Wealth Management
(Washington)
Advisors have recently been feeling relieved about the fifth circuit court ruling that struck down the DOL’s version of the fiduciary rule. However, it may not be time to jump for joy yet. The fifth circuit is supposed to issue a mandate which vacates the rule, which takes it out of force. It is unclear why the fifth circuit court has not done so yet, but it is starting to make the industry nervous.
FINSUM: Most say the court simply has not gotten around to issuing the mandate yet, but that seems odd given it has been two months since the verdict. The next date to watch is May 16th, as that is the deadline for states and other entities to apply for appeals to the ruling.
(New York)
There is a lot of scuttlebutt in the wealth management industry about fee compression. The narrative is that there is much price competition across the industry and investment advisors are having to cut their fees and add services to stay relevant. Well, the reality is fees are actually moving higher. According to a new survey from FinancialAdvisor, many advisors are actually hiking fees between 10 to 25 basis points. The finding adds to another survey from Pershing which found that 84% of advisors had not changed fees in 2017, and those that did had hiked rather than cutting.
FINSUM: This is a very healthy sign for the industry, especially given the fee war going on in ETFs and the asset management industry.
(Washington)
The saga of the fiduciary rule seems to be never ending. Odysseas had an easier time. Now, just when things were starting to look clear—the DOL rule is effectively gone and the SEC has proposed a new one—everything is murky again. A senior figure, Michael Piwowar, at the SEC has just resigned. According to InvestmentNews, “Mr. Piwowar’s departure could significantly delay a rulemaking that already was projected to last for months — or make it impossible to complete”. Piwowar was a major ally of SEC chief Clayton, and now there are an equal number of Democrats to Republicans on the SEC commission. Trump could try to replace Piwowar and Democrat Kara Stein (whose term has lapsed) all at once, but the Senate would need to fast track approval.
FINSUM: Even if everything gets fast-tracked by Trump, the Senate needs to get the approval done, and that very well may not happen soon, especially because the Democrats might take the Senate back.
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(New York)
The industry has been talking about it for years, but now it appears to be happening in earnest—advisors are finally targeting younger clients in force. While Baby Boomers dominate the industry’s AUM right now, 42% of firms say they are actively changing their marketing and networking to attract Gen Xers and Millennials. TD Ameritrade comments that “In just five years, RIAs expect 41% of their clients to be Gen Xers or millennials. This should be a wake up call to those who think that Next Gen wealth is literally still a generation away”.
FINSUM: The tide is really starting to shift and it is going to happen faster and faster over the next few years as Baby Boomers age and the wealth of the young grows.
(Washington)
One of the senior-most figures at the SEC, Michael Piwowar, who has been a commissioner for five years, has just announced he will step down from his post after July 7th. The resignation has massive implications for advisors because Piwowar has been a strong opponent of the DOL version of the fiduciary rule and has generally been very pro de-regulation. His stepping down will leave just four commissioners active, two of whom are Democrats. This means the new SEC version of the fiduciary rule, universally seen as more accommodating to the industry, might have some severe difficulties in getting approved, as the Democrats are likely to vote against its implementation.
FINSUM: So in order to alleviate this risk, the White House and Senate would need to move quickly to nominate and approve a new commissioner/s. Nonetheless, this remains a major risk.
(Washington)
The DOL made an announcement yesterday, telling the industry that it would temporarily suspend enforcement action of various parts of its fiduciary rule. The department said it “will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules”.
FINSUM: This was largely expected given the DOL’s loss in the fifth circuit court, but evidently the wording of it came as a surprise.