(Washington)

Despite some minor discontent, generally speaking the broker-dealer industry has been very tolerant of the new Reg BI. However, those who have been working on compliance and counting their blessings that DOL Rule 1.0 didn’t come into full force could be in for a rude awakening. Many will be aware that Joe Biden is well ahead in national polls at the moment. Polling difficulties aside (of which there are many), the growing risk for the industry is that Biden wins and then quickly moves to cancel Reg BI and install a much stricter rule akin to the first iteration of the DOL Rule. If he were to win the White House and take Congress, he would have wide latitude to undue the current regulatory paradigm. Even without a Congressional win, he would very likely reappoint all the heads of key departments, like the SEC and DOL, which could have a strong effect.

FINSUM: Just as the industry was settling into what looked like it might be a permanent new regulatory environment, things could very messy again. If Trump wins, none of this happens, but given polls it is an increasingly likely possibility.

(New York)

One of the best ways to watch the damage to the economy is to monitor the performance of consumer debt. Auto loans, student loans and beyond give a clear indicator of the health of American finances. Right now, the data is looking bad, reinforcing why this might be a long and difficult recovery. According to the WSJ, “Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S … The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts.  Personal loans in deferment doubled to 1.3 million accounts.” The total of deferments is triple the number from the end of April. Lenders, who have generally been accommodative to this point with borrowers, expect delinquency to soar later this year.

FINSUM: You cannot have 50m people—roughly a third of the US workforce—lose their jobs and not have any repercussions. This is the kind of data that makes stock indexes look rather ludicrous right now.

(New York)

Godman Sachs has generally been underperforming its competitors for years. However, under the leadership of CEO David Solomon the future is looking increasingly bright. On the one hand, the bank’s bet that trading would return as a huge driver of revenue and profit is starting to look smart (though it took about a decade), but on the other, its new focus on consumer and commercial banking products seems wise. Marcus, the brand under which its consumer-facing high yield savings accounts for consumers and businesses is marketed, has been growing its user base, with Goldman Sachs more generally has entered into many partnership deals in the consumer space. These include a new card with Apple, and a small business lending program in partnership with Amazon.

FINSUM: Goldman has been trying to shed its clubby image, and so far it seems to be making all the right moves. We are bullish on the future.

(Washington)

The SEC issued a pretty stern warning (or reminder, depending on how you look at it) to brokers this week. SEC chairman Jay Clayton issued a very direct statement addressing broker-dealers and saying that they needed to take “special care” when making 401(k)/IRA rollovers because form CRS, as part of Reg BI, would cover such transactions. Clayton also emphasized that 401(k)/IRA rollovers are considered a primary feature of the rule, saying that it was one of the “most significant enhancements over the status quo … should be approached with care”. He concluded “Firms should recognize that these recommendations are subject to Reg BI and ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, as appropriate”.

FINSUM: Just in case anyone wasn’t clear, the SEC just made it abundantly obvious that there is no wiggle room here. The most interesting thing to us in this statement is how he seemed to indicate this will be the key focus of the SEC (which will likely be reflected in enforcement).

(New York)

Morgan Stanley made a bold call this week. Their research team has officially adopted what seems like a fairly risky position on the economic recovery: they are saying it will be of the much sought after v-shape. The bank has been calling for a short and sharp recession for some time, but this is the most optimistic outlook they have published. According to Morgan Stanley’s chief economist, “Recent upside surprises in the incoming growth data and policy action have increased our confidence that this will be a deep V-shaped recession”.

FINSUM: We still don’t think this is going to be a v-shaped recovery. More like a U-shape or more likely a Nike swoosh shape. The depth of firings combined with the probable corresponding slow pace of consumer spending will hold back the pace of the recovery.