Ever since the announcement of the Schwab-TDA merger, RIAs have been nervous about their future with the combined custodian. TDA was known for working hard for smaller RIAs, whereas Schwab was not at all. Now, with the combined entity, RIAs are worried about being neglected, or dumped altogether. However, Schwab has just put out a public pledge, saying “When it comes to independent advisors, we’re all in … Today, over half of the firms we serve have under $100 million in AUM. You are the future of this industry”. Schwab also promised no AUM minimums or custody fees, saying they have “no intention to raise them. Because we believe that every firm of every size deserves world-class support”.
FINSUM: This was a more specific pledge, but it will likely do little to calm small RIAs.
Industry lawyers are checking every day, but nothing is happening. Everyone keeps looking at the DOL’s information portal to see if the agency has posted a new version of its Fiduciary Rule. Many thought the rule would be published by the end of the year, but so far nothing. The reason this is important is that the agency is running out of time to get the rule finalized and in place before the election. Rules that get approved immediately before elections are much more likely, and easier, for successors to undue. Therefore, if the rule does not get approved soon (which is near impossible because of the long approval process the White House has once the DOL proposes it), the rule is at risk of a victorious presidential candidate undoing it.
FINSUM: It seems likely this rule won’t get done until right before the election. If Bernie, or really any Democrat, wins it will likely be undone and the path will be paved for a much tougher rule.
LPL, the largest independent broker-dealer out there, is debuting what seems a curious new model to some. It is making some brokers employees of the firm, completely breaking the mold of the entrepreneurial independent broker running his own office. The firm says it is trying to offer as many good options as it can to make recruits happy and excited about joining LPL. Employees will get a lower payout but better overall benefits. LPL may start to offer attractive bonuses to recruit brokers who want to be/stay employees.
FINSUM: This makes perfect sense to us from a recruiting perspective. There are likely plenty of brokers out there who like their job job but want more stability. This seems like a good compromise.
The SEC’s Reg BI and the DOL’s return of the Fiduciary Rule are set to shake up the industry in several ways (though to a much smaller degree than the 2017 version). However, one of the lesser appreciated areas of disruption created by the rules is in advisor recruiting. Big independent broker-dealers think that the regulatory strain that the rules will put on smaller firms means there will be an exodus of brokers. The logic is that many brokers will feel their small firms do not have the resources, and are therefore not offering the infrastructure to adequately support broker compliance. Accordingly, many big shops like LPL, Ameriprise, and Stifel are planning efforts to seize on this recruiting window.
FINSUM: This makes good sense and it does appear that it will be an ideal time to poach brokers from smaller firms.
More focus has been put on what Elizabeth Warren has said about wealth management, but the reality is that Bernie seems much likelier to win the bid, and his opinions are more poorly understood. With the Iowa caucus starting today, it seems the right time to start thinking about it. Bernie seems likely to take a very hard line on wealth management, likely replacing all the top management of the relevant agencies and taking a new line on Reg BI and the Fiduciary Rule. It is hard to imagine he would be comfortable with existing regulation and given how the Democratic party views the role of agency power, it seems like big changes might be made.
FINSUM: Given Bernie’s views, the changes to the industry might not just be limited to regulations, but also to mergers and acquisitions of wealth managers, and of course, huge tax changes.
No matter how many times you tell them that renting a vacation home is a better financial idea, many clients get the “I want to buy a vacation home bug” and can’t get it out of their system. When that happens, here is a few things of which to remind them. Firstly, their vacation home will not have the same capital gains tax exemption as their primary residence. Additionally, costs associated with the property, including insurance, property taxes, and possibly fees associated with renting the property, can all rise faster than their incomes, especially if they are on a fixed income in retirement. Vacation homes can also be complicated from an inheritance perspective, as some heirs may want to keep the property while others may want to sell it.
FINSUM: All good arguments. Hopefully some clients will listen!