(Washington)

Beto O’Rourke, long expected to step into the race for the Democratic bid, has finally announced he will. The young Texan lost a close race to Ted Cruz in Texas in November, but is aiming to ride his surge in popularity to the White House. Unlike many other contenders from the Democratic party, he is more of a centrist, not adopting the now-common socialist platform. Commenting on his candidacy, Beto says “The challenges that we face right now, the interconnected crises in our economy, our democracy and our climate have never been greater. They will either consume us, or they will afford us the greatest opportunity to unleash the genius of the United States of America”.

FINSUM: Outside of maybe Bernie Sanders, we think Beto is the biggest contender to Trump because he may be able to simultaneously get voters on the far left and some of Trump’s more centrist supporters.

(New York)

Well, it has finally happened, but not as anyone expected. The whole industry has been watching for the first zero fee ETF, which just happened with SoFi, but now they are getting the first negative fee ETF. While zero fee index mutual funds debuted last year, ETFs only just got there, until the debut of the SALT Financial Low TruBeta US Market ETF. For every $10,000 invested in the new fund, the issuer will pay you $5. However, as you may have expected, there is a catch. The catch is that once the fund gets over $100m in AUM, its regular fee of 0.29% kicks in.

FINSUM: This is nothing more than a sales gimmick (and they haven’t even structured it well). However, it is indicative of the trend things are heading in.

(New York)

Morgan Stanley just put a big threat on the table, and they are not alone. The bank says that it may withdraw wealth management services entirely from states considering new fiduciary rules, such as Nevada. Wells Fargo issued a similar threat. A number of states, including Nevada, New York, New Jersey, and Maryland, are considering making their own fiduciary rules. Such rules would be a major headache to the brokerage industry as they would create patchwork rules across the country. Morgan Stanley said bluntly “Absent substantial changes to the [state] proposal, Morgan Stanley will be unable to provide brokerage services to residents of the state of Nevada”. Edward Jones, TDA, and Charles Schwab also said they would need to at least pair back offerings.

FINSUM: This is a strong move by the brokerage industry but we do not think it will work. The political mood in the states mean lawmakers would rather say “good riddance” than back off, but time will tell.

(New York)

If you are of the opinion that rates are not going to move higher, or if just want some great yields and aren’t too worried about rates, take a look at mortgage REIT ETFs. Mortgage REITs are a special subsector of the REIT industry, and have recently become greatly more accessible because of ETFs. For instance, consider the iShares Mortgage Real Estate ETF (REM). The fund has a 30-day SEC yield of 9.36%. It is obviously rate sensitive, but even during last year’s brutal hiking cycle, it only lost 3.75%.

FINSUM: If the Fed stays put this year, which it likely will, these could be a great investment as we head into a downward rate cycle.

(New York)
“Cross-selling” has been the name of the game at Bank of America Merrill Lynch for years, but Merrill is about to take the idea to new heights. Partnering with BofA, the Thundering Herd is now offering mortgage discounts of up to half a percentage point to clients if they bring more of their business to the brokerage or the bank. According to Barron’s “Merrill is testing the rate reductions in California, Oregon, Washington, New York, New Jersey, Connecticut and Florida. The 50-basis-point reduction is available to clients with $500,000 in deposits or investments to qualify for the half a percent mortgage reduction.”

FINSUM: This could be a considerable competitive advantage for luring clients away from other brokerages. We expect Wells Fargo will follow suit, but it will be harder for Morgan Stanley and UBS to do so.