1) Is Direct Indexing Really the Next $100 Billion Financial Advisor Opportunity? WealthManagement.com | 4/19/2019
Because… The article draws attention to direct indexing, an alternative to index mutual funds and ETFs. This approach allows advisors to customize their offerings by adjusting exposure to geographic regions, sectors, or ESG factors in order to better accommodate client needs. Another major advantage over index funds is tax-loss harvesting. Advanced technology has helped lower costs and simplify implementation, making it more popular than before. Wealthfront already provides direct indexing (called stock-level tax-loss harvesting by the firm) for taxable accounts between $100,000 and $500,000. While direct indexing, which requires a large amount of assets to be more effective, won’t pose a threat to mutual funds and ETFs any time soon, fund firms should watch out for the increased adoption in this space.
2) ‘Boom, Another Billion’: Muni Funds Land a Year's Worth of Cash in Four Months Bloomberg | 4/24/2019
Because… Net flows into Municipal Bond mutual funds are remarkable. According to Morningstar data, the asset class garnered $26.8 billion in the first quarter, compared to the net intake of $5.0 billion throughout 2018. Its 1Q19 net sales tripled the $8.8 billion gathered in 1Q18, turning Municipal Bond into the second-best selling asset class. This was the first year of filing taxes after 2017 tax code changes. Filers of high-tax states who were affected by the new cap on state and local tax deductions came to realize that they were paying more taxes than expected, so they started allocating more assets to tax-free investments. The strong demand has fueled municipal bond fund sales as a result.
3) Robo Researcher Claims SoFi Trades Triggered Capital Gains Tax Hit InvestmentNews | 4/25/2019
Because…SoFi made a splash in February when it disclosed a plan to introduce ETFs with zero fees, which is in fact a fee waiver until at least 6/30/2020. The robo-advisor may be taking a public relations beating now because of a robo researcher’s claim that SoFi customers may incur capital gain taxes after the firm swapped a Vanguard fund for its propriety ETFs. Although SoFi insisted that it notified investors “in a timely fashion in accordance with regulations,” the public may believe that it neither explicitly informed customers it would liquidate other holdings to fund purchases of its own ETFs nor gave clients enough time to opt out of the trade, which took place the same day as the announcement, as reported by two customers to the Wall Street Journal. How to act on behalf of clients and best handle client communications is a business issue that all young fintech firms should seriously consider.