(New York)

Goals-based investing is an important approach for advisors to consider for their clients. More than just the idea of aligning a portfolio and its reporting with a client’s life goals, goals-based investing has the power to potentially transform the way a client thinks about their money and their portfolio. When it comes to saving and investing, clients constantly struggle with the trade-off of short-term sacrifices for long-term benefits—should I buy this flashy new car or have a better retirement? By focusing their finances and investing on the specific goals they have in mind (e.g. buying a vacation home) it becomes much easier to make that short-term sacrifice.

FINSUM: Goals-based investing makes a lot of sense with basic human psychology. Knowing I am saving for a vacation home makes it a lot easier to forego the new car purchase.

(Washington)

2020 has seen both the implementation of the SEC’s new Reg BI rule as well as the introduction of a new DOL Fiduciary Rule proposal. While both have faced opposition on all sides, it was uniformly less intense than the scorn the first fiduciary rule received. That said, Morningstar is reporting that plans are underway to scrap the new Reg BI rule, which only became official in June. More specifically, Biden is planning to scrap both rules if he takes office. That is obviously still a very big if, but the process is quite clear. Biden would appoint a new head of the SEC, who would then scrap the rule. Or, the Dodd-Frank act could be amended to make clear a full fiduciary rule needs to be in place.

FINSUM: There has been plenty of talk about Biden potentially scrapping the new DOL rule. However, very little has been said about him getting rid of Reg BI, likely because it would have been implemented many months before inauguration. Therefore, this is a significant change that many advisors and firms are not aware of.

(New York)

Now that many signs are pointing to an improving US economy, some investors think it is time to shift out of growth stocks and into more cyclical sectors. That said, cyclicals—which rely on consumer spending improvements—are going to be a hard place to invest because of the highly variable recovery path for different sectors created by COVID. With that in mind here are a few places to look: transportation (excluding airlines), such as the iShares Transportation ETF (IYT); or infrastructure, like the Global X Infrastructure Development ETF (PAVE); ecommerce and home entertainment, such as the Amplify Online Retail ETF (IBUY); or housing, either through single names like Home Depot and Lowe’s, or a broader homebuilders ETF like the SPDR S&P Homebuilders ETF (XHB).

FINSUM: We find homebuilding to be a very interesting opportunity. One of the reasons that the real estate market has held up is that homebuyers are typically those higher on the socio-economic ladder, whose incomes are much less likely to have taken a hit from the pandemic. Therefore, the growth trajectory for that whole sector looks strong.

(New York)

The better the economy gets, the more banks seem like a good buy. Banks have been rather severely beaten up over the last several months, largely missing on the price recovery of so many other stocks. This is primarily because of two factors—ultra-low interest rates, and the potential for losses on their loan portfolios. However, it is increasingly appearing like loan losses may not be nearly so severe as forecast, and that billions of Dollars set aside to account for such losses may now be released onto earnings over the next couple of quarters.

FINSUM: Two considerations here. Firstly, the idea of loan losses flowing back to the bottom line and causing upside surprises at earnings time sounds great, especially within the longer-term perspective that banks are a good macro bet on the recovery. The downside risk here relates to an article yesterday in BuzzFeed that accused banks (using obtained data on potential fraudulent activity in client accounts) of not following regulations related to money laundering. That could obviously turn into a big mess, but as yet it is unclear if that is a material risk.

(Washington)

After the shock of the last rule and the relatively benign impact of the SEC’s Reg BI, most advisors are taking the new Fiduciary Rule from the DOL in stride. There has not been nearly the outpouring of upsettedness as the first time around. However, within the mostly mundane-seeming rule, there is some little-noticed language that could cause difficult issues, say compliance professionals. Specifically, in the preamble to the rule proposal, the DOL said it had changed how it interprets the old 1975 five-part test for fiduciary status. According to David Kaleda, principal, Groom Law Group, “So, this is another attempt by the DOL to state that, ‘Whatever you think advice may be, it may be more than that’ … Advisers and broker-dealers need to think about whether their day-to-day interactions are within the five-part test”.

FINSUM: This is another hidden surprise in this rule that could become much more complicated. It almost seems the DOL snuck some vague language into the current version of the rule in order to give themselves broader latitude for enforcement later on. This makes sense too, as it was the same approach the SEC used with Reg BI. Vague language makes it harder to find loopholes.