Wealth Management
(Washington)
Advisors have been waiting with their fingers crossed in the hopes that the DOL rule might be done away with, and in its place, a new SEC rule installed. Well, it looks like a positive outcome might be on the cards. The SEC and DOL have been working on a joint rule for a few months and now it appears the new more harmonious fiduciary rule will debut this fall. Now the caveat to this news is that these are estimated dates based on various procedural deadlines, such as the DOL’s delay expiring in summer 2019, but experts in the space agree.
FINSUM: We think the SEC and DOL will debut a rule this fall for comment, probably in late fall, and then try to implement everything by July 2019. Stay tuned.
(New York)
Advisors all over the country got a lot of worried phone calls yesterday. Clients are understandably anxious about the mammoth losses over the last week, all punctuated by an almost 5% fall in the Dow yesterday. One advisor from LA says that “We’re reminding them that we knew this was going to happen and that we’ve been planning for it”. Other advisors are reminding their clients that the economy looks strong and that we are not headed into a recession. One Wells Fargo advisor makes a note that looks negative for stocks, saying “A 10-year Treasury yield above 3% would be reasonable competition for equities, and I would be able to replace fixed income maturities with higher yields for the first time in a decade”.
FINSUM: We think this a healthy correction, but that the market will likely continue to move higher. There is nothing fundamentally wrong with the economy, and once the market realizes that higher rates won’t kill stocks, things will get back to normal. However, this maelstrom is a very healthy recognition of risk.
(New York)
For years the big fear across the wealth management industry was that robo advisors would steal clients for human advisors and eventually leave the latter jobless. However, several years of evidence shows that is not actually what is happening. First of all, it is not Millennials which are the biggest consumers of robo services, rather it is baby boomers. For instance, Vanguard reports that 85% of those enrolled in its robo are over the age of 50. Even at Merrill’s Edge platform, the percentage is 45%. Additionally, the ~$200 bn that has been brought under management by robos does not seem to have migrated out of human-advised accounts, but rather is new money coming into the industry, representing pure growth.
FINSUM: While the threat of robos has been lessening over the last couple of years, this is downright positive news. Rather than eating away at human advisors, robos seem likely to actually bring more capital to the table.
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(Washington)
Advisors need to be aware and involved, say some of the top names in the industry, because the fiduciary rule is headed in directions that nobody wanted. While the DOL rule was far from perfect, what is in the works is worse—a patchwork of dozens of individual state rules set to fragment the US wealth management market. The SEC is working on a harmonized rule, but according to the CEO of Cetera, “If you are not actively engaged in that discussion with the regulators, then you are not fulfilling your obligations to this profession. You should be getting everyone you know, every advisor you know, to be a good citizen”.
FINSUM: We don’t now how much any individual advisor can do to affect the outcome of the fiduciary rule saga, but suffice it to say that things are quite dicey right now and every little bit helps.
(New York)
ETFs have been the dominant investing trend for the last half decade or so, eating away at mutual funds’ grip. However, what will be the next major investing trend? The answer may have just debuted. Orion Advisor Services has just announced a new product called ASTRO (Advisor Strategy & Tax Return Optimization tool). ASTRO “allows advisors to build tax-efficient SMA portfolios that can take into account clients’ environmental, societal and governmental concerns”, according to Michael Kitces, who says that the new technology is a threat to asset management and could prove highly disruptive, as it would allow better loss harvesting and more tax-sensitive liquidations in retirement. The system would allow advisors to “buy, own and manage a portfolio of all the underlying individual investments directly”.
FINSUM: This sounds like it could be a very potent offering, but we do not expect ETFs do go away any time soon.
(New York)
If you need some more information to understand why the big wirehouses are trying to pull out of the broker protocol, this is it. In 2017, independent broker-dealers snagged 118 wirehouse teams and took almost $28 bn in AUM, up 23% from 2016. The success comes as independents have closed the technology and product gaps with larger rivals, and IPO allotments have become scarce at wirehouses.
FINSUM: Wirehouses are generally growing fearful and are trying to throw up hurdles that keep brokers from breaking away. Hence the pullout from the broker protocol.