Wealth Management
(New York)
Fidelity, one of the largest US wealth managers, is shaking up its fees, and not just in small pockets of the business. The company is moving to a single unified fee schedule that works entirely by how much assets under management a client has with Fidelity. Existing clients will have their fees frozen so as to avoid paying more, but for many, services will cost less than before, while in certain areas they will cost more. Fidelity is also cutting the cost of its robo advisor to 0.35%.
FINSUM: This is happening across the industry, and this sort of move was led by Merrill in 2016. Nonetheless, it is a pretty significant change.
(New York)
Can you remember any technology (maybe since the internet) that has had as much hype as artificial intelligence? Blockchain and Bitcoin come close, but other than that we cannot think of one. That said, advisors may be wondering how it is going to affect them. Well, Barron’s has published a long piece looking at how the technology will impact everything in wealth and asset management. Everything from portfolio optimization, to trade execution, to loss harvesting is being looked at through the lens of AI. Even securities selection itself is having AI applied to it through a number of techniques that all harvest big data on stocks.
FINSUM: AI has a lot of promise, not just hype. And from looking at how it might impact the sector, we don’t think the effects are going to be detrimental to human advisors, at least not in a major way.
(New York)
UBS has just launched its own robo advisor, which means that every wirehouse now has their own robo service. UBS’ new service caters to client with under $250,000 in their portfolio. The robo provides “risk assessment, online enrollment, regular monitoring for rebalancing, tax-loss harvesting functionality, and ongoing professional portfolio management aligned with UBS GWM CIO capital markets assumptions”. UBS joins Merrill Lynch’s robo launch a year ago, as well as Wells Fargo and Morgan Stanley’s platforms.
FINSUM: After all the fear and anxiety, robo advisors seem to have found a comfortable niche alongside human advice.
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(New York)
Advisors pay attention. For the last two years, many firms, large and small, have been been moving their clients into fee-based accounts. This mostly started as a response to the fiduciary rule, but had the side benefit of driving more revenue for advisors. However, a new lawsuit against Edward Jones says that doing say may violate reverse churning rules. The case could expose all firms that have undertaken the same practice. Consumer Federation of America head Barbara Roper commented that “We have heard persistent reports that this is happening at a number of firms, and I have heard that from sources I consider reliable”.
FINSUM: This is a tough situation for firms. On the one hand you are being subjected to new rules and guidance saying fee-based accounts are better and safer, but because you are moving to such a model (many big brokers almost did away with commission based accounts), you are being subjected to claims of reverse churning. What a mess.
(New York)
One of the big developments in the wealth management industry right now is the big increase in recruitment spending by large independent broker-dealers. Even as wirehouses are cutting back on spending, big independents like LPL, Commonwealth, and Raymond James, are spending big on new talent. The payouts are usually being given in the form of forgivable loans. The spending on such payouts has been large, with LPL increasing its budgets for such items to $159.9m in 2017, 17% higher than the year prior.
FINSUM: So while wirehouses have been cutting back, independents have been heating up.
(Washington)
The fiduciary rule has suffered many blows over the last several months, none stronger than in the 5th circuit court in March. However, despite all the doom and gloom over the rule, there is still a good chance it will hold up. The 5th circuit court was the first circuit court to come in against the rule, which paves the way for the Supreme Court to hear the case (impossible to predict the outcome there). Furthermore, the courts may let an outside party step in and take up the DOL’s right of appeal on the recent 5th circuit court ruling, all of which means the rule is far from gone.
FINSUM: We do not think fiduciary rule advocates are going to give up this easily, especially because there is still a lot of legal recourse available to them.