Wealth Management
(Washington)
So at first the recent court ruling against the fiduciary rule looked like good news for the industry. A court had finally ruled against the rule, which seemed to be a sign that it would never fully be implemented, while also raising the odds it would be reviewed by the Supreme Court. However, Barron’s says that the ruling may have a perversely negative effect as it may cause the SEC to re-examine its efforts at drafting a fiduciary rule. According to the Investment Adviser Association, the ruling “is likely to give pause to the SEC with regard to its own fiduciary rulemaking”.
FINSUM: The SEC likely won’t want to get involved in a protracted legal process over whatever rule it proposes, so it may continue what it has done 2010 with regards to the fiduciary topic—nothing.
(Washington)
The scandal for Wells Fargo’s wealth management division is deepening. The bank has already experienced major reputational damage following its checking account scandal, and now the US Department of Justice is investigating the wealth management division’s alleged misconduct. The move is part of an extension of the investigation into the retail banking misconduct, and the FBI is reportedly holding interviews in the Phoenix area. Earlier this month the bank disclosed its own independent review of its wealth management unit included “whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company’s investment and fiduciary services business”.
FINSUM: This scandal looks like it is going to keep moving deeper and deeper. We wonder how much damage this might ultimately have on Wells Advisors’ own businesses. This seems like a situation where advisors might be seen by clients as guilty by association.
(Washington)
If the fiduciary rule was on its last legs before, it is really in trouble now. The DOL’s rule suffered its first significant court defeat this week. A US circuit court struck down the rule, saying it was too broad and “unreasonable”. The court found fault with the government’s broadened definition of what constitutes financial advice and who gives it. The loss means circuit courts have split on the fiduciary rule and it now appears likely the Supreme Court will take up the case.
FINSUM: This is a major blow to the fiduciary rule, and may help usher an even quicker departure for it. It will certainly give the DOL more ground to shift to a new rule co-drafted with the SEC.
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(New York)
It as another solid year for RIA M&A. Just as in 2016, there was strong deal flow, and the number of transactions closed was exactly the same in 2017 as the year prior. That said, deal size and total AUM declined. The first half of 2017 was significantly stronger than the second half, with the majority of the year’s 94 deals getting done in the first half. TD Ameritrade says distraction from tax reform in the second half of the year was partly to blame for the decline in momentum. Total AUM acquired was $106 bn, and the average transaction size was $1.13 bn.
FINSUM: These look like pretty pretty strong numbers to us. The market still seems to be ripe for further consolidation.
(New York)
Advisors need to be very mindful of an old regulation that is taking on new relevance in light of the fiduciary rule. While the DOL’s rule may not be fully enacted, one concept it adopted, which is based on precedent from the ERISA and IRS codes, could be a thorn in the side of advisors. That concept is “reasonable compensation limits”, and is of particular concern to high earning advisors as they will need to look hard at the services they provide and come up with justifications for their pricing. According to a top industry lawyer, this rule will not be undone by a new SEC or DOL rule, so it is here to stay; “Even if the DOL, SEC or Finra roll back the fiduciary rule so that lots of advisor reps and insurance agents are no longer fiduciaries, the reasonable compensation limits would still apply”.
FINSUM: The argument is that this rule’s new relevance will lead to a clearing out of highly priced and highly paid advisors.
(New York)
The life of an advisor at a wirehouse is certainly changing. In the new broker-protocol-collapsed world, things have become different. At UBS, the changes are very clear—advisors are being paid more, but it is harder to leave. The average broker for UBS earned about $471,000 in 2017 (skewed by big earners), up 13% over 2016. However, at the same time, the firm dropped out of the broker protocol, making it harder for advisors to breakaway. UBS spent 7% less on new broker recruiting last year.
FINSUM: A 13% pay bump is a pretty strong number, but it could likely be much higher if one were to go out on their own.