(Washington)

Whereas the DOL’s first fiduciary rule was highly specific, the SEC’s new version of the best interest rule is anything but. The first version of the rule was reasonably vague, such as not defining “best interest”, but this new version is even more cloudy. For instance, industry players cannot agree if the rule is stronger or weaker than the last version. Some language has been removed that might make the rule seem weaker, but on the other hand, so much of it is constructed in a manner than tries to use context to make rules, that it is hard to tell. For instance, even the head of trade group Investment Adviser Association says that "People can look at this interpretation and select phrases that concern them or comfort them”.

FINSUM: The interesting thing here is that the SEC has deliberately taken the route of making the new rule implicit versus explicit. The whole methodology is designed around not defining things so that they cannot be worked around, but that makes the whole body itself up for interpretation.

(Hong Kong)

Hong Kong has erupted into full scale riots with over 1m people taking to the streets. Protesters are angry over a new measure that would allow mainland China to extradite accused criminals from Hong Kong to their courts, a measure which many in Hong Kong say is a clear violation of China’s agreement to leave Hong Kong’s freedoms in place for 50 years. The US has condemned the measure in serious terms, but the reality is that Hong Kong’s fate, and the US’ protection of the city-state, may become a pawn in the trade war, with the US government using it as an element to help it get a better deal.

FINSUM: This seems like one more way for Beijing to exert control on Hong Kong, and we dislike it as much as the protesters on the street. There has been a furious international backlash to the proposal, but it remains to be seen how it may impact the trade war. One more thing we think is important to note: there are 85,000 Americans living in Hong Kong.

(New York)

Markets sold off in a big way when new of the government’s antitrust push against the FANGS came out. The stocks lost $130 bn of value. However, the reaction may be overblown, with each stock needing to be assessed on its own merits, as the antitrust picture would look different for each of them. A managing partner at Andreesen Horowitz, one of Silicon Valley’s top venture capital firms, makes an interesting point, saying “The big challenge with these antitrust things is, it’s not obvious what the consumer harm is today”.

FINSUM: We think that point is very salient, as given the fact that it is hard to assert how consumers are being harmed, we expect the ultimate output of these investigations may be relatively light touch (such as a GDPR-like regulation).

(Washington)

Brokers around the country had a very positive reaction to the new version of the SEC’s Best Interest Rule which was approved last week. One of the reasons why, other than the generally light-touch direction of the regulation, is that the new rule seems to suggest that a broker can always be confident in putting money into an IRA when considering a rollover. However, the SEC has just warned brokers against this quick conclusion, saying they cannot short-circuit their analysis.

FINSUM: The way the new rule was structured seemed almost too good to be true for advisors as it appeared to heavily favor rollovers into IRAs. More analysis of the rule will be forthcoming over the next week.

(New York)

With all of the volatility of the last months, bond ETFs are taking on a new life. As an asset class, bond ETFs have surged in popularity in recent years as a much easier and cheaper way of accessing bond market liquidity. Recently, bond ETFs have seen their role morph. Whereas they have often been seen as a safe haven from periods of volatility, they are now being used as a risk management tool, says the head of iShares U.S. Wealth Advisory Product Consulting at BlackRock.

FINSUM: So many of the newer bond ETFs are designed to thrive in volatile markets, not just provide a low volatility safe haven. This means they are more of a proactive than reactive product.