A roundup of the latest news and reports of interest to financial advisers.
Wirehouses fall flat on adviser satisfaction: J.D. Power: Despite payout rates and branding that suggest higher levels of support, the top brokerage firms are not meeting adviser expectations, according to a recent survey of over 3,000 advisers.
Warren pushes SEC to step up crypto regulation: The Massachusetts lawmaker expressed concern that digital-asset markets lack the same investor protections as the New York Stock Exchange and Nasdaq, according to InvestmentNews.
SEC advisory committee recommends diversity, ESG disclosures: Chairman Gary Gensler says agency is looking into what asset managers mean when they call funds “sustainable,” according to InvestmentNews.
Senate retirement bill includes tax break for financial planning: While the provision helps level the playing field, prominent industry observers, like Michael Kitces, worry the benefit is too narrow, according to InvestmentNews. Investment Adviser Association, and other groups, are pushing for a broader tax deduction.
Time’s running out for a mega qualified charitable distribution: 2021 is the last year your clients can use their retirement funds for unlimited charitable giving as a result of provisions in recent tax laws, according to InvestmentNews.
Hot annuity sales signal shift in aging investors’ risk appetite: Sales of RILAs and fixed-rate deferred annuities are booming for retirement portfolios, but advisors struggle to understand and explain them to wary clients, writes Lynnley Browning.
Monthly Child Tax Credit Payments: Understand the Options: In July, families eligible for the federal Child Tax Credit will begin receiving monthly payments instead of waiting to receive an annual credit when they file their 2021 tax returns, writes Rick Kahler.
How Will the Western Drought Affect Munis? More than 75% of the West is in an extreme or exceptional drought, with over 58 million people living in a drought area—and expectations are that it will get worse. For comparison, just 2.4% of the West was in an extreme or severe drought at this time last year. Severe droughts can lead to greater instances of climate shocks, such as wildfires, which impact some municipal bond issuers. However, the degree to which the drought will affect issuers is not uniform, and there are steps that investors can take to mitigate any potential impact on a portfolio, according to Cooper Howard.
House Panel Crafting Bill to Limit IRA Savings: House Ways and Means Committee Chairman Richard Neal, D-Mass., is mulling legislation that would limit “the total amount of money that can be saved in tax-preferred retirement accounts, and putting an end to the tax dodging some do when saving in IRAs,” he told ThinkAdvisor.
How Secure Act's 10-Year Rule Creates Tax Headaches for IRA Heirs: The Setting Every Community Up for Retirement Enhancement (Secure) Act fundamentally changed the rules governing distributions from inherited retirement accounts mere months before the COVID-19 pandemic struck the U.S. Understandably, many clients put those new rules on the back burner to focus on more pressing concerns, but now clients should be reminded about the changes, write Robert Bloink and William H. Byrnes.
1960 Birth Cohort Faces Lower Social Security Benefits, Analyst Says: A “flawed feature” of the Social Security benefit formula could result in an estimated four million people who turned 60 in 2020 getting lower Social Security benefits if Congress does not act before the end of the year, according to a Social Security policy analyst with the Senior Citizens League.
Research of Note
“Grit, Loss Aversion, and Investor Behavior"
The researchers examine whether grit affects individuals' preferences and trading decisions. Grit is the sustained effort toward a goal despite setbacks. It is malleable and distinct from the Big Five personality traits. Using experiments formalized in prospect theory, we find that grit reduces loss aversion. By diminishing loss aversion, gritty investors exhibit a lower disposition effect since they are more willing to exit losing investments. Consequently, they accumulate about 7% more wealth relative to control participants. Overall, grit affects the quality of investment decisions. Ultimately, the researchers' results suggest that interventions cultivating grit could improve households' financial outcomes. (Free download.)
“On Survivor Stocks in the S&P 500 Stock Index"
This paper investigates the performance and characteristics of survivor stocks in the S&P 500 index. Using both in-sample and out-of-sample comparisons, survivor stocks outperformed this market index by a considerable margin. Relative to other S&P 500 index companies, survivor stocks tend to be small value stocks that exhibit high profitability and invest conservatively. Surprisingly, survivor stocks tend to be loser stocks with negative exposure to the momentum factor. Further analyses show that the volatility of the survivor stocks portfolio is less exposed to tail risks and responds less to shocks in the innovation process. (Free download.)