Wealth Management
Private equity's growing control of rental housing has sparked concern as rents continue to rise, prompting calls for scrutiny from lawmakers. Senator Elizabeth Warren, joined by three colleagues, recently questioned KKR on how its recent $2.1 billion investment in rental units across eight states will impact long-term tenants and rental rates.
KKR asserts its investments provide high-quality housing, but critics argue these acquisitions contribute to rising costs and fewer homeownership opportunities for regular buyers.
A Harvard report shows that rents have surged far faster than household incomes, putting financial strain on tenants who are forced to limit spending on essentials. Vice President Kamala Harris and other leaders have also highlighted private equity’s role in pricing out individual buyers and impacting housing affordability.
Finsum: This type of regulation will obviously depend on the election results but there is little doubt that the Harris administration will make large changes to housing.
California’s new retirement law, effective January 1, 2025, reduces protections on tax-qualified retirement plans, impacting debtors who may now face increased vulnerability to creditor claims. This law applies a means test to assets in 401(k)s and similar plans, allowing judges to assess how much of these funds can be claimed by creditors based on the debtor’s other assets and timeline to retirement.
While federal ERISA protections still shield assets within qualified plans from creditors, these safeguards do not extend to distributions, meaning assets will be only partially protected once withdrawn.
Some debtors may consider relocating to states offering full retirement asset exemptions, while others might roll their assets into self-directed IRAs, potentially securing greater protection through international investments.
Finsum: The election will play a pivotal roll in the future of retirement regulation and advisors should monitor the developments.
Expanding tax-efficient investing options, firms are now utilizing direct indexing technology to make separately managed accounts (SMAs) more advantageous for tax management. Unlike funds, SMAs allow for individualized tax strategies because the investor owns the underlying assets directly, an option now expanding with high demand.
Direct indexing remains the most common approach for tax-efficient SMAs, enabling tailored tax-loss harvesting by strategically selling select stocks. Some firms are also adapting this approach to actively managed equities, though balancing loss harvesting with stock selection can be complex.
Tax management in fixed-income portfolios, though more limited, still offers advantages, especially during interest rate hikes.
Finsum: Model portfolios are gaining traction, for similar tax efficiency reasons.
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Recent movements in some of the most sensitive global assets suggest that the Federal Reserve’s decision to lower interest rates may have come too soon or might not be sustainable. Since the Fed’s rate cut in mid-September, emerging-market assets have acted as if borrowing costs will stay elevated, leaving them vulnerable.
New risks, including rising U.S. Treasury yields and a stronger dollar, have overshadowed any benefits from the rate cut, with concerns over China’s lackluster stimulus and the potential return of Donald Trump to the presidency adding to market uncertainty.
Investors in emerging markets are now positioning themselves defensively in the face of a stronger U.S. economy and a weakening Chinese one. While there was initial optimism, strong U.S. data and political tensions have reignited fears of persistent inflation.
Finsum: This could have traders reassessing their strategies, unsure of how much more support they can expect from central banks.
The financial services industry is at the brink of transformation with the introduction of generative AI, which could reshape how financial advice is provided. Traditionally, financial planning has relied on human advisors, but AI tools now offer the ability to handle tasks from retirement planning to portfolio management, learning from user data and economic trends.
These AI systems can improve efficiency and communication between clients and advisors, but adopting them requires careful consideration of the costs and risks involved. Issues like AI "hallucinations," where the technology generates inaccurate advice, and bias in recommendations highlight the need for vigilance.
Despite these challenges, the potential for AI to revolutionize financial services is immense, provided businesses implement strong governance, human oversight, and regulatory compliance.
Finsum: By striking the right balance, AI can enhance the financial advisors practice while ensuring ethical and responsible use.
The U.S. is close to finalizing rules that will restrict certain American investments in China’s artificial intelligence sector, with a focus on national security. These regulations, currently under review by the Office of Management and Budget, are expected to be released soon and stem from an executive order issued by President Biden in August 2023.
The new rules will require U.S. investors to notify the Treasury Department about AI-related investments and limit funding for technologies like semiconductors, quantum computing, and microelectronics that could benefit China's military.
Some exceptions, such as investments in publicly traded securities and certain limited partnerships, have been proposed. Experts expect further clarification in the final rules, particularly regarding AI's scope and the conditions for limited partners.
Finsum: There seems to be broader efforts to safeguard U.S. technological from China and this trend is worth monitoring.