FINANCIAL ADVISOR INSIGHTS: AllianceBernstein Wonders If Chicago Could Be The Next Detroit

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisers.

Could Chicago Be The Next Detroit? (AllianceBernstein)

At first glance, there’s a huge difference between Chicago and Detroit. While Detroit’s population has dropped significantly over the years, Chicago’s has been stable. However, Chicago’s credit ratings “dropped sharply” over the last year because of finances, writes Michael Brooks.

“Chicago has spent beyond its means and hasn’t provided enough funding for its pension obligations. As a result, the city requires a dramatic increase in funding. When combined with debt service and other fixed costs, pension costs would take up 40% of Chicago’s budget,” argues Brooks.

“Addressing the resulting hole in the budget will be difficult and controversial, and bankruptcy may even be raised as an option, although we doubt it will go that far,” he said.

Investors may be inclined to sell because of Chicago’s problems, but AllianceBernstein analysts believe that this should not “shake investor confidence in the overall health of the municipal market.”

Investors Should Check Out Riskier Options Because Interest Rates Might Stay Low (BlackRock Blog)

“…while I do expect long-term rates in the United States to climb modestly in the near future, interest rates are likely to remain historically low for an extended period of time,” argues Ross Koesterich.

Three factors might be responsible for the on-going low interest rates: First, the combination of slow growth and no inflation. Second, the changing demographics — and specifically the increased proportion of older people. And third, the supply and demand forces acting on the bond market.

The continued low-interest rates, “particularly at a time when, as the baby boom retires, more and more investors are looking for income,” means that investors are going to need to look for income from alternative sources. Specifically, Koesterich suggests looking at riskier options, and “esoteric parts of the bond market.”

Widows And Widowers Can’t Claim Uncollected Benefits (Investment News)

Clients can file for and suspend their retirement benefits up to age 70 in order to collect benefits worth 132% of their retirement. Unfortunately, some clients die before they get the opportunity to collect benefits.

There are two options here, writes Mary Beth Franklin. Clients can cash out early and receive benefits paid as a lump sum back to the date of suspension instead of getting received benefits.

However, if they die without doing so, then their widow or widower cannot collect the benefits. Instead, they are eligible for survivor benefits worth 100% of what the late spouse was entitled to at the time of death, “including any delayed retirement credits,” writes Franklin.

Advisors Need A Clearly Established Timeline When Selling Their Firm (Financial Planning)

Advisors should clearly define the ownership via a buy/sell agreement, or with “a partnership track that outlines the hurdles that the junior associate must clear to attain partnership in the practice,” argues Matt Matrisian.

Additionally, there should be a clearly established timeline for transition and ownership. The transition should be broken down into three categories: clients, management and ownership. And if things get rocky, an external transition specialist can be consulted to help ease the transition.

The Asset Management Industry Suffered A Huge Setback After BlackRock’s Proposal Was Rejected (The Wall Street Journal)

BlackRock was hoping to launch a new product known as a “nontransparent ETF”, which would have kept its holdings hidden from investors.

“This new product was part of the industry’s attempt to broaden its customer base beyond traditional index-tracking investments by selling more funds that are actively managed,” reports Daisy Maxey.

The SEC was uncomfortable with the “nontransparent ETF” because the lack of transparency would result in “undue risk for investors.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.