Wealth Management
Financial giants are snatching up direct indexing clients as fast as they possibly can, but they need to do more work to solidify their position with investors. Cerulli Associates is predicting direct/custom indexing will grow at a shocking 12% growth in the next five years which will outpace both mutual funds and ETFs for example. Part of what is responsible for that growth is lower exchange costs which make it possible to hold the underlying asset in an index that was previously untenable for anyone outside the ultra-wealthy. In order to fully realize the benefits of a direct indexing fund, directors will have to be like goldilocks of customization but not straying too far from the fundamental index. However, direct indexing is giving managers their best opportunity in years to take back the reins for clients and outperform ETFs and index platforms. Without a doubt tax loss harvesting is the best edge a director will have in customizing a direct index for their clients and it's the necessary part of how to stand out in the crowded space of custom indexing.
FINSUM: Investors should be in an open dialogue as to their clients preferences in diverging from the underlying index when customizing. The ship can steer quickly in the wrong direction.
Model portfolio provider FE Investments is launching two new products: initial income retirement portfolio and long term retirement portfolio. The initial income portfolio is designed to mitigate risk in the early stages of retirement and has a low correlation with stocks. The second portfolio aims to keep investors from running out of finances throughout retirement with more equity exposure by targeting growth over a longer horizon. Both portfolios are trying to help retirees with the decumulation of their portfolios as they begin to retire. Overall this will expand the products they can extend to their customers. FINSUM: Model portfolios are giving investors better options than ever to target the risks they want exposure to in their finances whether that's retirement risk or anti-inflation strategies.
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Since May, President Biden has been pushing a social spending bill that would significantly increase the US’ social safety net and do so by raising taxes on the wealthy. The two primary tax changes Biden is planning for individuals focus on inheritance taxes and capital gains taxes. These plans have spooked US advisors and their clients because collectively they could create some very significant increases in taxation. However, Biden’s plans for the whole bill seem to have taken a major hit in the last few days, as the very hot inflation reading on the economy has many politicians considering whether a huge spending bill would only worsen the issue.
FINSUM: We have been following this saga very closely and we believe the inflation numbers are the death knell for this bill. Biden was already facing major opposition on spending and taxes in their own right, and now some of the benefit of the economic firepower is being called into question.
Annuities have been on a hot streak as of late and that continues into the 2021. Data collected from a combination of Morningstar and Beacon Annuity Solutions shows that sales for all annuities are up 17.3% through the first half of 2021 dwarfing previous years growth. And over the previous year up a staggering 27.9%. But the makeup tells the interesting story, total fixed annuities were up 12.1% while fixed annuities were almost level with 0.2% growth. And within variable annuities it was registered index linked annuities that dominated the sector with 11.2% growth and up 107.8% over the previous year’s same period. The book value of fixed annuities grew from 32% from Q1 to Q2 in 2021 totaling $12.7 billion.
FINSUM: This is a huge growth in annuities, and it probably stems from the inflation risk in the bond market, annuities are just the safer alternative for an income stream vs yield-less bonds.
MetaCap has acquired a MCAP technology company in an equity exclusive transaction. MCAP is a fintech software development company that hosts a suite of software and e-market making services that offer liquidity solutions to institutional investors. Metacap sees the acquisition as part of their growth in client facing businesses and sector expansion. They can leverage the new acquisition by expanding what they can offer customers and grow their clientele. Revenue and EBITA growth has been a key point of success for MTEC and that as a one two punch they can be even stronger with the merger moving forward.
FINSUM: This is yet another dip into digital portfolio construction via buyout or merger, and a sign of how quickly fintech is moving the frontier in the financial industry.