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Roundup: Social Security and Inflation News for Financial Advisers

A roundup of the latest news and reports for financial advisers.

Retirees who saved up aren’t spending down: An EBRI survey identifies five retiree profiles and shows the wealthiest individuals plan to spend little, George Moriarty reports. Mary Beth Franklin, Social Security guru and InvestmentNews contributing editor, describes why this is happening.

Soaring inflation likely to boost 2022 Social Security COLA: According to InvestmentNews, a senior advocacy group predicts benefits will rise 4.7% next year, based on the 0.8% increase in the April consumer price index.

RILA sales surge as advisors steer annuities into client retirement portfolios: The products have seen a 9% rise compared to the prior quarter, and a whopping 89% rise on year-ago levels, according to Lynnley Browning’s report about LIMRA’s just released data.

The future of wealth management with Catherine Keating, CEO, BNY Mellon Wealth Management: How the pandemic is accelerating trends in financial advice and changing the way Americans manage their money, according to Financial Planning.

Cathie Wood and Ark – Hype or Substance? Cathie Wood may be the most polarizing and controversial figure in finance. Her acolytes believe her vision will make them rich. Her detractors credit her sales skills but question her investing acumen. Robert Huebscher heard her speak for the first time recently. Count him among the detractors.

Social Security Rolls Out New, Shorter Statements: The Social Security Administration kicked off a “soft launch” for a redesigned Social Security statement that is being targeted at a “small percentage” of my Social Security online account users who aren’t currently receiving benefits, an SSA spokeswoman told ThinkAdvisor.

Secure Act 2.0, Biden Tax Hike Plans Make Roth IRAs a Crucial Tool: Roger Wohlner writes that Roth IRAs offer an excellent planning tool for many of your clients. The “Secure Act 2.0” retirement bill, which is widely expected to pass, would open a wider window for Roth IRA planning.

New Legislation To Require Annuities In Retirement Plans: The SECURE Act paved the way for annuities in 401(k)s. This bill would require them, according to Financial Advisor.

FAs Weigh In: Having Yelp-Like Reviews Will Be Positive for the Industry: Potential clients may find it odd when they can’t find reviews of advisors like they do when they want to try out a new restaurant or hotel, one advisor told Financial Advisor IQ.

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Regulations that Impact Advice to Retail Investors: Duane Thompson, president of Potomac Strategies, on the major changes to the Securities and Exchange Commission’s advertising and marketing requirements for registered investment advisers.

Choosing the Best Target Date Fund: Picking a target date fund is no simple task, according to Financial Advisor IQ. Advisers must consider when and if clients want to retire while navigating the impact of low bond yields and shifting glide paths.

Merton and Muralidhar’s Retirement Income Vision: In this Retirement Income Journal video, Nobel laureate Robert Merton and Arun Muralidhar talk about SeLFIES, their solution to the retirement income challenge.

The Valid and Not-So-Valid Reasons for Rejecting Annuities: A host of impediments stand in the way of allocating funds to annuities, writes 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.

Robos Fail Their First Big Test: Robo-advisers faced their first big challenge with the bear market in the first quarter of 2020, writes Robert Huebscher. They lost, and that is an ominous sign for the future of automated advice.

Noteworthy Research

Wandering Financial Advisers

Abstract: Millions of Americans rely on professional advisers to oversee their personal finances, according to this research. Financial-adviser misconduct has significant consequences for investors, so a wide range of federal, state, and self-regulatory institutions have authority to detect and deter such misconduct. But each regime takes meaningfully different approaches to these tasks, creating incentives for advisers, particularly those with a history of harming investors, to seek a more lax regulatory environment. Although academics and policymakers are engaged in heated debates over the regulation of financial advice, no prior work has identified these “wandering” financial advisors.

Using a novel dataset of 1.2 million advisers across four major regulatory regimes, this article provides the first systematic analysis of wandering financial advisers. The researchers show that a little over a third of advisers who exit the brokerage industry remain in at least one other regime, that advisers are significantly more likely to change regimes after committing serious misconduct, and that wandering advisers with a history of misconduct are significantly more likely to engage in future misconduct. Further, the researchers find that wandering advisers with a history of serious misconduct disproportionately end up in the highly-fragmented state insurance regimes. The researchers consider explanations for why advisers wander—and offer policymakers concerned about the costs of financial-adviser misconduct with tools to address this phenomenon.

How Competitive Are Income Annuity Providers Over Time?

The 2019 SECURE Act provides safe harbor protections to employers who evaluate the costs of providing guaranteed income including gathering information on competing providers, write the researchers.

Annuities can be more difficult to evaluate than mutual funds because annuity expenses can be opaque, financial strength matters, and insurer competitiveness can change over time. We find significant variation in the payout rates across providers over time. While the payout rankings of annuity companies (e.g., best to worst) are fairly sticky over the short-term, over the full period of the analysis the correlation declines effectively to zero (versus the initial rankings). This suggests individuals or institutions who choose a single annuity provider based on income payout should revisit the decision regularly to ensure the quotes are still competitive. Companies for which immediate annuities are a higher fraction of total sales tend to rank higher and remain so more persistently over time.