Wealth Management
In an article for FinancialPlanning, Dan Shaw covered FINRA expelling SW Financial of Melville, NY for a variety of violations of industry rules. FINRA cited the firm selling private placement IPOs that were unsuitable for some of its customers. This is a violation of Reg BI, where brokers can only sell private shares to wealthy or accredited investors.
As of April 2023, SW Financial had 38 representatives, 4 branches, and had been operating since 2007. SW Financial’s co-owner and CEO Thomas Diamante was suspended from the financial industry for 9 months and fined $50,000. Diamante and SW Financial agreed to the settlement without admitting or denying guilt.
FINRA also said that the firm notified clients that it was receiving a 10% commission on the private placement but not that it would be getting an additional 5% in selling compensation. This is another violation of industry rules, where 10% is the most commission that can be earned.
In total, the firm received about $2 million in compensation that created a ‘conflict of interest’ for the firm and its clients. They were also cited for a failure to conduct proper due diligence.
Finsum: FINRA expelled SW Financial for failing to follow Reg BI and churning customer accounts.
In an article for AdvisorPerspectives, Edward Perks of Franklin Templeton shared his reasoning for why fixed income should outperform equities in the near term.
First, he sees that inflation is trending lower, but there still needs to be more progress before the Fed would actually start cutting rates. Further, he acknowledges recent stress in the banking system but doesn’t see it spreading to other sectors and becoming a more significant issue which would force rate cuts.
This should lead to a positive scenario for fixed income with longer-term rates bending lower, short-term rates plateauing, and inflation gently moving lower. However, he does believe that the economy will keep slowing so that corporate earnings will soften into the second-half of the year and 2024.
Due to these factors, he recommends a 60/40 allocation with a larger tilt for fixed income over equity. It’s also possible that the allocation could change even more if the economy stumbles into a recession. The firm is particularly bullish on investment grade credit as it offers compelling value with strong upside especially if Franklin Templeton’s base case economic scenario plays out.
Finsum: Franklin Templeton is quite constructive on fixed income but less so for equities. Here’s why it’s recommending a 60/40 allocation tilted towards bonds.
In an article for BankRate, Karen Bennett discussed whether CDs or annuities are the best option for someone saving for retirement. Both are low risk compared to other options, however there are some important differences.
A CD pays a guaranteed rate of return for a certain amount of time, but the funds are completely locked up for the entire term at which point the principal is returned. However if the money needs to be accessed early, then there is likely to be a penalty which negates the earned interest and even potentially cuts into the interest.
In contrast, an annuity is a contract that guarantees a certain amount of income for an upfront cost. Typically, annuities last for the remainder of one’s life, or it can be for a pre-set length of time. Typically, the counterparty in an annuity is an insurance company. Annuities also come in many forms. They can be structured to allow one to build wealth in a retirement account, or it can be like life insurance and pay out a benefit upon death.
Some differences to consider are that annuities typically pay higher rates than CDs, offer similar amounts of security, higher taxes on income from CDs, and higher penalties for annuities if you need to access your principal.
Finsum: Annuities and CDs are low risk ways to build wealth for retirement. Here are some differences to consider.
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In an article for ThinkAdvisor, Dinah Wisenberg Brin shared some tips from experienced financial advisors on the best way to integrate model portfolios into your practice. The category has seen rapid growth in recent years with nearly $400 billion in assets as of January 2023 which was up more than 20% over the previous year.
In many ways, model portfolios level the playing field between large and small firms. While some clients will always require a personal touch, model portfolios can be valuable in serving clients who have more typical goals and circumstances. Additionally, model portfolios allow advisors to focus more on enhancing the client experience and growing their business rather than managing investments.
Another advantage is that they give smaller practices the ability to leverage tools and resources of major asset managers. These portfolios are also scalable and also leads to more optimal and efficient asset allocation.
However, one clear disadvantage of model portfolios is that they cannot be customized especially in terms of allocations, time horizon, and risk tolerance. Therefore, they may not be appropriate for clients who have special circumstances or unique goals.
Finsum: Model portfolios are a new innovation and are exploding in popularity. Find out if they are a good fit for your clients.
In an article for MarketWatch, Vivien Chen covered the decline in Treasury yields following the May FOMC meeting. Although the Fed did hike rates, investors were willing to look ahead as it seems increasingly likely that this was the final hike of the cycle. According to Fed fund futures, the market now expects the Fed to begin cutting rates in Q1 of next year.
Recent economic data which continues to show a weakening labor market, decelerating growth, and softening inflation also confirm this narrative. Additionally, many regional banks continue to struggle given the inverted yield curve which many fear could lead to a credit crunch.
At the FOMC press conference, Chair Jerome Powell continued to assess the inflation battle as being a “long way to go” and that the labor market remains “very tight”. Despite Powell’s hawkish tone, fixed income markets were stronger across the board. Odds for no change in the fed funds rate reached a 95% probability. Additionally, the market’s target for the year-end fed funds rate declined slightly to 4.25% which implies a reduction of 75 basis points.
Finsum: Treasury yields are modestly lower since the Fed’s rate hike. Odds of a pause at the next meeting have also climbed higher.
Alphathena, a personalized investing platform and direct indexing startup, won the ‘Best in Show’ award at the 2023 Morningstar Fintech Showcase Conference and was covered by Benzinga. Alphathena is attempting to use AI and automation to create solutions and tools for RIAs and Wealthtech platforms with a specific focus on customized direct indexing, automated tax-loss harvesting, and lifecycle management solutions.
The conference featured 25 fintech startups that were geared towards financial professionals. Some of the major themes included AI, personalization, and improving the client experience. Another discussion point is how the wealth management industry is poised for the Great Wealth Transfer as demographics predict a tidal wave of assets from Baby Boomers to Millennials.
In regards to Alphathena, Lawrence Johnson, the Head of Emerging Fintech at Morningstar remarked, "Alphathena, with its elegant platform and powerful engine, is an example of a growing field of innovators that have learned to harness frontier technologies to deliver better outcomes for investors."
The judges spoke highly of Alphathena’s innovative approach, potential for disruption, and strong value proposition. Currently, it can customize portfolios with ETFs and factors for personalization and performance. Its longer-term ambition is to be the solution for wealth advisors when it comes to managing the entire lifecycle of personalized investing.
Finsum: Alphathena, a startup in the direct indexing and personalization space, won the ‘Best in Show’ award at the 2023 Morningstar Fintech Conference.