The 5th Circuit Court of Appeals issued a mandate Thursday making its March 15 decision to strike down the regulation effective
By Mark Schoeff – InvestmentNews – June 21, 2018
After a long delay, the U.S. Fifth Circuit Court of Appeals confirmed Thursday a March decision to strike down the Labor Department’s fiduciary rule.
The court issued a mandate making effective the March 15 split decision that vacated the DOL regulation. The court majority held that the agency exceeded its authority in promulgating the rule, which would have required brokers to act in the best interests of their clients in retirement accounts.
In the mandate, the court also said the Labor Department has to pay the financial industry plaintiffs the costs related to the appeal.
“It is ordered and adjudged that the judgment of the District Court is reversed, and vacate the fiduciary rule in toto,” the mandate states. “It is further ordered that appellees pay to appellants the costs on appeal to be taxed by the clerk of this court.”
The 5th Circuit overturned a decision by a Dallas federal court that had upheld the DOL rule, representing the first win by industry opponents in several lawsuits that were filed against the measure.
The mandate was supposed to have been filed May 7. It was delayed for several weeks, as AARP and three states tried to intervene in the case to defend the rule after the Department of Justice, acting on behalf of the DOL, declined to appeal the March 15 decision.
The Securities and Exchange Commission is now firmly in the lead on the effort to reform investment advice standards. The agency’s proposal, which would subject brokers to a best interest standard, is open for public comment until Aug. 7.
Consumers Comfortable, Yet Terrified Of Risk
Could an annuity help soothe those anxious consumers?
By Cyril Tuohy – InsuranceNewsNet – June 12, 2018
Americans seem more comfortable with market volatility, but recoil at the thought of a downturn that could devastate their retirement savings, a new survey has found.
Can these contradictory strands really exist at the same time?
“Yes, people can be both,” said Paul Kelash, vice president of Consumers Insights for Allianz, which published the 2018 Market Perceptions Study.
“It is 100 percent true, especially for baby boomers that are close to or entering retirement,” said Scott Bishop, executive vice president, financial planning, at STA Wealth Management in Houston.
The Allianz study also found that:
• 35 percent of Americans said they are comfortable with market conditions and ready to invest – up from 26 percent in 2015.
• 37 percent admit that recent volatility is making them anxious about their nest egg, (New question in this year’s survey.)
• 57 percent are willing to give up potential gains for a product that protects a portion of their retirement savings – up from 48 percent in 2015.
• 67 percent said they would feel better about their retirement savings if they knew some of it was protected from market loss.
“Volatility matters, and while we see some increasing comfort with volatility, it is driving a simmering anxiety in many Americans,” Kelash said.
VOLATILITY INDEX RISES
The nervousness is reflected in the CBOE Volatility Index, or VIX, a measure of market volatility, which is higher this year than last.
In February, VIX spiked 115 percent in one day due a market selloff, though the index has since returned to levels closer to long-term norms.
Market watchers say it’s not unusual for anxiety to peak in anticipation of a market drop following a period of long economic expansion – yet the expansion keeps on rolling with few immediate signs of slowing down.
Financial planner Steve Branton with Mosaic Financial Partners in San Francisco even has an expression for it.
He likens the contradictions to a “barbell” syndrome.
That’s where the client, looking to capture gains before the window closes and the market falls, has too much exposure to individual stocks, but also keeps a cash hoard as a hedge against collapse.
“The person is in the middle and on either side are uneven elements,” he said.
FEAR AND GREED
Bishop uses the popular fear-and-greed analogy.
Greed makes investors not want to miss out on a “hot” market and overstay their market welcome, but fear makes them not want to lose out in a “cold” market so they sell too low or at the wrong time.
Anxiety just below the surface is very real and the preference for a balanced financial product was even more pronounced for wealthier Americans, the Allianz survey found.
• 78 percent of respondents with $200,000 or more in investable assets said it is important have some of their savings in a product that protects from market loss.
• 68 percent said they are willing to give up some potential gains for a product that protects a portion of their retirement savings.
PRODUCT CATEGORY ON A ROLL
The divide may explain the recent success of a new product category known as buffered or index-linked annuities.
These annuities are built to offer some protection from downturns in exchange for limits on the gains.
“As market volatility becomes a more constant part of our financial landscape, Americans are recognizing the value of options that provide both opportunity and a level of protection,” Kelash said.
Some index-linked annuities come with a buffered structure where the insurer takes on a percent of market loss before the client assumes the rest.
Others work in the opposite way where investors hold the risk up to a threshold before the insurance company assumes the loss beyond the threshold.
Sales of index-linked VAs rose 25 percent last year to $9.2 billion compared with 2016.
Where to Turn When Bonds Aren’t the Investment They Used to Be
October 24, 2017 by Andrew M. Costa
Bonds have long been viewed as a great alternative for people who were in search of a good—and relatively conservative—investment.
They provided a nice way to balance the portfolio, so that a steep drop in the stock market—like we experienced in 2008—wouldn’t do quite as much damage to your overall financial picture as it would if you owned nothing but stock.
But times may be changing, and bond investors could be about to discover that every investment vehicle—bonds included—has a downside.
For a long time, we’ve been in a low interest rate environment; so low, in fact, that rates really couldn’t go any lower.
Now it appears that interest rates may be headed in the opposite direction, and as they rise, bonds can lose market value. Here’s why: When you buy a bond, you are essentially lending money to a company or a government entity for a fixed term at a fixed interest rate.
That sounds simple enough. But if your bond is paying a low interest rate—say 2%—and new bonds being issued are paying higher than that, then no one may want to buy your bond if you want or need to sell it before the maturity date. And so the price of that bond can fall.
That seemingly conservative investment maybe wasn’t a conservative as so many people thought.
So that’s the bad bond news. The question then becomes: What do you do about this? Where do you go to find a reasonably (though not completely) safe place for your money that could still provide a decent return?
One possibility to explore is annuities. Of course, annuities come in various forms, but there’s a type of fixed-index annuity that can provide competitive interest credits without the interest-rate risk associated with bonds.
With one of these annuities, an investor is able to take advantage of market-linked interest credits and when in retirement, receive a steady income stream that cannot be outlived. These insurance products are tied to a specific market index that allows consumers to receive a limited level of interest credits based on market gains. And because the money is never actually invested in the market, their principal is protected from downside market risk.
Are there drawbacks? Absolutely. These products often have a cap that limits the interest earnings that you can enjoy. If the index’s return is negative, no loss is posted to your account. If the index’s return is positive, interest is credited to your account—but with a cap. It can only go so high and no higher.
As with any financial product, you should know what you’re getting. Here are some questions to ask before buying:
- What is the guaranteed minimum interest rate?
- Which index will determine the amount of my interest credits?
- Will the interest credits be calculated annually, quarterly or for some other length of time?
- What are the surrender penalties and tax implications of an early exit from the contract?
- Will the insurance company have the right to lower the cap at some point in the future, and by how much?
Finally, be sure to talk with your financial professional and a tax adviser about how a fixed-index annuity might fit with your overall retirement plan, particularly with regard to taxes and inflation.
Ronnie Blair contributed to this article.
Securities offered through Madison Avenue Securities, LLC (MAS) Member FINRA & SIPC. Advisory services offered through Global Wealth Management Investment Advisory (GWM) a Registered Investment Advisor. MAS and GWM are not affiliated entities.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
Andrew M. Costa is managing director and co-founder of Global Wealth Management in Fort Lauderdale. He co-authored the book “SuccessOnomics” with Steve Forbes and is co-host of The Global Wealth Show, a financial radio show on 610 WIOD and iheartradio.com. Costa, a recognized professional in the investment management business, also has provided financial insight in “The Wall Street Journal,” “USA Today” and “Newsweek,” and has appeared on CBS, NBC, ABC and Fox.
Originally Posted at Kiplinger on October 2017 by Andrew M. Costa.
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