(Washington)

2017 was a wild year for both the wealth management industry and for its most famous regulation—the fiduciary rule. But what will happen in 2018? The answer is a lot, and not all in the direction some might think. While the DOL rule does feel like it might be on its last legs given the long delay and SEC involvement in developing a new rule, there are some factors which might help it, or at least advance the fiduciary rule cause. For instance, industry buy-in of the rule, especially by big firms, is increasing as they realize it is more profitable to adhere because of higher revenues from fee-based accounts. Additionally, many states are working on their own rules, another factor likely to push federal rule-makers. Finally, the SEC may come out with its own universal rule this year.

FINSUM: We expect it to be another wild ride in the fiduciary saga this year. Our best bet is that the SEC will come close to making a rule this year, but that it will not be implemented until mid 2019.

(Seattle)

If you listen to the media, Amazon is a retail juggernaut posed to swallow just about every industry. The company has lived by Bezos’ famous mantra “your margin is my opportunity”, and has thrived by dominating commoditized low-margin businesses. However, the company has some inherent limits and part of what has made it so successful is that not every industry is an Amazon industry. In particular, one area of retail the company may not be able to crack is high-margin uncommoditized business. These are not its forte, and driving down costs and making such goods widely available is not what drives value. That is why many luxury brands, for instance luxury handbag makers, refuse to sell on Amazon.

FINSUM: We will not put anything past Amazon, especially in its home turf of retail, but the company has not done well in moving into luxury. So what.

(Washington)

The battle over client is heating up again. On one side stands the broker, and on the other, the firm. Who owns the client relationship? Both say they do. Some may have been wondering where FINRA stands on the issue. However, the regulator has just taken the easy way out, saying it has no stance on the question. FINRA says it is not involved in the broker protocol and takes no sides on the topic, though it does have arbitration rules to handle disputes. Brokers want a FINRA rule, or at least process on the issue, with one attorney saying “Finra needs to convene an industry conference to finally be able to decide on what’s a workable definition of who owns the customer … There’s got to be a better way of doing this than TROs and arbitration”.

FINSUM: The broker protocol seems likely to completely dissolve this year. Hopefully something workable will take its place, because the legal alternatives are not great for anyone (other than lawyers!).

(New York)

Call it a “silent killer”, but there is a big threat coming to US malls that many don’t see coming. While the big bout of retail bankruptcies in 2017 hit the industry hard, a less headline-grabbing, but more widespread issue might cause bigger issues in 2018. That issue is that smaller mall tenants are likely to simply not renew their leases. Smaller operators between the big anchor stores actually generate more revenue for malls, and a decrease in tenancy would be a big blow to mall revenue. Smaller operators are actually better indicators of retail health because their lease terms keep them on the lookout for greener pastures.

FINSUM: Mall REITs could be in for a rough time here. While little companies won’t get much press, this pending increase in vacancy rates could hit malls hard.

(New York)

While the economy seems to be innovating faster recently, nothing can match the pace of online retail, whose entire operating model has been completely overturned in about a half decade. Physical retail is being rethought and marketing is now primarily social media driven, two big changes. But what is next? Equity research analysts argue that voice orders through new devices like the Amazon echo will be key, as will better digesting customer data. More digitally-native brands will move into physical retail, which will be more about marketing and client experiences than it will about sales.

FINSUM: It will take some very astute investors to make money in retail at the moment as one has to have a sharp view about the development of the industry to pick winners (perhaps outside of buying Amazon or Walmart/Target).

(Washington)

Advisors need to pay very close attention to what states are doing on taxes. As might have been expected, states with high taxes are working hard to come up with solutions that protect their residents from the higher payouts trying to be imposed by the federal government. The new tax package limits state and local deductions (“SALT”) to just $10,000, which means much higher tax bills for residents of higher tax states. While New York is preparing to sue the federal government over the changes, California has already come up with what looks like a good solution. Residents of the state can simply donate to the “California Excellence Fund” instead pf paying taxes, as such a charitable gift is deductible in the new federal package.

FINSUM: New York may also use the same plan as California is using. All the states seem likely to do this. What a big waste of time and energy because of a silly rule.

(New York)

Barron’s has been getting increasingly bearish of late (with the Dow at 25,000 now, we can understand why!), and they have published a bearish article laying out the case for why a correction is looming. The argument has a lot to do with price action, and what the market is showing is that despite reaching a new high, it is coasting rather than gaining momentum. The last trading day of the year—a 118-point loss—was a worrying sign of slowing momentum, and many technical indicators now point to falling prices soon.

FINSUM: One key takeaway from this piece is that despite January being considered a good month for stocks, that is not the case in midterm election years.

(New York)

The stock market just finished a sensational year, capping what seems a one-in-a-lifetime nine-year run. However, there is something very surprising about this rally that is different than those in the past—more and more Americans are sitting it out because of fear. Since the start of 2012, nearly a trillion Dollars has been pulled from retail equity mutual funds (some went back in as ETFs). The market rose 116% over the same period. In the last three years, US stock funds (ETFs included) have seen net outflows each year.

FINSUM: The Financial Crisis left deep scars for investors all across the country, and the traumatic effects of it can be seen in the data.

(New York)

It is that time of the year again, and investors need to watch out. January is historically the top month for retail bankruptcies, and it seems likely there is going to be another cull this year. Last year saw a furious pace of retail bankruptcies, with more companies going bust than during the Great Recession. January is traditionally when most companies file, according to data going back to 1981.

FINSUM: Christmas sales were a little better than feared this year, so a couple of zombies might linger on longer than January, but this is certainly going to be another year of retail bankruptcies.

(Washington)

The last couple of years have seen a huge surge in the legal pot industry. More and more major states have made marijuana legal, which in turn has sparked a flurry of business to create a legal pot industry. However, doom and gloom may be about to settle into the young area as Jeff Sessions, Trump’s Attorney General, has now rescinded the Obama era policy that limited legal enforcement of federal marijuana laws in states where it was legal. The news hit the sector hard, with one of the main pot stock indexes down as much as 24% yesterday.

FINSUM: It is going to be hard for the federal government to enforce any national law when there is primarily only local law enforcement, but this could still cause some major disruptions to the young industry.