(Washington)

After the shock of the last rule and the relatively benign impact of the SEC’s Reg BI, most advisors are taking the new Fiduciary Rule from the DOL in stride. There has not been nearly the outpouring of upsettedness as the first time around. However, within the mostly mundane-seeming rule, there is some little-noticed language that could cause difficult issues, say compliance professionals. Specifically, in the preamble to the rule proposal, the DOL said it had changed how it interprets the old 1975 five-part test for fiduciary status. According to David Kaleda, principal, Groom Law Group, “So, this is another attempt by the DOL to state that, ‘Whatever you think advice may be, it may be more than that’ … Advisers and broker-dealers need to think about whether their day-to-day interactions are within the five-part test”.

FINSUM: This is another hidden surprise in this rule that could become much more complicated. It almost seems the DOL snuck some vague language into the current version of the rule in order to give themselves broader latitude for enforcement later on. This makes sense too, as it was the same approach the SEC used with Reg BI. Vague language makes it harder to find loopholes.

(New York)

The nature of financial advice needs to be constantly evolving to client needs. The industry is generally responsive to this, one need only look at the large growth of independence and fiduciaries since the Financial Crisis. One new direction clients are driving advisors towards is goals-based investing. The main idea is to invest a client’s assets with particular life goals in mind (and not just retirement!), and then report on the progress towards those goals over time. The aim is to empower clients to meet their objectives and make saving and investing feel less abstract. Asset managers are also getting on board. For instance, Franklin Templeton has just announced the launch of their new Goals Optimization Engine, which “provides investors with personalized investment paths for their unique goals, and allows financial professionals a scalable way to offer a differentiated investment solution and deepen client relationships”.

FINSUM: Getting into the behavioral psychology aspect of this, studies have shown that individuals often have a hard time saving now for gains in the future—the desire for instant gratification works against long-term interests. Therefore, by focusing on near- and long-term goals, you make saving less boring and abstract, which helps clients commit.

(New York)

When the pandemic first hit, recruiting slowed down, with less advisors moving firms. However, after a couple of months, things started to pick up. According to a TD Ameritrade survey, 40% of advisors now say they are more likely to move than they were before the pandemic. Only 15% say they are less likely. If one comment sums up the increased velocity of recruiting, it might be this, “Advisors are at home and working in an independent environment. That can cause them to question what they are paying for at their firm. ‘Do I need the overhead and management of the wirehouse? Am I doing alright without it now?”.

FINSUM: On top of the questioning of whether all the overheads associated with a wirehouse make sense when they are working from home, the other big thing driving moves is the simple fact that it is easier for recruiters to reach advisors when they aren’t in the office. This makes the whole courting and exploration period much simpler.

(New York)

The initial winners from the pandemic were sorted out long ago—FAAMG, Zoom etc. Investors are now trying to figure out who the winners will be over the potentially long next stage. The recovery may take several years and the economy is changing right before our eyes, so this is a time of great alpha capture if you can identify the next big trends. With that in mind, here are three stocks to look at: MercadoLibre, Ryan Air, and SAP. The first is like the Alibaba of Latin America. Their market cap is only $60bn versus Alibaba’s $800bn, and Latin America is roughly half the size of China (population-wise), so a $400 bn goal seems reasonable. It almost feels like investing in an early stage Amazon. Ryan Air is a best-of-breed European airline whose operating model and unit costs run circles around the competition. They will likely gain the most as airlines come back. Finally, SAP is a great cloud play. They are relatively new to the cloud game, but grew very quickly through acquisition, so as the market digests their new business line and WFH drives huge cloud growth, they should be in a position to benefit.

FINSUM: These seem like very refined and well-considered choices. MercadoLibre feels like the largest opportunity to us.

(New York)

A new survey by the Money Management Institute and AON has come up with some interesting findings as it relates to client satisfaction with their advisors. One of the most intriguing findings was that clients say they wished their advisors used more goals-based financial planning. Goals-based planning is the idea that you plan around clients’ individual life goals (e.g. saving enough money to pay for children’s college) and then continually report to clients how they are doing in those areas. Incorporating values into their financial planning is another area where clients say advisors could improve.

FINSUM: Many advisors already do this, but there is likely room for improvement, especially as it relates to reporting. Very few invest and save just for the sake of accumulation without a plan for their money, so reporting on the key areas they are making progress towards is a good step. There are even funds that specialize in helping aid goals-based investing.