Wealth Management
(New York)
WealthManagement.com has run an interesting article about the role of technology in our industry. Authored by Adam Malamed, former COO of Ladenburg Thalmann, the piece discusses how technology should be employed in wealth management, and what has separated successful from unsuccessful technologies. Adam makes the point that while new technologies may be nice in themselves, they are useless unless they fulfil a real market need, which is why so many previously hyped technologies have gone bust (e.g. facial recognition tech for client pitches). Furthermore, the industry itself has been experiencing heavy margin compression, and therefore wealth tech companies need to find ways to simultaneously increase operating margins while also improving client experience. One great example the article makes is Docusign, which made document execution immensely simpler, while also reducing the costs of
processing paperwork. It is a win for clients and for firms.
FINSUM: We couldn’t agree more with this view. Change in our space is by its very nature evolutionary. Clients don’t want to take risks on new tech with capital that took them fifty years to earn, and therefore, many wealth management firms are reticent to adopt “disruptive” new technologies.
(Washington)
The SEC just made its first big move to tighten regulations ahead of Biden’s inauguration. While the SEC did clarify digital marketing rules a couple of weeks ago, that shift was largely welcomed as the previous guidelines were vague and very outdated. The big change this week is that the SEC is beefing up its Reg BI compliance program. Specifically, it is scaling up its testing program to make sure firms are complying with Reg BI. According to a note from the SEC, “Division staff has assessed the results of its initial Regulation Best Interest examinations and now that approximately six months have passed since the Regulation Best Interest compliance date, the Division intends to begin its next phase by conducting more focused examinations … beginning in January 2021”.
FINSUM: Enforcement of Reg BI has been pretty lax to date, but this feels like a new phase is beginning. Most insiders in the business think the Biden administration’s approach will be to intensify Reg BI enforcement rather than write a new rule, so this step makes logical sense within that.
(New York)
Fixed index annuities are a relative newcomer to the annuities industry. For those unfamiliar, fixed index annuities offer some upside from markets, while also putting in a floor on losses. Their sales have surged lately. While volatility from COVID was a strong tailwind for fixed index annuity sales, the other big factor has to do with interest rates. Diversifying holdings into fixed income yields next to nothing, and does not currently offer the de-risking that investors have long sought it for. Couple that reality with the huge mass of Baby Boomers entering retirement and it is clear why fixed index annuities are so sensible right now.
FINSUM: Fixed income just isn’t offering the traditional risk hedge versus equities that it long has. That makes fixed index annuities—with their loss floors and upside participation—the natural replacement.
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(New York)
2020 was a rollercoaster of a year and not just in financial markets. It was quite a wild year in recruiting as well. When the pandemic hit, advisor movement dropped off to a trickle, but in the summer it started to come back and was roaring in the second half of the year. 2021 seems like it will be much the same. Both large IBDs and RIAs are looking to increase recruiting efforts, and offer packages for jumping ship have been getting larger. Commonwealth, for instance is planning a major recruiting push this year, which builds on other big efforts from Fidelity and LPL.
FINSUM: This definitely feels like an advisor’s market for moves. Firms are hungry to recruit and advisors seem to have the upper hand in negotiations.
(Washington)
As of last Wednesday, Trump-appointed SEC chief Jay Clayton has departed, with an interim head now in place. That means the Trump era is effectively over at the agency. It is now Biden’s turn to take the reins, and according to industry experts, that likely means two big changes. The first is the type of SEC chief he will choose, and the second is the nature of Reg BI. On the chairperson front, it is rumored that Biden with choose Preet Bharara, a former prosecutor, which would be more in line with Obama era chief Mary Jo White. This would be a departure from Clayton, who is also a lawyer, but worked on behalf of corporate clients. Secondly, the nature of Reg BI would likely change in substantial ways. “Best interest” seems very likely to be defined under Biden; and additionally, enforcement efforts will likely be stepped up considerably versus the status quo.
FINSUM: Our instinct is the SEC is going to be a totally different animal under Biden, as a definition of “best interest” and rigorous enforcement efforts would significantly change the general wealth management regulatory environment. Plus, a prosecutor as head of the SEC sort of says everything you need to know what about what the enforcement regime might look like.
(Washington)
Sneaking in right after Christmas and just before a change of administration, the SEC has announced an important rule change that affects all advisors. In particular, the SEC has updated a rule that has not been touched in decades and was increasingly out of touch with reality. The change has to do with marketing communications, particularly those through internet channels. According to Barron’s, “The new regulation also allows financial advisors to use testimonials, endorsements, and third-party ratings to woo potential clients, as long as they meet certain conditions”. SEC chief Jay Clayton commented that “The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology. This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors”.
FINSUM: Advisors have had to tread very lightly in digital communications/advertising for years because of a high degree of uncertainty about what was permissible. This goes a long way towards making that very clear.