Wealth Management
(New York)
Barron’s has run a new piece warning advisors that they need to keep an eye on some new and growing financial data software that clients are increasingly using. The services, offered by new and old companies like eMoney, SigFig, and Betterment, focus on financial data aggregation, or letting consumers see their full financial picture in one place. The article warns that investors need to stay abreast of these kind of developments to know how to keep their services one step ahead and not let their business be eaten by commoditizing technologies.
FINSUM: The wealth management landscape is changing rapidly, and given how much tasks that used to be very time-consuming have been revolutionized, it should now be second nature for advisors to constantly look over their shoulder to discern how they can continue to add value.
(New York)
In what certainly seems to be a sign of health for the industry, RIA average account sizes just hit a new high. The average client at a US RIA now has an account averaging $2m (at firms with over $250m in AUM). This is the first time the figure has ever crossed the $2m threshold. Median AUM for firms grew over 16% in 2017, with average revenue increasing to $3.6m. The stats come from an annual Charles Schwab survey, with the firm saying about the healthy results “Firms are fueling their organic growth by differentiating and marketing their value propositions, improving the client experience and strategically expanding their service offerings to meet the needs of their ideal clients”.
FINSUM: The fiduciary duty of RIAs seems to be a differentiated and continued source of new client demand. It is a testament to the quality of RIAs in this country.
(New York)
The media is reacting very strongly to a new move by Morningstar. The legendary fund rating company has just taken the somewhat surprising move of replacing outside funds with some of its own in its “managed portfolio service”, which allows financial advisors to outsource investment decisions to Morningstar. It will now rely on its own funds as the building blocks of those portfolios. Its own funds will be scored by the company itself, but it says an algorithm will do this. The company’s CIO says “We have structures in place to make sure [investment management] is at arm’s length from research. There is structural separation of research and investment management”.
FINSUM: We think this is a ridiculous conflict of interest, made even sillier by the fact that Morningstar acts like an algorithm is any less biased than a human rating system. As if Morningstar did not write the algorithm in the first place…
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(Washington)
Everyday it seems less likely that the current SEC best interest rule, “Regulation best interest”, will make it through to implementation in anything near its current form. Not only has the industry complained about its governing of titles, but many say the rule’s complex grouping-but-delineation between brokers and advisors just doesn’t make sense. Now, the group of advocates that succeeded in bringing down the DOL’s fiduciary rule have officially turned their sights on the SEC rule. The group, called NAIFA, says it supports a best interest standard, but vehemently protests the restriction on the use of titles.
FINSUM: We commiserate with the SEC because we understand the logic they used to make this rule, but we do feel the current iteration is doomed.
(New York)
Pensions have been on a long and miserable path since the Financial Crisis. They have been chronically underfunded and suffered from poor returns, but after a weak decade, there is finally some good news. That news is that interest rates are up, which means that US corporate pension plans are now 92.8% funded versus 87.6% funded at the beginning of the year. The shift is almost entirely because of changes in yields. Higher yields make it easier for pension funds to meet their future cash needs.
FINSUM: Higher interest rates will be better for all retirees, and it is good that pensions are finally catching a break. One wonders if we are approaching a sweet spot in rates where mortgages remain affordable, but yields are high enough to satisfy pensions and retirees.
(New York)
Goldman Sachs says it has a new wealth management strategy, and it has to be one of the oldest and simplest ideas in the book. The bank is trying to aggressively grow its wealth business, and wants to increase revenue there by $1 bn in the next three years. Its big plan for doing so: get the money it makes for founders through its investment banking business to stay at the firm in its wealth management arm. One of the bank’s top wealth management managers says that there is no formal requirement for founders to do so, but “it’s obviously a very positive introduction”.
FINSUM: A very good strategy indeed, but then again, that is an incredibly narrow segment of clients!