(Washington)

While it never really seemed to be in doubt, it is all but certain now that Democrats are going to bring articles of impeachment against President Trump. The party is likely to bring two separate articles against Trump by today, with an additional one possible. One will be focused on abuse of power, and the other one or two on obstructing Congress and obstruction of justice. In response to Republican criticism that the Democrats are rushing the impeachment process, Jerrold Nadler said “I want to be absolutely clear: the integrity of our next election is at stake. Nothing could be more urgent”.

FINSUM: No surprises here, but this will likely all be for nothing because of the Senate.

(Washington)

One of the leading trade bodies of the brokerage industry has just put out an alarming, and frankly logical, warning. SIFMA says that a growing body of regulation is threatening to completely end the brokerage industry as we know it. In particular, SIFMA says the rise of state-based fiduciary rules is likely to lead to the “lowest common denominator” regulatory solution in many states. Instead of trying to navigate a complex network of rules, the solution is simply to say “we do not have brokerage in our state”. Many states may only have advisory accounts, which according to SIFMA will mean "Clients will have one choice they can buy, which in many cases will be buying more services than they wanted and having to pay more than they wanted to”.

FINSUM: So anyone in the industry will realize that trade bodies put out warnings all the time. What makes this different is that it seems highly realistic, which makes it quite troubling. The reality is that for many clients brokerage is the right model, so it needs to be defended.

(Boston)

Earlier this year (before the Schwab deal), TD Ameritrade put out an interesting report about breaking away. The report was centered on advisors’ motivations for breaking away as well as their likelihood of doing so. One of the most interesting findings is that as of July, 46% of advisors who were thinking of breaking away said that they had increased urgency since the start of the year. 44% said they would move within the next year. The main reasons were freedom, compensation, and client service, all of which they felt were better at an independent. Another key finding is that only about 36% of advisors wanted to breakaway on their own; most wanted to merge with another partner or join an established firm.

FINSUM: The breakaway movement is only gaining momentum. Wirehouses are shedding advisors and RIAs and IBDs are picking them up left and right.

(New York)

Here is an eye-opening stat for anyone working in wealth management: 37% of all advisors expect to retire in the next decade. That will put about 39% of all AUM in the industry in motion. The biggest surge in retirement will be on the B-D side of the fence. The major question is who will replace all these advisors? “While some progress is being made, the industry is struggling to recruit and retain advisor talent that is adequately prepared to inherit the businesses … In an effort to overcome this challenge, firms are boosting recruiting efforts to bring new advisors into the industry and revamping training efforts to improve success rates”, says Cerulli Associates.

FINSUM: Succession panning has not been very good in general, so there are big questions about how this will play out. This is either one of the best opportunities in the history of the business, or the whole market might shrink naturally if older advisors retire and Millennials don’t hire new ones.

(New York)

One of the ways that wirehouses have been trying to make their brokers (and their brokers’ clients) more sticky is by pushing loans. Brokers are encouraged to get clients to borrow money. These loans have the effect of binding clients to firms for long periods, and correspondingly, it makes it harder for brokers to breakaway because clients are more likely to stay put. However, some RIAs are combatting the trend by offering to replace client loans during the transition period when brokers are joining their firms. Perhaps even more interestingly, custodians are getting into the game too, with Schwab announcing recently that they would be increasing lending products available to advisors to help them transition clients away from wirehouses. The loans provided often have lower interest rates than what the wires offer, so the success rate in migrating clients has been quite high.

FINSUM: The loan game has been the domain of the wirehouses for years, but with the big custodians getting involved, this is another important structure that will make breaking away easier.

(New York)

There are some very worrying signals coming out of the high yield sector. In particular, stocks at the riskiest end of the market have been underperforming. Bonds rated CCC, CCC+, and CCC-, which are the three lowest rungs before default, have been underperforming all year and that weakness has now reached an “unprecedented size”. What is worrying is that very lowly rated bonds are usually the most influenced by economic perceptions, and it is unusual that with junk rallying so much this year that this cohort has not taken part.

FINSUM: So there are two options for what this could mean. Either it means investors are just being cautious, or much more negatively, that credit conditions are tightening, which would be a sign of a pending economic downturn.

(New York)

If it seems like value investing is dead, it is because it almost is. Even major adherents have moved away from the practice as growth stocks have greatly outperformed value stocks for so long. The growth sector has been led by large tech companies for the last several years, and many are wondering whether the gains can keep going. The answer, according to Credit Suisse, is “yes”. The bank has put out a piece reminding investors that in late stage bull markets growth stocks can often hit P/E multiples of 45-60x. The sector is currently only trading at 28x earnings. Credit Suisse singled out Microsoft and Raytheon as good cheap picks.

FINSUM: The optimism has been building in markets, so it would not be far-fetched to think a big late cycle run could be in the cards for growth stocks.

(New York)

Nike is one of the retail stocks that has had a very good year, and it may be about to get even better. Goldman Sachs has just jumped on the Nike bandwagon, saying that the stock is going to keep on rising. GS upgraded Nike to a Buy from Neutral and joined 25 other analysts who say the stock is a Buy. According the GS, their change in view is due to “Evidence of building pricing power, signs of operating leverage, accelerating shift to differentiated retail, sharply scaling app ecosystem, and a constructive global athletic growth backdrop”.

FINSUM: Brands are in a better position than retailers, and Nike is on the very good side of that better group.

(New York)

One asset manager called last year’s fourth quarter stock rout perfectly, and they are doubling down, saying it will happen again this year. Principal Global Investors’ Seema Shah says that stocks are facing another imminent selloff if the US and China can’t get a trade deal done before the December 15th tariff deadline. “If that trade deal doesn’t happen and if everything falls apart and it feels like tensions are getting worse, then I think we are facing a potential repeat of last year, and it will be worse”, said Shah. She says that the shock could be even bigger than in other parts of the year because of how liquidity disappears in December.

FINSUM: So we are dubious on this call, but what is interesting to us is that this argument was published on November 28th, and since then Trump has backtracked on the trade deal timeline.

(New York)

If you are considering going independent, Charles Schwab has an interesting new survey for you. Thousands of advisors have been flowing out of wirehouses and large regional brokerages over the last few years. They have either gone completely independent or joined independent broker-dealers. In either case, a new survey from Charles Schwab shows that such advisors are very happy. In fact, 90% of advisors who have gone independent report that they have no regrets about their choice to go it alone.

FINSUM: The reality is that most advisors say that whether you become an RIA or go to an IBD, you can serve clients better and make more money at the same time. The general opinion is that with an RIA you lose a lot of structural support, but you keep everything for yourself; while with an IBD you keep more structural support and still get much higher payouts than at a wire.