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American consumers are more knowledgeable about their saving and investment products than at any other time in the past decade, according to a new market intelligence report by Hearts & Wallets.

A decade ago, product awareness was in the doldrums, with only 45%, or 55 million, U.S. households able to identify the saving and investment products they owned in 2013, the survey said. Today, 86%, or 113 million, households can identify the products they own. In 2013, awareness of asset class was higher than of products, at 60%, but has remained flat at about 77% of households nationally for three years. The gap between product and asset class awareness, which has been shrinking for years, has now fully reversed.

So why is it important for investment advisors to be aware of their clients’ growing knowledge of the saving and investment products they own?

“Products are one of the only ways to provide scalable advice to the mass market, which often can’t afford the high minimums of full-service advice,” explained Laura Varas, CEO and founder of Hearts &Wallets. “Packaged multi-asset class products are a very scalable way to deliver advice to lower-asset households.”

How to better serve clients

And how can investment advisors use this knowledge to better serve their clients?

“Emphasize products that provide suitable asset allocation over services that fill in asset allocation target with suitable products,” Varas said. “Better knowledge of saving and investment products helps everyone – both clients and advisors – who can now speak a common language. Hearts & Wallets research has shown that U.S. households struggle to define common financial terms like ‘passive investing,’ ‘exchange traded fund’ or even ‘mutual fund.’ ”

More online brokerage accounts

The survey also found that today over half (67 million) of U.S. households have online brokerage (OLB) accounts, which is up 40 million from 27 million in 2011. Most upper-asset households – 79% of $1M-plus households and 66% of households with $100,000 to under $1 million – have OLB accounts. Of the 67 million households with OLB accounts, 48 million make trades with over half (54%), or 26 million households, trading 1 to 5 times per year. And about 12 million households trade 12-plus times a year.

Options trading and margin loans

Now that stock and ETF trades are free, options trading and margin loans have become important sources of revenue for OLB platforms, the survey added. 16%, or 21 million households, made 1+ options trades within the past year. Younger households are much more likely to engage in options trading than older households. And margin loans are used by 1 in 4 households, and another 40% are interested.

“Stock and ETF trades were once important revenue sources for OLB platforms,” Amber Katris, Hearts & Wallets subject matter expert and report co-author, said. “With the race to the bottom for ‘free’ trades, options trading and margin loans now affect competitive industry structure and consumer behavior. But how wise are these offerings for younger consumers? And how wise is it for companies to offer online brokerage as ‘free’ when it has operational costs?”

Impact of online brokerages

Online brokerage is really an essential capability today, said Varas, as she explained its impact. “If your platform doesn’t offer it, you are at a serious disadvantage to competitors who do. Today, over half of U.S. households have online brokerage accounts (OLB). The majority of upper-asset households – 79% of $1 million-plus and 66% of $100,000 to under $1 million – have OLB.”

OLB empowers consumers with all kinds of features and access to many investment products, and it plays a role in growing awareness of investment products, added Varas. Households with OLB are more likely to know the investment products they own.

Advisors should pay close attention to clients who are involved in options trading and margin loans, Varas said. “These two areas can help provide needed revenue for OLB platforms, which has been impacted by ‘free’ stock and ETF trades. But the key is helping clients execute these activities in a responsible manner.”
“Hearts & Wallets research leads us to believe that more advised than unadvised households are involved in options trades; so, advisors may be educating their clients about options trading and getting them involved, added Varas. “Options trading certainly holds broad appeal for households under age 55, although how viable it is for households under age 35 is another matter.”

Varas added that the incidence of options trading is relatively flat by assets. However, when households with $3M+ trade options, they tend to place more trades than less wealthy households. “The key with both options trading and margin lending is for advisors to provide education,” Varas said.

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Most financial advisors said they expect the S&P 500 to be up 10% or more by year-end 2025, compared to where it was between November 6 and Nov.13, 2024 (a low of 5,929.04 and a high of 6,001.35), according to the InspereX Pulse 2025 Outlook Survey.

More specifically, the survey said that:

• 67% expect the S&P 500 to be up by10%.
• 14% expect the S&P 500 to be up by 20%.
• 2% expect the S&P 500 to be up more than 20%.
• 10% expect the S&P 500 to be flat.
• 7% expect the S&P 500 to finish down by 10% or more.

In addition, the majority (69%) of advisors believe equities will be the top performing asset class in 2025, followed at a great distance by cryptocurrencies (11%).

But the ride will not be easy

Although many advisors see a bull market in 2025, the bull won’t be easy to ride, the survey said. 80% of advisors said they expect to see at least a correction (drop of 10%) in the S&P 500 in 2025. More specifically, 33% see a drop of 10%, 31% forecast a drop of 15%, and 16% see a bear market (down at least 20%) at some point during the year. But 20% of advisors expressed extreme confidence in saying that the market won’t see a downturn in 2025.

Smoothing the ride

So, what are advisors planning on doing to smooth the ride? 72% said they will probably or definitely add more downside protection strategies to client portfolios in 2025.
“Advisors are certainly bullish but many of their upside expectations are more in line with historical averages.

Combine that with forecasts of high volatility with at least one correction or worse, and that means investors will need to tough out uncertainty to benefit from returns that may be harder to attain,” said Chris Mee, managing director, InspereX. “With these expectations, it makes sense that advisors are adding more downside protection to client portfolios to help alleviate the fear that comes with volatility. This way, investors can stay invested with peace of mind and remain focused on their long-term objectives.”

The Fed

How do advisors think the economy will land?

• 46% believe the Fed will eventually achieve a soft landing.
• 25% expect a no landing scenario.
• 22% believe the Fed has already achieved a soft landing.
• 7% expect a hard landing.

Action steps for 2025

“Despite the optimistic outlook for market performance in the year ahead, we found that most advisors (72%) will be adding more protection strategies to client portfolios in 2025, as the return of market volatility has been identified as a top three concern for advisors and their clients”, said Mee. Interestingly, Mee added, 52% of respondents said they would use more structured products and market-linked notes to mitigate risk and generate income in the year ahead, while 32% would use more market-linked CDs.  Further, 25% of respondents said they would use more variable annuities, and 18% said they would use more fixed annuities for income generation.

“With nearly one-third of advisors (31%) saying their clients are requesting to reduce risk in their portfolios, advisors are faced with an opportunity to demonstrate their value and expertise while positioning portfolios for 2025 and beyond,” Mee said.

InspereX is a tech-driven, fixed-income and structured products distribution and trading firm.
The InspereX Pulse 2025 Outlook Survey was conducted post-election between November 6-13, 2024, by Red Zone Marketing on behalf of InspereX. The 682 financial advisor respondents work at independent broker/dealers, RIAs, banks, regional firms and wirehouses. During the survey period, the S&P 500 high was 6001.35, the low was 5929.04 and it closed at 5985.38 on November 13.

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America’s 401(k) retirement savings plan is “not broken” but working well in tandem with Social Security, according to experts on an Employee Benefit Research Institute panel.

They suggested that Social Security provides the most benefit for lower-income earners, while middle- to high-income earners rely more on private retirement systems. But replacement rates are highest when they’re combined, they said.

“Some reports that have been coming out in recent years, unfortunately, are stating that the 401(k) system is broken; we have a ‘retirement crisis.’ Unfortunately, I think a lot of that research is based off of anecdotal information — off of survey information,” Will Hansen, chief government affairs officer, American Retirement Association, said.

He dismissed the validity of such surveys’ results.

“There are surveys out there asking Americans if there is a retirement crisis and, I don’t know, 50-60% of Americans say yes, there’s a retirement crisis. I think if you ask that same person if they’re having a midlife crisis, they probably would say yes as well,” Hansen said.

“I think we need to be focused on the data that shows the system is working… The 401(k) system is resilient and we need to continue to find ways to improve upon it,” Hansen emphasized.

Replacement rates on upward trend

Data from EBRI’s retirement security projection model indicate Americans benefit from the highest replacement rates if they start planning earlier and retire slightly later.

For Americans already nearing retirement, the lowest income earners achieve an average replacement rate of around 48% (43% from Social Security and 5% from DC plans). That rate increases with the middle- and high-income earners, with the highest income earners achieving just under 60% (36% from Social Security and 23% from DC plans).

Those rates could skyrocket to nearly 90% if contributions start between 25 to 39 years old and last for the rest of the individual’s career, according to EBRI. Similarly, if they retire at age 67 instead of age 65, rates can reach just under 80%.

Craig Copeland, director, Wealth Benefits Research, EBRI, also partially attributed these higher rates to the Secure 2.0 Act introduced under the Biden administration.

“We know, in most cases, those in the high incomes will be alright in retirement. It’s really those in middle-income quartiles where Social Security plus the DC system is going to make the difference for them to have a successful retirement financially,” he said.

On the other hand, EBRI’s research suggests that even a 25% reduction in Social Security could cause replacement rates to peak in the mid-60s for Americans in all income brackets — even if they retire at 67.

“I’m not advocating any Social Security reform proposal; I’m just saying what happens…and showing how that impact changes,” Copeland said.

Looking to future improvements

While panelists generally contended that the current American retirement system is working adequately, they also discussed how prospects could be improved even further with:

• Auto-enrollment in private plans
• Appropriately priced and structured retirement products
• Better access to advisors
• AI-assisted product personalization
• Further development of retirement systems

“Anything we can do to advance QDIAs in a more accelerated fashion. We are fully supportive of all the mandates that have already come out for auto-enrollment with all new plans being formed. We ought to take that up a notch,” Michael Doshier, senior retirement strategist, T. Rowe Price, said.

He added that more focus should be placed on product structure and appropriate pricing.

“We all need to do a better job of moving towards more appropriately structured and priced products to make the entire industry priced right, given the assets that are in it,” Doshier said.

At the same time, Peter Kapinos, head of workplace and investment marketing, Empower, said not enough Americans have access to financial advisors. He noted that many people believe they can’t afford an advisor and are more likely to go online — although research suggests people fare better financially when they work with an advisor.

“I think you will continue to see more ways for people to get access to advice… You’re going to continue to see a lot more tools, resources designed for [a mobile] screen, not a laptop screen, [and] a lot more personalization aided by AI so that you can get personalized recommendations,” Kapinos said.

Meanwhile, Hansen said service providers should continue to innovate to make retirement prospects stronger with “Secure 3.0 down the road.”

“There are now provisions out there where we’re trying to solve for other crises. So, for example, there is an education crisis in this country. There is a student loan crisis in this country. Where did they turn to help people pay off their student loan debt? They turned to the 401(k) system, which just goes to show that this is a strong system,” he said.

EBRI is a non-profit organization founded in 1978 and based in Washington, DC. It conducts research and provides education on employee benefits. ARA is a non-profit organization founded in 1966 and based in Washington, DC. It provides education and advocates for policy and legislation to improve retirement for Americans.

T. Rowe Price is a publicly owned investment management firm founded in 1937 and based in Baltimore, Maryland. Empower is a financial services firm founded in 1891 and based in Greenwood Village, Colorado.

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State insurance regulators know what they want from the anti-government fervor inspired by the return of President Donald Trump: elimination of the Federal Insurance Office.

A coalition of insurance commissioners from nine states issued a joint letter to heads of the Department of Government Efficiency requesting the death of the FIO. Led by Elon Musk and Vivek Ramaswamy, the controversial DOGE is charged with streamlining federal operations and reducing inefficiencies.

Established under the Dodd-Frank Act, the FIO was tasked with monitoring the insurance industry, assessing systemic risk, and advancing global regulatory practices. In the years since, however, the FIO has made little headway beyond producing reports and studies that have little impact.

Commissioners argue that the FIO duplicates functions already performed effectively by state regulators and the National Association of Insurance Commissioners.

“State-based insurance regulation has successfully ensured consumer protection, market stability, and efficiency for decades,” said New Hampshire Insurance Commissioner DJ Bettencourt. “The Federal Insurance Office has consistently failed to demonstrate its necessity, and its continued operation represents an unnecessary burden on taxpayers.”

States signing the letter are Alabama, Arkansas, Kansas, Louisiana, New Hampshire, North Carolina, Oklahoma, Tennessee, and West Virginia.

‘Not a transaction of commerce’

In 1869, the Supreme Court held, in the case Paul v. Virginia, that “issuing a policy of insurance is not a transaction of commerce.”

As a result, states were left responsible for the taxation and regulation of insurance. That led to the formation of the National Insurance Convention in 1871, which later became known as the NAIC.

In 1944, the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the commerce clause in the U.S. Constitution and that the federal antitrust laws applied to the insurance industry.

Very quickly, Congress passed the McCarran-Ferguson Act, which essentially returned the regulation of insurance to the states. In the decades since state officials fiercely defended their oversight role of the insurance industry.

Initially, the Federal Insurance Office enjoyed widespread support. The NAIC endorsed the creation of the FIO in testimony to Congress.

The FIO was handed a set of nebulous duties to:

•  “Advise” the Treasury Department on insurance issues.
• “Monitor all aspects” of the insurance industry.
• “Identify issues or gaps” in the regulation of insurance that could contribute to a systemic crisis in the insurance industry.
• “Receive and collect data” on and from the insurance industry.

Dodd-Frank also assigned international insurance issues to the FIO and, under Director Michael McRaith, that is where the agency focused much of its time and efforts in the initial years.

The FIO ended up producing several concepts that were ultimately adopted by the NAIC, such as covered agreements and permitted practices, an accounting practice that departs from the NAIC Accounting Practices and Procedures Manual and state-prescribed accounting practices.

First significant U.S. study

The FIO’s first major initiative in the U.S. insurance market came with a 2017 automobile insurance study looking at affordability and availability.

The study found that 6 million people live in ZIP codes where auto insurance is unaffordable, including more than half of the residents of underserved ZIP codes in five states: Michigan, New Jersey, Rhode Island, New York and Delaware.

But friction surfaced in October 2022 when Treasury Secretary Janet Yellen announced that the FIO would collect climate-related claims data from insurers. The effort came weeks after Hurricane Ian smashed the Florida coast, with projected insured losses of more than $60 billion, according to the trade group Insurance Information Institute.

The data call provided the FIO with a rare opportunity to play a significant role in the insurance rulemaking cycle. The FIO sought five years’ worth of ZIP-code-level data from 213 private insurers, collectively representing at least 80% of the homeowners’ insurance market in each state.

The plan encountered immediate resistance. Trade groups, insurers and the NAIC all wrote letters objecting to the data call.

This week’s letter repeats concerns with FIO’s attempts to collect weather-related data independently, claiming that it compromised data accuracy and transparency.

“Despite efforts by the NAIC to collaborate through a data-sharing agreement, FIO has opted to use incomplete information, risking consumer harm and undermining regulatory efforts,” commissioners said in a news release.

The commissioners urged DOGE leaders to collaborate with newly elected Rep. Troy Downing, R-Mont. Formerly Montana commissioner of securities and insurance, Downing “has extensive knowledge of the FIO’s significant shortcomings and can provide valuable insights to support this initiative,” the release said.

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When it comes to long-term care insurance, many producers focus their efforts on selling to individual consumers. But it may be a mistake to overlook small businesses, since many of them may not be aware of the benefits of owning LTCi and how it can be used to enhance their operations. Craig Roers, marketing manager at Thrivent, recently shared a few reasons agents should discuss LTCi with their business clients and some helpful hints for selling it.

There are many reasons agents should try to sell LTCi to small business owners, Roers said. First, he said, there is the opportunity:

• 1 in 6 workers is currently providing care to someone. They understand the impact that caregiving can have on others, but don’t necessarily know how to plan for it themselves, he said.
• 70% of family caregivers report missing work because of caregiving (The Unspoken Costs of Caregiving; Carewell, November 2020.)
• There are 31.7 million small businesses in the U.S.
• Most people don’t understand that every business owner in America is eligible for an above-the-line deduction for LTCi. “It may be one of the most tax-efficient ways to fund future care needs. Benefits are generally paid 100% tax-free, and most business structures allow an owner to deduct some (or all) of the premiums paid by the business for both the owner and their spouse,” Roers said.
• The agent may go from a single sale (the owner and a spouse) to multiple sales if there are others in the company that may get coverage.
• Business owners also don’t have to meet the bar of having medical costs (including LTCi premiums) be over 7.5% of adjusted gross income to deduct premiums. It can be more difficult for individuals to reach that threshold.

Why should business owners be interested?

Roers added that business owners should be interested in LTCi because it offers them many benefits, including the following:

• Owning LTCi is one of the ways that business owners can recruit, reward, and retain employees, as well as ensure additional tax deductions for their business, Roers said. “It is a fully portable benefit,” he pointed out, “and provides the ability to select employees to receive it (i.e. tenured or top performers, or by job level, etc.).”
• A small business may be successful partly because it is a family business, or an entity that has developed a family-like culture. “Employers with a high degree of caring for their team may be more invested in ensuring they have some protection from risks, such as LTC,” he said.
• Having insurance may help a business owner maintain a legacy or help protect the business from potential impact of care costs or losing the services of an employee who must care for a loved one.

Selling LTCi to business owners

So, what are some of the steps that agents can take to sell LTCi to business owners? According to Roers, they should:

• Ask all prospects or clients if they (or a spouse) are a business owner. “Some may have a side business that you are unaware of and may be able to pay their premiums through that business,” Roers said.
• Think creatively about small businesses and how they’re structured. Farmers can set up their business in a variety of ways, but no matter the business structure, they can deduct some, or all, of the premiums. “Think of businesses or vendors you work with – your chiropractor or dentist may have a small practice, your local print shop, your small IT support firm, etc. Non-profits can pay the LTC premium for their employees, spouses
  and dependents without the premium being taxable to the employee,” Roers said.
• Consider partnering with local tax professionals or accountants. Many are not familiar with the various tax advantages that LTCi offers and it gives them value-added content to share with their business owner clients. “You could send them tax guides from the carriers, or provide updates on annual changes to the age-banded tax deductible amounts,” Roers said.
• Find an advocate in a company who is invested in having access to a solution. This could be someone with a recent family experience with caregiving.

Additional strategies

There are also additional strategies that business owners may appreciate, Roers said. Among them:

• Buy-up options when the business is performing well. Some policies allow annual buy-ups of additional coverage at the new age.
• Accelerated premium payments, like a ten-year pay, may allow them to pay off their policy by the time they retire or exit the business.
• Employers may use cash bonuses to help employees pay for some of their LTC premiums if they do not want to pay the entire premium.

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As 2024 comes to a close, financial advisors are turning to market forecasts for 2025 to gain insights into future trends that will help them manage risk and inform their investment allocations and business decisions. Here are market forecasts from three financial services firms.

Goldman Sachs

According to research from Goldman Sachs, the S&P 500 Index of U.S. stocks is forecast to have its third-straight year of gains amid solid economic expansion and steady earnings growth.
The benchmark index of U.S. equities is projected to rise to 6,500 by the end of 2025, a 9% price gain from its current level and a 10% total return, including dividends, David Kostin, chief U.S. equity strategist at Goldman Sachs, wrote in the team’s report. Earnings are predicted to increase 11% in 2025 and 7% in 2026.

Corporate revenue growth (at the index level) typically moves in line with nominal GDP growth, according to Goldman Sachs Research. Its strategists’ estimate of 5% sales growth for the S&P 500 is consistent with its economists’ forecasts for 2.5% real GDP growth and for inflation to cool to 2.4% by the end of next year.

The incoming administration of President-elect Donald Trump is expected to introduce trade policy that includes targeted tariffs on imported automobiles and select imports from China while also cutting taxes. “The impact of these policy changes on our earnings-per-share forecasts roughly offset one another,” Kostin wrote. “An equity market that is already pricing an optimistic macro backdrop and carrying high valuations creates risks heading into 2025,” he added. “High multiples are weak signals for near-term returns, but typically increase the magnitude of market downturns when there’s a negative shock.” he wrote.

According to Goldman Sachs Research’s baseline macroeconomic outlook, the economy and earnings continue to grow, and bond yields will remain around current levels in the coming years. But there are a number of risks heading into 2025. These include the potential threat of an across-the-board tariff and the potential of higher bond yields.

At the other end of the spectrum, a friendlier mix of fiscal policy or more dovish policy from the Federal Reserve could result in higher returns. “As a result, we believe investors should take advantage of periods of low volatility to capture equity upside or hedge downside through options,” Kostin wrote.

State Street Global Advisors

State Street Global Advisors, the asset- management business of State Street Corporation, recently launched its 2025 Global Market Outlook, Finding the Right Path. The report outlines the firm’s macroeconomic outlook and key investment themes for the year ahead.

Against the background of a resilient economic environment and major central banks embarking on an easing cycle in 2024, equity markets delivered strong returns, while fixed income markets saw modest returns. Looking ahead, State Street Global Advisors expects rate cuts and macroeconomic resilience to continue in 2025, and its long-standing forecast of a U.S. soft landing to materialize.

Lori Heinel, Global chief investment officer, commented: “2024 was no ordinary year, with elections around the world, persistent inflation and market volatility all playing their part in building an uncertain macroeconomic environment. Despite these challenges, markets continued to be resilient. As we enter 2025, we remain cautiously optimistic, with expectations of a soft anding in the U.S. looking set to translate into reality. While there are a range of uncertainties to contend with, investors may want to consider above target allocations to equities and should remain thoughtful about portfolio construction.”

The firm believes that the rate cut cycle that started in 2024 will continue for a while longer, although the Trump-led Republican election victory could result in a change to the narrative in the latter part of 2025. Global geopolitical forces could also play their part in rupturing long-standing economic and financial ties.

State Street Global retains its favorable outlook for fixed income in 2025. It anticipates that slowing economic output and tame inflation will allow central banks to cut policy rates further, even though the pace and scale may be more uncertain with a Trump administration. This uncertainty may offer investors tactical opportunities to build or expand their duration positioning through the easing cycle.

Jennifer Bender, Global chief investment strategist, said: “While spreads across both investment grade credit and high yield debt are near historic lows, we are optimistic about prospects for fixed income assets next year, and see a generally favorable environment for advanced economy sovereign debt. Market sentiment swings and volatility could potentially create opportunities for investors to manage or extend duration.”

Bender continued: “We expect Japanese equities to move sideways due to potential volatility, while Chinese equities may struggle sustaining higher growth and strong performance despite the short-term relief from the country’s stimulus program. At the same time, we believe U.S. large-cap equity will maintain its structural advantage to the rest of developed markets and see the outlook for emerging markets as more nuanced as investors balance economic and earnings growth and easing inflationary pressures versus geopolitical risk and a strong US dollar.”

Aside from the outlook for different asset classes, the firm also highlighted important considerations in portfolio construction, the emergence of the Gulf Cooperation Council (GCC) region as an investment location worth greater consideration, and the disruptive power of transformative technologies, such as generative AI and “tokenizaton.”

Heinel added: “The GCC region is undergoing significant transformation driven by its Vision plans, which increases its appeal for both domestic and international investors and is reflected in the performance of the equity and bond markets. From the inclusion of GCC countries in global indices, to the region’s substantial fixed income issuance, the GCC region offers significant growth potential for diversification.”

Wells Fargo

In the summary of its 2025 Annual Outlook, Wells Fargo shared the following insights:

• The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the U.S.
• The American president can act largely unilaterally when it comes to changes in trade policy. During his campaign for the presidency, Donald Trump promised to impose a 10% across-the-board tariff on U.S. trading partners, with 60% levied on China. Although the magnitude and timing of any actual tariff hikes are uncertain, the firm expects the Trump administration will indeed impose some levies on American trading partners. By raising consumer prices, tariffs impart a modest “stagflationary” shock to an economy, the firm wrote.
• Wells Fargo said that it has bumped up its forecast of inflation for next year, while shaving down its real GDP growth forecast. “We still expect the Federal Reserve to ease monetary policy further, but we believe the target range for the federal funds rate will be 50 bps higher at the end of 2025 than we did previously,” it wrote.
• Republicans will control both chambers of Congress beginning in the new year. “We expect Congress to fully extend the tax cuts that were legislated in the 2017 Tax Cuts and Jobs Act, which are set to expire at the end of 2025. But extension of the tax cuts does not impart fiscal stimulus to the economy, because extension would simply prevent tax rates from reverting to their higher pre-2017 levels. That noted, the firm said that it expects Congress to legislate some additional tax relief next year, which should help to boost real GDP growth in 2026.
• Not only will tariffs weigh on U.S. real GDP growth next year, but economies with significant export exposure to the U.S. likely will be negatively affected as well, the firm wrote. Under the firm’s tariff assumptions, it forecasts that the global economy will grow only 2.5% in 2025, down from 3% in 2024.
• Wells Fargo is looking for a significant amount of monetary easing next year by many major foreign central banks, including the European Central Bank, the Bank of England and the Bank of Canada. As interest rate differentials move in favor of the greenback, it is looking for the trade-weighted value of the U.S. dollar to rise to its highest level in more than 20 years in the coming quarters.

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With the top U.S. cybersecurity official making her exit and the incoming administration’s next move anyone’s guess, one legal expert is urging cyber insurance policyholders to ensure their coverage is secure now.

Arthur Armstrong, partner in the Insurance Recovery Group, Reed Smith, suggested that cybersecurity regulations could likely loosen under a Trump administration.

“Trump is a Republican candidate and, traditionally, Republicans are going to be strong on national security and not looking to increase regulation,” Armstrong said.

However, he emphasized the uncertainty of future conditions and said policyholders should focus on what they can control: their coverage.

“I tell clients what they need to focus on is their own insurance program, and then appreciating the risks they have from a cybersecurity perspective,” he said.

The fate of cybersecurity

Armstrong believes national security and regulation could be “at odds” under the new administration, with cybersecurity smack in the middle of the two.

“When it comes to the cybersecurity and the cyber insurance component, those traditional positions are somewhat at odds right now… The things I think about are how this next administration addresses the intersection between regulation and national security,” he said.

In November, shortly after elections, Jen Easterly, director, Cybersecurity and Infrastructure Security Agency, announced she will leave office as the new administration takes over.

President-elect Donald Trump has yet to name a successor. However, after a slew of controversial appointments in the weeks following his triumph at the polls, some cybersecurity stakeholders are concerned about the direction CISA will head in.

While the Trump administration has been known to take a hard stance on border protection and national security, Armstrong said it seems to be more focused on fighting perceived misinformation online than making major changes to cybersecurity laws for now.

“Where you have seen pushback as to some of the regulation and the government oversight of cybersecurity, I think it has more to do with campaigns to try to thwart disinformation,” Armstrong said.

He added, however, that it is unlikely a situation will develop where “anyone’s talking about it like they’re talking about getting rid of the Department of Education.”

“I don’t see that happening for those involved in fighting cyber criminals… I think cybersecurity and its relationship, particularly to national security, is going to be a bipartisan issue,” he said.

What changes to expect?

Rather, Armstrong said what could likely happen with cyber insurance is that it could become more difficult to obtain. Although, he emphasized that this is not necessarily due to a change in government but just a reflection of current market conditions.

“The cyber insurance market has been softer than it has been in some years. The application process is only going to continue to become more onerous,” he said.

For instance, he predicted criteria that were optional in the past or impacted premiums or available coverage will become mandatory going forward.

“You’re not going to get cyber insurance if you don’t have MFA (multi-factor authentication) or you don’t have the other indicators of a well-prepared and put-together cybersecurity program,” Armstrong said.

A word to the wise: Prepare now

Amid the future uncertainty, Armstrong advised policyholders to reassess their coverage, risks and needs now before it becomes too late. He urged businesses that need cyber insurance to anticipate gaps that could leave them open to severe litigation and prepare accordingly.

“If you’re utilizing those types of technologies, you better have the right cyber insurance in place that doesn’t have third-party claims excluded… It’s those more micro-level questions that business policyholders out there should be focused on because that’s within your control and what may happen in 2025, in a lot of ways, is not,” he said.

Armstrong’s advice is for businesses to work with a good broker who knows the cyber insurance market and understands exposures, as well as with coverage counsel to do a legal review of policy wording. He emphasized the importance of understanding the “likely life of a cyber event.”

“For example, if you suffer a data breach of some sort, all the notification requirements that stem from that. That’s certainly a function of the regulations in place at the time, so that’s something that could go up or down under the next administration — probably more likely down, but there’s also state regulations,” Armstrong said.

Ultimately, he acknowledged that no one knows for certain what Americans can expect under the Trump administration and in the coming years.

“I know something will happen that is significant and we’ll have huge market ramifications in the cyber coverage market, but who knows what that will be,” he said.

Reed Smith LLC is an international law firm founded in 1877. Headquartered in Pittsburgh, Philadelphia, it has more than 30 offices in the United States, Europe, Asia and the Middle East.

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Consumer feelings of being experienced in investing are at their highest peak since 2010, even as long-term warming trends in receptivity toward paying for advice are seen. This is according to a new market intelligence report, Attitudes & Sentiment 2024: Goals, Beliefs and Needs in an Era of Rising Financial Confidence, by Hearts & Wallets.

This year, 31% of households feel “very” or “somewhat” experienced in investing, up from 25% in 2010, the report said. Although an almost equal portion (30%) of households feel “very inexperienced” in investing, feeling “very inexperienced” is down significantly, having peaked at 45% in 2015.

Despite more households feeling very or somewhat experienced in investing, their receptivity to paid advice is still high. So, why is this the case? Consumers are feeling more experienced in investing, but that doesn’t mean they don’t value paid financial advisors, explained Laura Varas, Hearts & Wallets CEO and founder. 71% of households who say they are “very experienced” investors say they make decisions on their own. Yet, 69% of “very experienced” investors say they also rely on paid investment professionals either as “go-to,” “usually,” or “sometimes” sources of information and advice.

“Experienced investors say an important benefit of experience is knowing when to seek professional help, especially when to protect against a market downturn, and how to evaluate professional help. Hearts & Wallets has seen this in our earlier qualitative research that examined differences between experienced and inexperienced investors,” Varas added.

The research also finds long-term warming trends in receptivity toward paying for advice, Varas said. “I see value in paying for professional financial advice, whether or not I use a financial advisor today” is tied for first among the top 5 changing attitudes long-term, along with “My financial advisor is a partner to me.” Both attitudes have a net change of 22 percentage points trended over the last decade, netted to compare high agreement-disagreement. “Experienced investors understand advisors can augment their own knowledge and help them to avoid pitfalls,” she added.

Comfort with market volatility is at a peak

In addition, the report noted that risk tolerance of market volatility is at the highest point since tracking began, with 35% of households feeling comfortable in “accepting volatility in the hopes of getting a higher return.” This is up +12% ppts from 23% in 2010. Customer risk tolerance varies by store, the survey pointed out. Currently, customers of E*TRADE by Morgan Stanley, Robinhood, and Wells Fargo Advisors are the most risk tolerant.

“Be mindful of customer preferences to enhance the effectiveness of your firm’s approach,” Beth Krettecos, Hearts & Wallets subject matter expert and report co-author, said. “Wells Fargo Advisors’ clients are likely to show more interest in equity strategies, for example, while Merrill clients may have a stronger interest in fixed income products.”

The number of financial goals also rises

Also, households are juggling more financial goals than in the past, with average goals per household at a new peak of 3.5, according to the report. The No. 1 goal, emergency fund, now outranks retirement for most Americans. Among concerns, the U.S. political environment, a new concern added this year, jumped to the top. It was ranked as a high concern by 47% of respondents. Inflation remains a high concern, coming in second, with 44%. Another new concern, data security on financial websites, is also among the list of higher concerns.

Among other findings on attitudes trended over time are the rise in wealthier households who want to bank and invest at the same firm, increasing interest in asset managers behind investments, and a decrease in consumers who resist retirement assets remaining in plan. Newer themes are intergenerational finance, artificial intelligence (AI), and relationship proliferation.

Working with empowered investors

So, what are some of the steps investment advisors can take to work with this group of empowered investors as they move toward the achievement of their financial goals? Advisors can tailor packages of products and communications for design targets according to financial confidence (or anxiety for less experienced investors), said Varas. They should recognize that experienced investors may want choice in advice with different features and prices, and these options should address varying degrees of financial complexity and price sensitivity.

“Help prospects and customers make the choices that are right for them by communicating the categories of your experiences,” Varas said. “These investors want to be a part of the decision, and they often are interested in the asset managers behind their investments. Wealthier investors ($5-million-plus) are growing more receptive to banking and investing at the same firm. If your firm offers such products, communicate this option as these higher-asset customers are now more open to this offering.”

Attitudes & Sentiment 2024: Goals, Beliefs and Needs in an Era of Rising Financial Confidence analyzes consumer attitudes, sentiment, concerns and goals toward saving, investing and advice. This report is based on the Hearts & Wallets Investor Quantitative Database, a single dataset with over 120 million data points on saving, investing and advice behaviors from 80,000 U.S. households over the past 15 years. The latest wave was fielded from July 17-Aug. 9, 2024, with 5,989 U.S. households.

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A strategic balance of annuities and systematic withdrawals, tailored to individual needs, preferences and market conditions, is the key to optimal retirement outcomes, according to new research by economists Mark Warshawsky and Gaobo Pang.

Warshawsky is principal of ReLIA Strategies, former deputy commissioner for Retirement and Disability Policy at the Social Security Administration (2017), and current senior fellow at the American Enterprise Institute. Pang is principal of Zillore LLC. The research was supported by the American Council of Life Insurers (ACLI).

The research realistically models the many uncertainties that retirees face: investment returns, inflation, lifespan, and other individual circumstances, as well as the pricing of investment and annuity products purchased at retail or institutionally.

Insights from the survey

The findings unveil crucial insights for the future of retirement security for Americans. They are:

• A strategy of systematic withdrawals from more liquid investments or cash savings, combined with annuities, outperforms other strategies for anyone retiring with $250,000 and more in savings – be that via a one-time purchase of an immediate annuity or a gradual, laddered process of annuitization.
• The popular 4% rule is problematic. While offering flexibility, this rule – withdrawing 4% of initial wealth, subsequently indexed to inflation each year – has significant failure rates at older ages and provides the lowest level of income, the research said. Conversely, annuities offer a guaranteed lifetime income, safeguarding against market volatility and longevity risk.

The researchers came to the conclusion that full or partial annuitization leads to better retirement incomes than the 4% rule by showing that the 4% rule resulted in considerable risk of running out of money late in life, a plausible and worrisome outcome, especially for couples, explained Warshawsky. “By contrast,” he said, “annuity combination strategies guarantee steady income flows for life, while still leaving assets to grow for future distributions, bequests and late-in-life needs like nursing care.”

• Those consumers retiring with less than $250,000 benefit the most by annuitizing higher portions of their savings, if not all. Why is this the case? Warshawsky said that according to estimates of retiree preferences found in professional literature, most prefer to get higher income flows in retirement, until higher wealth levels allow them to consider other goals like bequests. “Annuitization maximizes the income available to retirees,” he said.
• Overall, annuities maximize a steady flow of income, can reduce the strain on the remaining nonannuitized wealth, and accommodate wealth growth.

“The retirement landscape has undergone significant transformations in recent years, with the traditional reliance on defined benefit plans shifting towards defined contribution plans and individual retirement accounts. These plans lack built-in means for a retiree to know how to best structure their regular withdrawals to fund their lives in retirement, and annuities fill that gap,” said Warshawsky.

“There’s more research to be done to explore the right mix for those who are partially retired, as well as into how annuitization can overlay Social Security, other investment options, and different kinds of employer pension and retirement plans.”

Industry implications

Warshawsky added that the research in this paper has significant implications for policymakers and financial advisors advocating for policies that support flexible, mixed-income strategies. It also underscores the importance of educating retirees about the benefits of diversifying their income sources in retirement.

“For all but the wealthiest of their clients,” he added, “financial advisors should use retirement income distribution strategies that include immediate annuities, as these combination strategies reduce the risk of income shortfalls while still maintaining portfolio growth for bequests and late-in-life needs. Taxes, in the way of minimum distribution requirements, are no longer a disincentive with the passage of SECURE 2.0 legislation removing the double taxation of annuity payouts.”

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It isn’t often that life insurance companies fall into financial trouble. But when they do, the regulatory rehabilitation process is often prolonged and accompanied by infrequent updates.

Connecticut Insurance Department regulators are busy wrangling a tough case with PHL Variable Insurance Co. PHL and its subsidiaries, Concord Re, Inc., and Palisado Re, Inc., were placed into rehabilitation May 20 by a state superior court judge after several financial setbacks.

PHL issued life insurance and annuity products and related supplemental contracts to policyholders nationwide. Concord and Palisado are captive insurers whose only business is the reinsurance of PHL’s liabilities.

Connecticut Insurance Commissioner Andrew Mais filed the petition to put the companies into rehabilitation after determining that they were in a hazardous financial condition and that other alternatives had been exhausted.

Regulators placed a temporary restriction on policy benefits while working on a rehabilitation plan that must be approved by the court. CID recently published its “first accounting and status report” after months of working on the PHL books.

The department agreed to answer some questions posed by InsuranceNewsNet. Jane Callanan is general counsel for the Connecticut Insurance Department.

INN: How did the books at PHL Variable and its two captives look compared to expectations? Lessons learned?

Callanan: The financial condition of PHL Variable and its captives (the “Companies”) was largely in line with the CID’s expectations at the time the Companies were placed into rehabilitation. The reduction in the Companies’ capital and surplus as of Sept. 30, 2024, was driven primarily by three factors: the Companies’ reserves were increased as a result of being subjected to cash flow testing; certain permitted accounting practices that had been granted prior to rehabilitation were discontinued; and the Companies recognized the impairment of an affiliate loan. Details regarding each of these factors can be found in the rehabilitator’s First Accounting and Status Report filed on November 20.

At this time we are focused on developing a rehabilitation plan and have not yet completed a “post-mortem” that would enable the CID to form definitive conclusions regarding lessons learned.

INN: Is the rehab plan on track for mid-2025 and will the moratorium be lifted?

Callanan: The Rehabilitator continues to expect to present to the court the key terms of a rehabilitation plan by mid-2025. A complete plan of rehabilitation would be filed thereafter, with the plan confirmation process likely in late 2025. The moratorium, as provided in the Moratorium Order entered by the court, will remain in place until the rehabilitation plan is confirmed.

INN: You endorse “combined financial statements” for the three insurers here. Why not treat all insurers and their reinsurers the same way?

Callanan: The Companies are in a different position than other insurers and reinsurers because they are no longer active, going-concern businesses. The rehabilitator believes that combined financial statements, which eliminate intercompany transactions, provide the most meaningful presentation of the Companies’ current financial position to the court, policyholders and other interested parties in the rehabilitation.

INN: PHL Variable began showing signs of stress as early as 2019. What can regulators do better to intervene quicker in these situations?

Callanan: As PHL’s financial condition worsened, the Connecticut Insurance Department increased its regulatory oversight of PHL for several years prior to placing the Companies into supervision in March 2023. The decision to initiate rehabilitation proceedings was determined to be in the best interest of the Company’s policy and annuity holders, creditors and the public. Regulators must always strike a balance with troubled companies between early intervention and allowing companies the opportunity to pursue successful paths out of challenged situations. Even with the range of tools available to regulators, solvency cannot always be restored.

INN: Why were Concord Re and Palisado Re exempted from cash flow testing?

Callanan: Under applicable law, captive insurers such as Concord Re and Palisado Re are not subject to cash flow testing.

INN: Was there ever any financial examination done of PHL Variable?

Callanan: As with all domestic insurers, PHL was subject to quinquennial financial examinations. The last full examination by the CID covered the five-year period between Jan. 1, 2013 and Dec. 31, 2017. At the time, PHL and its subsidiaries were placed into rehabilitation, a financial examination was underway for the five-year period between Jan. 1, 2018, and Dec. 31, 2022.

INN: The update mentions “128 reinsurance agreements spread across 15 third-party reinsurers.” Is there any hope that these agreements will cover the troubled PHL universal life business?

Callanan: PHL has reinsurance agreements that provide partial coverage for its universal life policies. That reinsurance has never been structured to provide coverage in full. Following entry of the Rehabilitation Order, the rehabilitator has actively taken steps to maintain ordinary course billing and payment under all of PHL’s existing reinsurance.

INN: How likely is it that a buyer will be found for some of the PHL blocks?

Callanan: The rehabilitator recently engaged Keefe, Bruyette & Woods to provide financial advisory and investment banking services. The rehabilitator is working closely with KBW to develop a plan to solicit interest in potential transactions involving the Companies or individual blocks of PHL business. It is too early in the process to make a prediction of the outcome.

INN: What percentage of these blocks are held by institutional investors?

Callanan: Typically, life settlement purchase transactions by institutional investors often use trusts and similar entities that make actual ownership difficult or impossible to determine. As a result, the rehabilitator does not have a precise figure of investor-owned policies but believes a material amount of PHL’s universal policies (by face amount) are owned by institutional investors.

INN: Will you have to resort to a premium increase to help stabilize the PHL policies?

Callanan: Prior to rehabilitation, PHL implemented multiple cost-of-insurance increases on certain blocks of PHL policies. Although the rehabilitator is exploring all options to stabilize and improve the Companies’ financial condition, there are no current plans to pursue such an increase at this time.

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