Wealth Management
(New York)
A lot of advisors have been going independent lately. Whether you are moving to start your own RIA or want to join a large independent broker-dealer network, there are a lot of intricacies involved with running your own shop. Before you even think about the logistics of moving, it is important to assess whether you have the skills to succeed. There are essentially three skills that one needs to become a successful independent advisor: operational experience, in-depth relationship management skills, and sales/business development acumen. Operationally, you will likely have a tight budget when first breaking away, so understanding the nuts and bolts of the business, like migrating client accounts, is critical. Secondly, you will need to be able to concisely define the nature and scope of your relationship with clients in order to keep them happy for the long-term. Finally, you will need to be able to convince people why they should manage your money (without the weight of a wirehouse brand behind you!).
FINSUM: As a companion to the above, Michael Kitces notes that most successful independent advisors had seven years experience before going it alone.
(New York)
The Charles Schwab-TDA acquisition will likely have a host of implications for advisors. While it will take time to figure out and explore all of those, one of the immediately negative effects will likely be less funds available on the platform. As advisors will know, TDA did not have its own suite of ETFs, while Schwab does. This meant that TDA did not favor its own funds on its platforms and there was plenty of room for everyone. Schwab openly favors its funds. With the platforms now combining, smaller funds of all varieties are going to be more challenged to find buyers and survive. Even large fund houses like BlackRock might be at a disadvantage because of how the deal will help Schwab grow its ETF offerings.
FINSUM: this is going to lead to further consolidation in the fund business and will likely allow Schwab’s ETFs to grab even more market share. They are currently in 5th place.
(New York)
One of the biggest problems in the ESG/Sustainable investing space is finding out whether specific companies actually fall within the scope of such considerations. The space is becoming slowly more transparent, but sorting good from bad companies is still one of the major search and cost challenges of investing in the area. Well today we have more info on a new screening tool, called As You Sow, which helps investors sort good from bad companies and find companies and funds which match their desires. The new tool allows you to screen for certain characteristics: “deforestation free funds”, “gun free funds” etc.
FINSUM: Every advisor has clients for whom ESG is an important consideration (especially those with clients trending younger) and this is quite a helpful (and free) tool.
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(Washington)
Whether or not you are a supporter of Elizabeth Warren and her aggressive tax plans, one has to worry about the recent arithmetic that is coming out of her campaign. In particular, what is emerging is that many wealthy Americans would have tax rates over 100%. In many cases they would be as high as 158%. The reason why is a combination of the tax rates Warren favors, but critically, also her goal to tax unrealized gains. That means taxes would need to be paid in cash on investments that have not realized cash gains.
FINSUM: In our view, this is little more than divisive and punitive, not to mention rife with bad logic that will create unintended consequences. We are not in principle against the idea of some moderate level of redistribution to help strengthen the country and economy, but this is highly unfair.
(New York)
The world’s leader in managing the ultra-wealthy’s money says that the rich are bracing themselves for a big selloff in 2020. The firm’s clients hold near record level of capital in cash—25%—and think the stock market is going to have real trouble next year. The two major concerns occupying the minds of the ultra wealthy are the US-China trade war and the 2020 US presidential election. The bank got quantitative results on the topic from a recent survey, which received 3,400 responses.
FINSUM: Nobody knows how the market will do next year, and it is never hard to find people that are bearish. This looks like the perfect wall of worry for stocks to climb.
(New York)
After rumors circulating for weeks, Ladenburg and Advisor Group have jointly announced that they plan to merge. The new company will operate under the Advisor Group name and have over 11,000 advisors. None of the two companies nine broker-dealer subsidiaries will be merged, and advisors will continue their multi-party custody and clearing set up. The deal valued Ladenburg at $1.3 bn. One senior industry commentator said “It’s a very bold transaction that could create a major new player overnight that can go toe to toe with the other biggest firms in the independent space in terms of scale and resources”.
FINSUM: With margins so low across the IBD industry, scale is the only way to improve profitability. We expect the wave of deals to continue.