(Washington)

The Department of Labor has just clarified one of the major uncertainties surrounding the current iteration of the fiduciary rule, and the news is not good for advisors. The DOL now clearly states that any invest recommendations that would occur post rollover are directly akin to recommending the rollover itself. NAPA Net summarized the changed, which was clarified by Tim Hauser at the DOL (Deputy Assistant Secretary for National Office Operations at the Department of Labor’s Employee Benefits Security Administration) this way: “Suggesting investments that could occur after a rollover is tantamount to recommending a rollover, and if it meets the rest of the five-part test will constitute fiduciary advice, regardless of how it’s phrased. It doesn’t require the ‘magic words’”.

FINSUM: This is a response to some clever drafting that firms were trying to use to get around the “rollovers are fiduciary advice” mandate. Very important development.

(Washington)

We will be the first to admit we were wrong (at least partially). When the infrastructure bill passed without any of Biden’s proposed tax increases it seemed like we might be in the clear for the rest of 2021. While this newest “death knell” proposal likely won’t be finalized in calendar year 2021, we definitely spoke too soon. Biden’s new $3.5 spending package includes all the tax proposals advisors dreaded: like higher long-term capital gains taxes and the elimination of basis “step-up” in inheritance. FINSUM: The “death tax” of the elimination in “basis step-up” is very real as it means that unrealized gains accumulated over the course of a lifetime suddenly become taxable to the next generation. Chuck Grassley, US Senator from Iowa, has jut written a very informative piece about this particular tax idea and its damaging legacy in the US heartland. Find that here.

(New York)

Any seasoned market veteran will tell you that today’s hottest thing might very well turn into the epicenter of tomorrow’s crisis. Tech stocks led to the Dotcom crash, structured credit led to the Financial Crisis. Now ask yourself, what is the hottest product of the moment? The answer is simple: ESG stocks. ESG is nebulous as an asset class since it crosses many boundaries, but in reality, a lot of the new ESG AUM has flowed directly into large cap tech stocks. This means that a lot of the buying going on in large cap tech is just de facto ESG buying.

FINSUM: ESG is a surging category and a lot of Dollars are flowing in. Since the term and its actual meaning are still vague, a lot of the money flows into tech, which is almost universally seen as ESG friendly. When might the music stop?

(New York)

Going independent is a huge choice. Not only do you have client risk, income risk etc, but one of the big underappreciated challenges is simply getting paid. Once you are truly running your own business, cash flow on a consistent basis is absolutely critical, which is why you need to have flexible and reliable billing software which can help you collect fees in a compliant way.

FINSUM: You need to have your tech stack solid as rock when going independent and collecting payment in a compliant way is beyond critical. Make sure to investigate the options!

(Boston)

Fidelity is making a renewed push into model portfolios. After launching its first model portfolios in 2018, the firm has realized that RIAs and BDs want different types of models. RIAs use models to a great degree, but don’t tend to put a whole lot of assets in them. Fidelity realized it needed to optimize its approach. According to Suzanne Daly, Fidelity’s VP of model portfolio distribution, “RIA growth is really accelerating, and in a different manner [than IBDs] … [They are] looking to blend equity and fixed income models to build a more personalized fully asset allocated unified managed accounts (UMA) model”.

FINSUM: This makes a lot of sense. RIAs used to balk at the 25 bp fee for UMAs (which goes on top of the underlying management fees), but they have recently been coming around.