Advisory Fees, Annuities and Research News for Financial Advisers

Latest for financial advisers: Boosting ESG in 401(k)s, annuities, and managing advisory fees.
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A roundup of the latest news and reports of interest to financial advisers.

Legislators move to boost ESG in 401(k)s: The legislation recently introduced would amend the Employee Retirement Income Security Act to specifically allow plans to consider ESG factors "when they are expected to have an impact on investment outcomes, provided plans consider them in a prudent manner consistent with their fiduciary obligations," writes Emile Hallez.

Emergency savings accounts draw attention of big-name employers: Best Buy  (BBY) - Get Report and  (ADP) - Get Report have joined Voya  (VOYA) - Get Report, UPS  (UPS) - Get Report, Mastercard  (MA) - Get Report and others in working with BlackRock's  (BLK) - Get Report Emergency Savings Initiative, according to InvestmentNews.

Rethinking advisory fees means figuring out value: Most advisers still charge AUM-based fees, but that's not likely to be the case in 10 years, according to Bob Veres. Some advisers are now experimenting with alternative fee models.

Another IRS update on the 10-year rule: The agency says it's revising Publication 590-B, which caused the confusion about the 10-year rule on required minimum distributions under the SECURE Act, according to InvestmentNews.

Life settlements seen increasing as population ages: Selling unneeded insurance policies to a third party can provide retirees with needed income, writes Mary Beth Franklin.

FINRA chairwoman wants more accountability on diversity, ESG: The former head of Bridgewater Associates suggests tying CEO pay to inclusion efforts, according to Financial Planning.

Why Delayed Social Security Claiming Is More Valuable Than Ever: New Social Security statement prototypes recently unveiled online provide much clearer illustrations of the benefits of delayed claiming, according to ThinkAdvisor.

Key Financial Planning Considerations For Current Tax Reform Proposals: Here are some helpful strategies for client estate, tax and financial planning conversations, writes Jeremiah Barlow.

SEC Chair to B-Ds: Do the Right Thing. ‘Best Interest Means Best Interest. Best Execution Means Best Execution.’: “If you’re asking a lawyer, accountant or advisor if something is over the line, maybe it is time to step back from the line,” according to Gary Gensler.

Brokers, FAs with Misconduct History Who Register Elsewhere More Likely to Reoffend: Registered representatives with the most serious history of misconduct tend to move to state insurance regimes, according to Financial Advisor IQ.

If the DOL Investigates You…: Here are five FAQs about Department of Labor investigations of retirement plan advisers, and answers from attorneys at the prominent ERISA law firm Faegre Drinker, according to the Retirement Income Journal.

How to Eliminate the Dangers of Concentrated Stock Positions: Unless an investor has compelling reasons to maintain their concentrated position, they should liquidate that position and reinvest in a broadly diversified portfolio, according to Advisor Perspectives.

The Spectacular Failure of the Endowment Model: New research shows that the professionals who run, manage, and recommend strategies for pension funds and university endowment funds do worse than a passively managed index fund, writes Michael Edesess.

The Valid and Not-So-Valid Reasons for Rejecting Annuities: A host of impediments stand in the way of allocating funds to annuities, according to Joe Tomlinson. Some issues relate to brokers or advisors, and others involve their clients. Some are valid, but others are questionable and reflect irrational behavioral biases.

Research of Interest to Financial Advisers

The Tax Benefits of Direct Indexing, And How They Are Affected by the Biden Tax Plan

Abstract: Direct indexing is an investment approach that seeks to track the performance of a stock index by investing in individual stocks comprising the index. An investor holding a direct indexing portfolio can obtain tax benefits by harvesting losses on individual stock positions. We show that investors with allocations to hedge funds and derivatives are the most likely category of investors to have systematic short-term capital gains in their portfolios and, therefore, benefit the most from losses harvested by direct-indexing strategies. After the initial few years since inception, tax benefits offered by a direct-indexing strategy are only available to those investors who can take advantage of the difference in tax rates applicable to short-term and long-term capital gains, that is, investors with short-term capital gains from other investments. In connection with this, we show how tax benefits are affected by equalizing the tax rate applicable to long-term and short-term capital gains, like under the proposed Biden Tax Plan. Investors can increase tax benefits of a direct-indexing strategy by contributing capital to the strategy and increase them even further by combining the strategy with a charitable giving program. We use a character-deferral decomposition to explain why tax benefits of direct-indexing strategies decay with time since inception and why these tax benefits are increased by capital contributions and charitable giving. Read: The Tax Benefits of Direct Indexing, And How They Are Affected by the Biden Tax Plan.

The Cryptocurrency Uncertainty Index

Abstract: The researchers develop and make available a new Cryptocurrency Uncertainty Index (UCRY) based on news coverage. The UCRY Index captures two types of the uncertainty: cryptocurrency price uncertainty (UCRY Price) and cryptocurrency policy uncertainty (UCRY Policy). The researchers show that the constructed index has distinct movements around major events in cryptocurrency space. We suggest that this index captures uncertainty beyond Bitcoin, and can be used for academic, policy, and practice-driven research. Read: The Cryptocurrency Uncertainty Index