The SEC brought its first enforcement action this year for alleged violations of Reg BI, which requires that broker-dealers act in the best interest of their clients. The action came almost two years after Reg BI took effect. There are signs that there will be more Reg BI enforcement this year as the agency has issued subpoenas to dozens of broker-dealers. Toby Galloway, chair of the securities litigation and enforcement practice at Winstead PC stated, “They’ve got this rule that hasn’t been enforced a whole lot just yet. But they’re going to use it.” Reg BI isn’t the only enforcement action expected to take place this year. Communication technology and other issues are expected to see new enforcement actions in 2023. For example, several big banks were fined close to $2 billion in September for failing to monitor employees’ communications on messaging apps such as WhatsApp. Bloomberg News reported that the SEC’s probe into communication is expanding to other industry players such as asset managers. In addition, the agency is working to finalize new climate disclosure requirements for companies, while also looking for ways to bring litigation related to ESG issues under existing regulations.

Finsum:The SEC is expected to litigate more violations of Reg BI, communication technology, and ESG-related issues this year.

While many advisors are already making the move from wirehouses to RIAs and independent shops, recruiters expect that activity to pick up this year. That was the conclusion of a recent presentation put on by Fidelity which featured advisor recruiting professionals. The panel included Jodie Papike, president of Cross-Search, Ryan Shanks, co-founder and CEO of FA Match, and Louis Diamond, president of Diamond Consulting. The trio urged all advisory firms to review their recruiting and retention strategies this year, or “risk being left behind in a rapidly evolving and increasingly competitive industry.” Papike warned, “From my point of view as a recruiter, I can tell you that there are a lot of firms that are making massive missteps in how they are recruiting and retaining advisors. They have not kept up their service levels, and so, many advisors are feeling like they aren’t being supported or serviced at the level they need and expect.” This comes as a new report from Cerulli Associates indicated that many broker-dealers are finding it difficult to generate growth in advisor affiliations as independent firms become more popular among advisors. Advisors identified several challenges of operating at wirehouses, including insufficient staffing support, changes to compensation, and imposed minimums for new clients. The Fidelity panel predicted that the movement of advisors will continue to accelerate in the years ahead.

Finsum:According to three advisor recruiters and a new report from Cerulli Associates, advisors are unhappy at wirehouses due to insufficient staffing support, changes to compensation, and imposed minimums for new clients.

According to industry group Nareit, REITs are well-positioned to navigate economic and market uncertainty in 2023 due to strong operational performance and balance sheets. As part of their 2023 REIT Outlook, the firm wrote, “despite economic headwinds and weakness in valuations, equity REITs have proven to be quite resilient from an operational perspective, and it is clear that REITs are well-positioned for ongoing economic uncertainty in 2023.” The firm noted that data from the Nareit T-Tracker in the third quarter of 2022 highlighted solid year-over-year growth in funds from operations (FFO), net operating income (NOI), and same-store NOI. Quarterly FFO increased to $19.9 billion in the third quarter, a 14.9% increase from a year ago and an all-time high. While the pandemic took a toll on the operational performance of equity REITs, there’s no question that it has recovered and surpassed pre-pandemic levels. Nareit also noted how REITs historically perform during and after a recession. For example, REITs have historically outperformed private real estate during a recession and in the four quarters after a recession. REITs have also historically outperformed their equity market counterpart before, during, and after recessions.

Finsum:Based on Nareit's 2023 outlook, REITs are well-positioned to navigate market uncertainty and a potential recession due to strong operational performance.

Over the last few years, the housing market has clearly been a sellers’ market, with many buyers missing out on their dream homes. But that may be changing as the market starts to cool off. In fact, 2023 could mark a turning point according to some real estate analysts. For instance, Danielle Hale, chief economist for Realtor.com, recently wrote in her housing forecast, that “there will be more homes for sale, homes will likely take longer to sell, and buyers will not face the extreme competition that was commonplace over the past few years.” Matthew Speakman, senior economist for Zillow told MarketWatch in an email, that “competition has lessened and negotiating power is flowing from sellers to buyers. This means that in many cases, buyers don’t have to settle for the first house they can win a bid on, and inspection and finance contingencies are back on the table.” In addition, Fannie Mae, Freddie Mac, the National Association of Realtors, and the Mortgage Bankers Association all forecast some type of decline in mortgage rates next year, which would make it more affordable for buyers to secure mortgages. However, this doesn’t mean it will be a buyers’ market next year. Lisa Sturtevant, the chief economist for Bright MLS, warns that “even if buyers have more negotiating power than they had in 2021, it is still very much a seller’s market.”

Finsum:While 2023 is expected to be a better year for real estate buyers due to more inventory, less competition, and lower mortgage rates, it will still likely be a sellers’ market.

While there is a difference in opinions as to how much direct indexing will take market share away from ETFs, there is no doubt that the strategy is growing. In fact, personalized portfolios in general are starting to really take shape. A big reason for this is that volatility is expected to continue next year and many investors want more control over their portfolios. While direct indexing lets investors cherry-pick which stocks to buy in a benchmark index, Edward Jones recently announced that it is providing advisors with a new and more personalized investing model for clients using ETFs and mutual funds. According to documents filed at the SEC, the personalized research models will consider client specifics such as existing assets, potential capital gains and losses, and the characteristics of the overall portfolio. Edward Jones is initially introducing these models on a limited basis. According to Scott Smith, director of advice relationships at Cerulli Associates, the personalized research models exemplify an industry trend toward personalization. He stated, “We’re seeing this across the industry, from direct indexing, where you’re knocking out individual securities, to this, where you’re tilting the portfolio. It’s all about using scalable technology to offer better client solutions.”

Finsum:As part of the trend towards personalized portfolios, Edward Jones recently announced that it will offer personalized research models using mutual funds and ETFs.