisors can spend more time on marketing, client outreach, financial planning, etc. Advisors with a smaller practice may not appreciate the benefits of model portfolios until they get to a larger scale. Other benefits include simplifying client communication, leveraging research and education, and synergies between marketing and investing.
Finsum: Model portfolios are one way for advisors to become more efficient while also creating a more personalized experience for their clients.
Every year, there are countless innovations in wealth management but only a few prove to have staying power and become a disruptive force. It’s increasingly clear that direct indexing is here to stay given its massive growth over the last couple of years.
It also serves a unique niche, because it offers the benefits of index investing with more customization and tax savings. According to a report from Cerulli Associates, direct indexing is expected to continue growing at a similar pace over the next decade due to these reasons. And, it’s especially useful for investors who want to prioritize tax loss harvesting and ESG.
The report also shows that there’s considerable room for growth given that only 14% of advisors are aware of it and recommending it to their clients. However, the firm is confident in its growth especially as fee-based models continue to take market share. It forecasts 12.3% growth over the next 5 years.
Given its usefulness and newness, direct indexing is one way that advisors can differentiate themselves. It can also help create a more personalized experience for clients which can lead to more loyalty and retention.
FinSum: Direct indexing is expected to continue rapidly growing over the next decade, and it’s particularly beneficial for tax loss savings and ESG investing.
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2023 has been quite different compared to 2022 especially from a financial markets perspective. Due to raging inflation and a hawkish Fed, 2022 saw weakness in both stocks and bonds. In contrast, both asset classes have delivered positive returns in 2023 YTD despite significant and continued headwinds.
This is particularly the case for active fixed income. In an article for the Financial Times, Madison Darbyshire and Harriet Agnew highlight how large asset managers have been increasing allocations to the category as they look to lock in higher rates with the Fed in the final innings of its rate hikes. Analysts are noting demand from institutional and retail investors, across the active fixed income spectrum.
In 2022, $332 billion moved out of the category, but 2023 has already seen inflows of $100 billion in the first third of the year. This trend is expected to only strengthen with active fixed income ETFs expected to continue taking a larger share of the fixed income and ETF universes. According to State Street CEO Yie-Hsin Hung, "It feels like the beginning stages of what happened in equities.”
Finsum: After a poor 2022, inflows into active fixed income are sharply higher as they look to lock in higher rates given the end of the Fed’s tightening and increasing odds of a recession.
According to an article by Katherine Greifeld and Emily Graffeo, Blackrock is launching its own ETF for income investors. This marks new fixed income CIO Rick Reider’s first ETF launch.
The actively managed BlackRock Flexible Income ETF will invest in more higher-yielding parts of the fixed income spectrum like high-yield bonds, emerging market debt, and securitized assets. It will have an annual expense ratio of 50 basis points and will be managed by Rieder, Jacob Caplan, and Samir Lakhani.
Fixed income ETFs are experiencing rapid growth in terms of inflows and new issues due to high rates and an uncertain economic outlook. Many analysts anticipate ETF flows to become a dominant factor within the fixed income market like ETFs have for equities. Within the category, Blackrock is the leader with $600 billion in assets out of a total of $1.4 trillion in fixed income ETFs.
According to Blackrock, these ETFs are serving investors while also leading to more liquidity in fixed income markets. BINC carries an annual expense ratio of 50 basis points and is actively managed by a team including Rieder, Jacob Caplain and Samir Lakhani.
FinSum: Blackrock is the leading issuer and manager of fixed income ETFs. Recently, it launched the Blackrock Flexible Income ETF which invests in higher-yielding debt.
With interest rates at their highest level in decades and an increasingly cloudy economic outlook, it makes sense that interest in annuities has increased. Used properly, annuities can create a steady income and reduce overall portfolio volatility.
However, Allan Roth in a Barron’s article shares some risks that investors need to consider before investing in an annuity. In terms of simple annuities, there are two main kinds - single premium immediate annuities and multi year guaranteed annuities.
He says that a single premium immediate annuity is similar to a pension. Typically, these are bought through an insurance company, and it pays a defined amount every year. The benefits are that it provides cash for the rest of a clients’ life. But, the risk is that the value of this income can be diluted by inflation. This becomes more germane the longer the annuity is relied upon.
The other option is a multiyear guaranteed annuity which provides income for a certain period of time, typically between 5 to 10 years. This functions similarly to a certificate of deposit. Yields are slightly higher than a CD especially with longer durations. However, the higher yield does come with higher risk as CDs are backed by the FDIC while these annuities are backed by insurance companies which come with higher levels of risk.
Finsum: Annuities are seeing higher levels of demand due to increasing recession risk and high rates. Yet, there are some risk factors that investors need to consider.