Wealth Management
(Washington)
The Trump-era SEC is really starting to make itself felt. Not only has the SEC come out with a lighter touch “best interest” rule, but financial fines have been plummeting. In the six months from October to March, the SEC handed out $102m in fines, 93% lower than the year prior, and the lowest amount in at least 12 years. The total number of cases also fell by a quarter. The largest fine so far under SEC head Jay Clayton was $14m, tiny compared to the $415m fine levied against BAML under former SEC head Mary Jo White.
FINSUM: Financiers had been hoping that we were entering a regulatory-light era under Trump. It really seems to be materializing.
(Washington)
Advisors all over the country are wondering when the SEC rule might be implemented. The DOL’s fiduciary rule took ages to be a reality (and never quite made it), but the SEC rule seems like it will be faster. But how fast? Realistically, probably one year from now, according to one industry expert. BNY Mellon Pershing urges advisors to stay engaged and not catch “fiduciary rule fatigue”. “We still have an opportunity to shape the fiduciary landscape … It's really important that we don't grow weary of the standard of care issue, because we have an opportunity to take the lead”.
FINSUM: A year sounds reasonable. The rule is only in its first iteration now, and we suspect there will be significant changes.
(New York)
Don’t worry, this is a not a story about DOL rule resurrection. The rule remains all-but-dead. This article is about how despite the rule being effectively gone, it has succeeded in completely changing the industry. The famed Michael Kitces summarized the DOL rule’s effect this way, saying “The DOL fiduciary rule really made the discussion of fiduciary for consumers mainstream … You can’t un-ring that bell”. Barron’s focuses on the material changes to offerings in their view, saying “The short-lived standard spurred the industry to lower fees, and prompted brokerages to prune their product lineups and remove conflicts of interest from their compensation structures. These changes are expected to outlive the rule”.
FINSUM: The DOL rule may be gone, but it will certainly never be forgotten.
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(New York)
Most advisors will be familiar with CITs, or collective investment trusts, but outside of wealth management, they are little discussed. Therefore, it may be interesting to learn that the industry has been growing strongly and is approaching $3 tn. A lot of the growth has been through 401(k) sponsors adding CITs to their menus. However, the products may have benefits for many, as they essentially use a mutual fund structure, but have significantly lower fees and distribution costs because they are not subject to SEC rules. According to one money manager, “CITs have always been an option for the retirement market, but once a manager sees that they can offer a CIT cost-effectively, it’s a no-brainer”.
FINSUM: This seems like a poorly understood, but potentially value option for many.
(Washington)
The DOL rule took years, seemingly millennia, to be completely worked out (and it still wasn’t good ha), and many advisors are wondering how long it might take the SEC to get to a final iteration of its pseudo-fiduciary rule. Well, the SEC has not laid out a formal schedule yet, but SEC chief Clayton said this week that he will make sure the SEC is “not going to take forever”. Many have called for the SEC to extend the comment period on the new rule past its August 7th closing date, but the SEC has not said whether it will do so.
FINSUM: We are pleased with how quickly the SEC got its first iteration of its new rule out. We hope they keep the pace up to eliminate all the regulatory limbo in which the industry might find itself.
(New York)
Think about the financial advisor as you conceive it: an entrepreneurial professional driven by an eat-what-you-kill paradigm. For decades that has been the model, but it appears to be changing quickly. In what Barron’s calls the rise of the “advisor zombie”, many advisors are being moved to basic salary and bonus models. Since firms are exiting the broker protocol, it is becoming easier for them to lock advisors in place, and thus constrain their pay, leaving more margin for firms. The model attempts to make clients loyal to firms rather than advisors, much like a branch banker.
FINSUM: This is certainly a dystopian viewpoint, but if you take a look at changes going on in the industry, it looks like a pretty reasonable view.