Wealth Management
(Washington)
The US broker community is currently growing increasingly concerned about the SEC’s new “Regulation Best Interest”. On top of anger over the rules governing the use of titles, brokers have become increasingly worried about a part of the SEC rule which essentially mirrors the DOL’s best interest contract exemption (BICE). The problem is that there are rules governing conflicts of interest that are very similar to the DOL’s, such as brokers having to take steps to resolve conflicts, and minimize compensation incentives for certain products. According to one lawyer representing brokerages, “We believe the commission should replace the DOL rule-based preamble provisions on mitigation and elimination of conflicts with a simple principles-based statement”.
FINSUM: When the rule was first debuted, the general industry reaction was positive. However, the more everyone has dug into it, the more stringent the opposition has become.
(New York)
Anyone who owns or works for an RIA will probably be aware of the huge boom in M&A in the sector. There seem to be many willing buyers of RIAs at the moment and the acquisition terms for such deals have been getting increasingly sweet. However, within the apparent euphoria, make sure you don’t make a bad decision. For instance, some RIAs might be seeing offers with good valuations, but all in stock of the buyer. There have been a lot of unsolicited purchase offers, which may characterize “an unsophisticated, stupid buyer who is just trying to grab assets”, according to on managing partner at an RIA speaking at a Pershing industry conference. RIAs need to beware because “[Buyers] aren’t just overpaying but may also overpromise and not be able to deliver”.
FINSUM: We suppose the old mantra is best here— if it sounds too good to be true, it probably is.
(New York)
Ever since the Republican tax package was passed, along with its limitation on SALT deductions, there has been a lot of speculation that there might be a mass exodus of wealthy northeasterners to no-tax states like Florida. However, in practice that does not seem to be materializing. Financial advisors in New York and California say many clients are considering relocating, but in reality few are. A quote from Bloomberg explains why: “Wealth managers and tax lawyers say many of their (New York) clients are staying put after hearing about the scrupulous records they would have to keep to show they’ve really uprooted their lives and severed ties with their former states … and that it’s not as easy as just spending a few more days a month in a Florida vacation home”.
FINSUM: It is a very big lifestyle change to uproot one’s life in your 50s and 60s and move thousands of miles away purely for financial reasons. We suspect that there will only be a trickle here rather than a flood.
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(New York)
There have been a lot articles and discussion lately about the new cap on so-called SALT deductions (state and local taxes). Much of this conversation has been centered around wealthy New Yorkers and others in the northeast considering moving their primary residences to low-tax states like Florida. Well, if anecdotal evidence is worth anything, the conversation is just that, talk. The reason why? New York’s onerous tax collection department dives into credit card records, confirms doctor’s appointments, and does door to door checks to make sure you have really uprooted your life and left the state. Evidently, after speaking with the financial advisors and lawyers, many residents have decided to forget about moving, saying it is just too big a disruption.
FINSUM: This makes sense given how rigorous the tax inspectors are. Further, New York is probably going to find a way around this lack of SALT very soon, so it is not worth uprooting.
(Washington)
The SEC best interest rule has been facing a very tough time. All sides of the argument seem to be against it. Consumer protectionist groups hate the muddled and weak delineating between brokers and advisors, while the industry dislikes the strong rules on title use. Now, there is a new weak spot in the SEC’s approach. The SEC has decided to have “roundtables” with consumers to discern their level of understanding of the rule and get feedback. The move is unusual and the SEC has not disclosed who or how they will do it. All sides again hate this idea, with the head of the Consumer Federation of America saying “Asking investors whether they like the disclosures is virtually meaningless … That needs to be done by disclosure testing experts who know how to design the tests and interpret the results”.
FINSUM: It is very obvious that the SEC’s current poorly defined delineation between brokers and advisors is not going to be easy to understand for consumers. We suspect any kind of consumer testing will help them realize that, but this does seem to be a rather odd and opaque approach.
(New York)
Barron’s has run a new piece warning advisors that they need to keep an eye on some new and growing financial data software that clients are increasingly using. The services, offered by new and old companies like eMoney, SigFig, and Betterment, focus on financial data aggregation, or letting consumers see their full financial picture in one place. The article warns that investors need to stay abreast of these kind of developments to know how to keep their services one step ahead and not let their business be eaten by commoditizing technologies.
FINSUM: The wealth management landscape is changing rapidly, and given how much tasks that used to be very time-consuming have been revolutionized, it should now be second nature for advisors to constantly look over their shoulder to discern how they can continue to add value.