Advisors may not have to worry about missing a paycheck during the government shutdown, but some of their clients do.

The shutdown affects millions of federal employees, who have either been furloughed or continue to work without pay, and the implications are drastic: Workers will miss upward of $21 billion in back pay if the closure continues into December. Advisors need to be aware of the unique planning needs of federal employees and what impact the missed income may have on their retirement savings. “This is creating a ton of uncertainty, and navigating this uncertainty can be very stressful for these individuals,” said Thom Hall, a managing director at Carson Wealth, which works directly with some federal employees. “They will have to find ways to manage their cash flow with no pay.”

Basic Training

The main way advisors can address these workers’ needs is by helping them create a robust nest egg. A best practice is to treat the missed or delayed paycheck as an “income gap,” said Hall. Also, be prepared to forgo any further income until the government reopens. That means prioritizing essential expenses like housing, utilities, food and health insurance premiums, he added. There are also indirect sources of help for federal workers. “Non-monetary support through food banks, community assistance programs, health and mental health support to address the increase in stress from financial strain can all make a difference,” Hall said.

Depending on the government organization involved, some resources may be available to help. Members of Congress, Supreme Court justices and federal judges continue to receive paychecks, as well as about 830,000 federal workers whose compensation comes from spending packages.

Advisors of federal employees can also:

• Assist with accessing unemployment insurance, relief programs aimed at federal workers during the shutdown, state or local assistance programs and federal employee support organizations.
• Help track federal agencies’ human resources or Office of Personnel Management guidance page to monitor the status of clients’ pay or back pay.

AWOL Paychecks. Unfortunately, not even the military is safe. Active-duty military received Nov. 1 paychecks, but that doesn’t guarantee the next round. “A lot of military, for a long time, thought they were bulletproof as far as needing an emergency fund because they’re like, ‘The military always gets paid,’” said Joe Brown, a financial planner with the Military Financial Advisors Association specializing in active duty military personnel and veterans. “Well, [during] the last shutdown, the Coast Guard did not get paid for a couple of paychecks.”

Let’s get digital, digital.

JPMorgan took another step toward decentralized finance last week when it tokenized and conducted a transaction of a private equity fund on its blockchain platform. The move is setting the table for the bank’s Kinexy’s Fund Flow, a tokenization platform it plans to roll out in full next year. JPMorgan expects to tokenize other alts, including private credit, real estate, and hedge funds, in the future, The Wall Street Journal reported. It’s also exploring the possibility of allowing clients to use fund tokens as collateral for borrowing or constructing a portfolio of tokenized assets.

“Enabling real-time tri-party settlement between fund managers, transfer agents and distributors will ultimately unlock new sources of liquidity and more flexible portfolio construction,” said Anton Pil, head of JPMorgan’s global alternative investment solutions. The firm did not comment on the specific PE fund that was tokenized.

Eyes on Tokenize

JPMorgan CEO Jamie Dimon once described crypto as a “pet rock” (ouch). But while the bank and many other traditional lenders are warming to digital currencies, they’ve always seen more opportunity in blockchain technology that can tokenize any asset, financial or real, for faster, cheaper and easier trading:

• Nearly a dozen major banks are jointly exploring issuing a stablecoin pegged to G7 currencies.
• This summer, Goldman Sachs and BNY Mellon announced a partnership that will tokenize money market funds managed by firms including their own, BlackRock and Fidelity.
• Bank of America called tokenization the next step in financial markets’ evolution and described it as “mutual fund 3.0.”

Across the Pond. While the GENIUS Act has established a regulatory framework for US dollar-backed stablecoins and is fueling innovation in the token economy, Europe seems to be ahead of the curve in some regards. Last month, France’s Lise Exchange became the first European platform authorized to trade and settle listed shares entirely on blockchain. And just this week, Switzerland’s BX Digital partnered with the New York-based Ondo Finance to launch tokenized versions of stocks and ETFs on BX’s platform that can be traded 24/7.

We’ve got a couple of leftover skee ball tokens from Palace Amusements. Are those worth anything?

Love them or hate them, annuities are on a roll.

While they may not top every advisor’s priority list, the insurance products keep smashing quarterly sales records. US annuity sales hit nearly $120 billion in the third quarter, according to trade group LIMRA. That marked the eighth straight quarter above $100 billion, bringing year-to-date totals to $345 billion, up 4% year over year. It’s the highest total ever recorded in a nine-month period, and reflects a growing shift among advisors who are rethinking the old adage that annuities are sold, not bought.

“We’re at a place where some advisors use them much more than they should, and others who should use them never do,” said David Blanchett, head of retirement research at Prudential. “You often need other solutions beyond just a portfolio to solve retirement.”

A-Whole-Nnuity World

Volatility, higher rates and strong equity growth, along with clients’ retirement worries, are creating a favorable backdrop for annuities, particularly registered index-linked products that currently offer “attractive” caps, LIMRA found. Advisors seem to be coming around on annuities:

• Half of advisors are increasing client allocations to annuities, according to LIMRA data published this summer.
• Fee-based annuities have helped reduce conflicts of interests and the sales incentives often associated with traditional commission-based annuities.

Fundamentally, annuities provide guaranteed income in retirement, often with principal protection against market losses. Still, they come with caveats like potentially high fees, limited liquidity, capped returns and added complexity compared with mutual funds or ETFs. And they’re not all created equal.

Like any investment, due diligence is key, said David Lau, founder of DPL Financial Partners, a commission-free annuity platform. “There are really crappy mutual funds and terrible ETFs,” he said. “There are bad products everywhere, but that doesn’t mean you should dismiss them as a category.”

Take the Good, Take the Bad

Many advisors still view annuities skeptically. “Annuities aren’t a retirement plan; they’re a sales strategy with a glossy wrapper,” said Mark Stancato, founder of VIP Wealth Advisors. “Record sales don’t prove investors are getting smarter; they prove fear still sells.”

Others, however, are taking a more pragmatic stance. “Just like any tool, if you misuse it, you’ll have a bad experience,” said Ashton Lawrence, a CFP at Mariner Wealth Advisors. “You can have the best spatula for flipping pancakes, but if you try to build a chair with it, you’ll think it’s awful.” Used thoughtfully for managing longevity risk or adding certainty, annuities can play a valuable role in a retirement plan, he said.