Wealth Management
(New York)
No, the headline above is not a joke, though it may look like one to some. While it is easy to joke about people leaving millions to their dogs, the reality is that setting aside a portion of inheritance to take care of a pet is increasingly common, and advisors need to be aware. 44% of pet owners have some financial plan in their will for the care of pets, with the structure usually being that money would go to a designated caregiver. One advisor in Boca Raton who handles pet planning says “If you care about them and you want to make sure they’re taken care of, you have to have a contingency plan for them or else they end up at the Humane Society”.
FINSUM: 44% is a huge number, but it does make a lot of sense. Pets are valued family members and it seems irresponsible to many to leave them without care.
(New York)
Despite the fact that the DOL says it will no longer enforce the fiduciary rule in any capacity, those in the industry say that firms should not abandon their fiduciary rule compliance. The reason why is that despite all the momentum against the rule, it is still not officially gone. That means the DOL could change course and decide to enforce the rule at any time, giving no comfort about getting rid of fiduciary rule compliance for firms.
FINSUM: So our view is that the whole fiduciary rule playing field is more uncertain after this court ruling. The SEC could still be dissuaded from proposing a new rule, and the current rule could still hold up in court, with both possibilities completely changing the picture.
(New York)
Goldman Sachs has been working hard to build up its advisor business. While the firm already has very strong revenue per advisor, it is trying to build up its advisor base and boost its securities lending business. However, it has a problem—many of it advisors are jumping ship. Goldman used to be a place where advisors stuck around for years, but in the last 12 months no less than five big, high quality teams have left the firm. Two have gone to other wirehouses, three became independent. Those in the industry say more are likely to leave.
FINSUM: It looks like Goldman is experiencing the same issues as everyone else.
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(Washington)
One of the big questions in the wealth management industry right now is what is next for the fiduciary rule. The rule has just suffered its first major court defeat and looks like it is down for the count. Yet, advocates are still trying to rally for it and arcane bureaucratic procedures mean outsiders have a hard time understanding how the rule can officially go away. While the DOL does not look likely to appeal the court ruling, another defendant could theoretically step in. Additionally, some argue that since it was the 5th circuit court which delivered the ruling, that its decision only vacates the rule in its region (Texas, Louisiana, and Mississippi). Some also think the DOL may drop out of working on the fiduciary rule altogether, leaving the whole thing for the SEC to manage.
FINSUM: So despite the positive ruling for those opposed to the rule, the path forward is still very uncertain. However, the likelihood of the rule ever coming into full force seems very low and the DOL says it will no longer enforce it.
(Washington)
There are a lot of articles saying that the DOL’s fiduciary rule is on its last legs (and we aren’t sad about it). However, the reality is that despite the ruling, the DOL’s infamous rule lives on. Even if it does not stay in its current form (which seems likely), the fiduciary focus the rule brought to the industry is going nowhere, and the coming SEC rule will likely take what the DOL did to even greater lengths (but hopefully more convincingly). As an example of how the spirit of the rules lives on, here is a comment from the CEO of the Investment Adviser’s Association, who says “Now, are you really going to send a letter to your clients saying, never mind I'm not going to act in your best interest? No. No, it's too late. So some of this is not going to change in real life”.
FINSUM: Fiduciary duty is here to stay but the “fiduciary rule” is not. We think that could be a win for all parties.
(New York)
Goldman Sachs is in the middle of beefing up its wealth management business. It is adding advisors and trying to boost AUM. The division is very small compared to competitors, but its advisors have very high average revenue ($4.5m vs $1.1m at Morgan Stanley). Now, it is also boosting its securities-based lending offering. Through a program called GS Select, the firm aggregates other wealth managers and makes loans of between $75k to $25m to their clients, all backed by the securities held in the portfolio of the borrower. The program was just joined by LPL, which is now one of 40 firms participating in GS Select.
FINSUM: Aggregating other wealth managers to provide lending sounds very profitable. Evidently GS is also allowing much smaller managers onto the platform.