Wealth Management
(Washington)
Joe Biden and the Democrats’ plan for wealth management regulation is becoming clearer as his inauguration date draws nearer. One big question on the industry’s mind is whether Biden will completely replace Reg BI with an entirely new package. According to former SEC lawyers, that seems highly unlikely. The reason why is that doing so would take an act of Congress, a high bar. Rather, what seems much more likely is that a new SEC chief is appointed an enforcement is tightened very considerably, with the emphasis moving to strict “by the letter” enforcement rather than principles-based enforcement.
FINSUM: This would be a big change. One of the aspects that really set the Trump administration era of enforcement apart was that it would focused on following rules in principle more so that “to the letter”. While this was not unique to wealth management, it was a definite change of pace that now seems likely to reverse.
(Washington)
As Biden takes the White House, all eyes in the wealth management industry are on regulations. Biden seems likely to take a much harder line on industry regulations than Trump did. The most focus is on the DOL, as the Biden team has made it clear that a “true” fiduciary rule is part of the agenda. No one quite knows if that will come from a tweaking of Reg BI or a restoration/update of the original DOL rule. One thing that has caught the attention of the industry is that Bernie Sanders appears a top candidate to take over the DOL, which could bring his unique approach, and almost certainly a new hardline fiduciary rule.
FINSUM: Bernie Sanders taking the helm at the DOL would be very ominous for wealth management. That said, one thing that has been clearly broadcast by the administration is that the DOL’s first agenda will be on healthcare (because of the pandemic) and secondly, it will be on raising the minimum wage to $15.
(New York)
There are many reasons to change firms, whether that means going independent, jumping between brokers-dealers, or moving from RIA to RIA. In all the talk on recruiting one of the elements that often gets lost is how certain firms can or cannot help you grow, and this fact is doubly true in the RIA space. Most of the discussion around joining RIAs has to do with freedom, better income, and better services for clients, but one narrative advisors need to think more about is whether a firm actually has the power to help transform your growth. Most advisors don’t really think too much about an RIA’s brand power when moving because the main focus is on the freedom to run their own business. In reality though, some RIAs have much better capabilities for really boosting client acquisition and aum growth than others. For example, does an RIA have a particularly strong view on the markets, or a unique marketable approach to investing? Do they have a well-developed network/infrastructure for COI referrals? Other factors, like how strong their actual marketing support is, are all critical to whether joining that firm will help you win new clients and grow your business.
FINSUM: Whether you are already at an RIA or thinking of joining one from a B-D, advisors need to think carefully about how a particular RIA’s brand and offering may help them grow. It can be a major differentiator for success.
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(New York)
If you are like most advisors, you probably have some difficulty in identifying which funds you want for your clients. Alongside the sheer proliferation of funds has been a massive near duplication of them. Dozens of funds now seemingly look exactly the same and it is very difficult to choose one from another—even asset managers create cheaper versions of their own funds. Between these incredibly overlapped offerings and thousands of new funds, it also becomes very challenging to find niche funds that exactly fulfill the role you’d like them to in client portfolios. Well, here is the good news—a new company with a hyper-useful tool is solving the issue. Check out Magnifi, they are bringing investment selection into the 21st century. Magnifi uses patented technology focused on natural language search to seek out exactly the funds you need. No more checking endless boxes and drop-down menus, just type exactly what you want and the perfectly matched funds appear. For example, imagine you wanted ESG funds that did not include oil and gas companies. Just search “ESG no oil” and bang, you have ten perfectly matched funds, including the stocks that comprise them, their fees, and performance against one another.
Magnifi also integrates FI360’s fiduciary risk score for every fund, allowing advisors peace-of-mind on the regulatory front when choosing client investments.
FINSUM: Magnifi is nothing short of a revolution for finding and choosing investments. They bring the easy exploration and selection of e-commerce to the world of investment management. Check them out, there is a reason they are being called the “Google for investors”.
(Washington)
The election is far from decided, but the outcome may very well fall into Biden’s favor. With that in mind, it is worth considering how the industry’s regulatory agenda would change were he to become president. He would almost surely replace Jay Clayton as head of the SEC, but the bigger questions are about Reg BI, the new DOL rule, and whether his administration would seek a strong fiduciary standard. Most industry lawyers think Biden would not seek to throw out existing rules and draft entirely new ones. That would take a great deal of work and time. Much more likely, it appears, would be amendments to Reg BI. The infrastructure of the rule is such that simple tweaks could make it much more robust. Chief among those changes would be defining what “best interest” means and changing the approach to enforcement.
FINSUM: If the SEC put a wide-ranging definition of “best interest” in place and changed to stricter enforcement, you would quickly have a much more robust rule.
(New York)
A new study from Cerulli Associates has found that wirehouses are performing very well in one regard—advisor productivity. The average wirehouse advisor has $175m in AUM, almost double the industry average of $77.9m. Even more amazingly, wirehouse productivity has risen from an average of $148m at the end of 2018 (to $175m at the end of 2019). However, wirehouses are still shedding many advisors to RIAs and IBDs. Cerulli identified two key reasons why. The first is as old as the industry itself—compensation. According to Cerulli, wirehouse advisors are growing increasingly tired of “complicated and sporadically changing compensation grids”. Additionally, support staff is an area where advisors are frustrated, reporting a lack of support staff as an issue at a far higher rates than at other BDs and RIAs.
FINSUM: Wirehouse advisors currently enjoy two advantages—brand strength and scalable firm-wide technologies. Neither is enough to stem the current outflows of advisors, and the technology aspect is quickly being eroded by improving tech stacks for independent advisors.