Wealth Management
(Washington)
When trying to discern the next steps for big regulations like Reg BI and the Fiduciary Rule, the best place to look is the revolving door between top industry law firms and US regulatory offices. And that revolving door is sending very scary messages for advisors. Take for instance these comments from Joshua Lichtenstein, an ERISA and benefits partner at Ropes & Gray LLP's ERISA fiduciary practice: "There are a lot of career people at the DOL still working there and it's not clear to me that their views would have necessarily changed just because of the 5th Circuit's action … So I am expecting to see a pretty fulsome rewrite of the definition of who is a fiduciary”.
FINSUM: The bottom line here is simple. A lot of the same people that wrote and pushed the Obama era fiduciary rule are still at the DOL and are once again empowered under Biden. Why would anything change from their 2017 effort?
(New York)
The annuities market has not been known for a great deal of innovation. But just like the industry’s reputation, things are improving dramatically. Entrepreneur.com has put out their new annuity awards and the best newcomer award goes to Brighthouse Financial. In just four years the innovative new annuities provider has gone from inception to a multi-billion Dollar annuities seller each quarter. It’s easy to see why. At the heart of their lineup are their FlexChoice Access and Shield products. FlexChoice Access is part of Brighthouse’s variable annuities suite while Shield is an index-linked annuity.
FINSUM: Brighthouse is really changing the game with its new products. For instance, Shield has no annual fees, has guaranteed income, and still offers upside tied to market indices.
n.b. This is sponsored content and not FINSUM editorial
(Washington)
This whole year it is has been assumed—almost as an unquestioned default—that taxes would rise under the Biden administration. For example, munis have surged in value on this expectation. However, that assumption seems to have gotten well ahead of itself as new developments suggest tax changes may be a way off yet. The big change is that the infrastructure package is coming up for a vote—potentially this week—and the deal which has materialized between the parties has no tax rises whatsoever in it. That means Biden’s plan to hitch tax rises to increased infrastructure expenditure have fallen through, at least for the time being.
FINSUM: So if this plan gets approved without any tax changes—which looks quite likely—it seems clear that clients will escape 2021 without any major changes to federal taxes (including long-term capital gains taxes). Therefore, any planning should take account of the fact that 2021 may be much more advantageous than 2022.
More...
(New York)
If you listen to the industry chatter, it appears Gary Gensler, Biden’s head of the SEC, may be poised to define “best interest” as part of the SEC’s Regulation Best Interest. If advisors recall, when the BI rule was first proposed the main criticism was that they did not define the term “best interest”. Many thought this would allow loopholes, while the SEC said it would make enforcement stronger because by defining a term, it actually creates ways around it. According to Blaine Aikin, from Broadridge, “I think there’s an appetite for the Biden administration … We’ve had certain calls from many different audiences: ‘Wouldn’t it have been better if the SEC had actually defined best interest?”. Aikin added that he believes there is “huge collaboration” going on between the SEC and DOL on the topic of Reg BI and Fiduciary Rule synergy.
FINSUM: The big question here is whether a definition of the term will somehow change enforcement in some way. It seems a toss-up as to whether the definition creates loopholes or weakens them, but for the average advisor enforcement makes all the difference.
(New York)
When Schwab announced its acquisition of TD Ameritrade in November 2019, there was a big and sustained surge of consternation among RIAs. TDA had long been known as specializing in RIAs, especially on the smaller end of the spectrum. Schwab had exactly the opposite reputation. That has left a general void for the smaller advisor looking to go independent for the first time. However, Goldman is apparently ramping up its new custody unit and clearing platform for RIAs. The move is still in its early stages, but the firm is hiring several executives to lead the charge and seems to be aiming to compete with Schwab, Fidelity, BNY Mellon etc.
FINSUM: Advisors may recall that Goldman acquired United Capital in 2019. United was an RIA consolidator, so this seems like a natural step for the bank. In our view, it would be great for the industry to have more competition on the custodial front.
(Washington)
Most advisor attention as it regards Biden’s tax plan has been about increased capital gains taxes and the unwinding of the “step-up basis” in the inheritance of assets. However, there is another major risk and complication on the horizon. That has to do with state level inheritance laws and how they interact with Biden’s plan. The federal government has no formal inheritance tax, but rather an estate tax. States, by contrast, often have inheritance taxes. The big difference between the two is that the estate tax is levied on the estate itself, whereas inheritance taxes are levied on the beneficiaries. That means that each individual is subject to a different level of taxes based on their income.
FINSUM: To be clear, the implications of this are quite large for HNW individuals, as they could face much higher federal estate taxes in addition to high state level inheritance taxes.