(Boston)

Advisors beware, your state is likely ramping up regulatory enforcement all around you. While all the focus has been on states making and/or enforcing their own fiduciary rules in the absence of the federal rule, they have also been upping their presence in other areas. For instance, Alabama is now getting involved in disputes between brokers and firms, making sure client assets do not get frozen. Massachusetts is enforcing the federal fiduciary rule, and Nevada is making and seeking to enforce its own best interest rule as well.

FINSUM: Our view on this is that there is a power and leadership vacuum in the federal regulators that has eroded states’ trust, all of which is leading to a more fractured regulatory landscape.

(Washington)

Many advisors may think it is going to take the SEC ages before it actually presents a new fiduciary rule. But that view may need to be shelved, as SEC chairman Jay Clayton has just confirmed that the rule is one of his top priorities. “We’re going to make a big effort to try and bring clarity and harmony to investment advisor [and] broker-dealer standards of conduct … I think it’s something that the market needs. I think it’s something that regulators need”. The SEC still has not confirmed a date for the debut of the rule, but most experts agree it will be this summer.

FINSUM: We think the SEC will debut a new rule, jointly with the DOL, in May or June, with the plan to implement it in spring 2019.

(New York)

Prepare to have your eyes opened, wide. US investors have taken out $642.8 bn of loans against their stock portfolios in order to deepen their positions in the market. That huge margin debt exacerbated this month’s selloff, and is likely to make the next one even worse, as many investors will be forced to liquidate positions. The size of the total margin debt (as a percentage of total market cap) is greater than at any point since the figure started to be tracked in 1980.

FINSUM: Record high margin debt sounds like a great leading indicator for a crash.

(Washington)

The financial industry just won a big concession from regulators. In a piece of Obama era legislation, mutual funds were set to have to make disclosures to investors whenever they hard large piles of hard-to-sell assets. However, the SEC has just pulled away from the measure, saying mutual funds will not need to do so. The measure was set to take effect in 2019, but has now been delayed because of disagreement on the total scope of the disclosures.

FINSUM: The big sticking point with this rule is that it would force asset managers to make judgments about liquidity even when they have little insight into it.

(New York)

Bonds have stopped their losses and there is a clear reason why—the market does not believe that the Fed is going to be as hawkish as many feared. The Fed’s January minutes were not as aggressive on raising rates as many suspected, and now bond traders are afraid that inflation may run quite hot without the Fed doing anything about it. Therefore, there is upward pressure on yields, but that force is being contained by the fact that rates are unlikely to be hiked aggressively. The current consensus, based on Fed comments, is that inflation could run to 2.5% before the central bank would become concerned.

FINSUM: The economy is doing quite well at the moment and the Fed doesn’t want to disrupt that by hiking too early.