No bi week for Reg Bi, no siree.

Bill St. Louis, executive vice president and head of the National Cause and Financial Crimes Detection Program at FINRA, recently announced the intention of the organization to hold Reg Bi compliance exams of 1000 broker-dealers, according to natlawreview.com. They’ll take place by year’s end.

While on the books for nearly three years, enforcement actions under the rules has generated little action from FINRA.

Christopher Kelly, FINRA’s acting head of enforcement, said there will be no new standard applied in the enforcement actions.

“Both Reg BI for broker-dealers and the IA fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interests,” the SEC states in a staff bulletin released in late April, reported investmentnews.com.

From the staff’s perspective: “although the specific application of Reg BI and the IA fiduciary standard may differ in some respects and be triggered at different times, they generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors.”

You’ve heard of the theory of relativity. Just a hunch, of course. How about model portfolio theory? And how does it work?

Well, it abets the ability of investors to tamp down on market risk and wring the most out of return, according to forbes.com.

On one hand, investors can erect optimized portfolios with modern portfolio theory, on the other, however, are there limitations? Yep. 

For example, estimates – all of them – stem from historical data that might have nothing to do with current or markets down the road.

The “perfect investment” can be a tough nut to crack.

That said, modern portfolio theory’s been highly popular, according to Investopedia.com.

It’s contended by modern portfolio theory that, possibly, an ideal portfolio that hands investors maximum returns by tacking the optimal amount of risk, can be designed.

When it comes to diversifying securities and asset classes – on top of the benefits of stopping short of putting your eggs in the old basket -- MPT’s a big supporter. 

LPL Financial topped earnings expectations in the second quarter as it reported $3.65 in earnings per share which exceeded analysts’ estimates of $3.47 per share. It was also an 85% increase from last year, primarily driven by higher rates. The company also had another strong quarter in terms of recruitment which the firm expects to continue in the third quarter. 

In total, it added 421 new advisors in Q2 for a total of 21,942. Notably, this is more than a 5% increase on a year-over-year basis as it had 20,811 at the end of last year’s Q2. It saw an 8% increase in total assets, reaching $1.2 trillion with organic new assets of $22 billion and recruited assets of $19 billion. 

According to CEO and President Dan Arnold, the company’s success was due to winning new clients, expanding ‘wallet share’, focus on servicing clients, and a differentiated experience. It also saw a 99% retention rate in the quarter, and the company continues to invest in new technology and new services such as direct indexing. It also announced the acquisition of Crown Capital which has 260 advisors and $5.5 billion in assets. 

Finsum: LPL Financial announced its second quarter earnings results which topped analysts’ expectations in terms of earnings per share and asset growth.

We are seeing a flurry of active fixed income ETF launches over the past few months. While it’s nearly settled that with equities, passive tends to outperform active strategies, active fixed income strategies have performed better than passive fixed income especially in recent years. 

Further, there is considerable uncertainty around the economy regarding rates, inflation, and a potential recession which could lead to more opportunities for active managers. Additionally, active managers have more latitude in terms of duration and credit quality.

Therefore, money is flowing into active fixed income ETFs from mutual funds and passive bond funds. For Barron’s, Lauren Foster discusses whether these inflows into active fixed ETFs will continue or is it just a short-term fad. 

Money is likely to also flow into active fixed income ETFs from active fixed income mutual funds given that the ETFs offer several benefits such as lower fees, more transparency, and intraday liquidity. The younger generation of investors also tend to favor ETFs rather than mutual funds due to higher comfort levels and an understanding of how high fees can impact long-term performance. 

However, the ultimate factor is whether these ETFs will continue to deliver strong returns relative to passive fixed income ETFs and active fixed income mutual funds. So far, they seem to be offering the best of both worlds to investors. 

Finsum: A major theme in 2023 has been the rise of active fixed income ETFs. But, there is considerable doubt whether these will gain traction and are better than passive fixed income ETFs or active fixed income mutual funds.

Strive Asset Management, an upstart competitor to Blackrock and Vanguard, is launching its first fixed income ETFs. Strive is based in Ohio and was founded in 2022 by Vivek Ramaswamy who is now running for President in the Republican Primary. Ramaswamy resigned from the firm earlier this year to focus on his political ambitions, but Strive’s mission and his political campaign clearly have some overlap.

Ramaswamy and Strive are both defined by their opposition to ESG investing and believe that it’s a detriment to investors and the country. Therefore, he’s been critical of asset managers like Blackrock and Vanguard who use their passive stakes in companies to encourage management teams to consider ESG factors when making decisions.

In contrast, Strive and Ramaswamy believe that companies should focus on maximizing profits rather than other factors. Its first 2 fixed income ETFs are the Strive Enhanced Income Short Maturity ETF (STXT) and the Strive Total Return Bond ETF (BUXX). STXT provides total exposure to fixed income with a cost basis of 49 basis points, while BUXX is designed to generate yield for investors by investing in short-duration bonds and charges 25 basis points.

Finsum: Strive Asset Management is launching its first 2 fixed income ETFs. The company differentiates itself by eschewing ESG and rewarding companies that don’t use these metrics.