Wealth Management
(Washington)
We will be the first to admit we were wrong (at least partially). When the infrastructure bill passed without any of Biden’s proposed tax increases it seemed like we might be in the clear for the rest of 2021. While this newest “death knell” proposal likely won’t be finalized in calendar year 2021, we definitely spoke too soon. Biden’s new $3.5 spending package includes all the tax proposals advisors dreaded: like higher long-term capital gains taxes and the elimination of basis “step-up” in inheritance. FINSUM: The “death tax” of the elimination in “basis step-up” is very real as it means that unrealized gains accumulated over the course of a lifetime suddenly become taxable to the next generation. Chuck Grassley, US Senator from Iowa, has jut written a very informative piece about this particular tax idea and its damaging legacy in the US heartland. Find that here.
(New York)
Going independent is a huge choice. Not only do you have client risk, income risk etc, but one of the big underappreciated challenges is simply getting paid. Once you are truly running your own business, cash flow on a consistent basis is absolutely critical, which is why you need to have flexible and reliable billing software which can help you collect fees in a compliant way.
FINSUM: You need to have your tech stack solid as rock when going independent and collecting payment in a compliant way is beyond critical. Make sure to investigate the options!
(Washington)
The Department of Labor made a critical move this week in announcing a regulation that is likely to affect almost all advisors. During the Trump administration the DOL made a rule that made investing client Dollars in ESG funds very complicated from a compliance perspective. It has long been expected that the Biden administration would try to undue that rule and make one of its own. It appears that day is here as the DOL announced a new rule (the wording of which is still unclear) which would clear up the uncertainty and risk advisors have in recommending ESG funds.
FINSUM: This will become more clear in the coming days, but the bottom line is that it appears the Biden administration is trying to take the doubt/uncertainty/risk out of ESG for advisors. And good thing because demand for ESG products has surged this year.
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(New York)
Retirement costs are a major pitfall for advisors, if only because clients generally underestimate them! Nowhere is this more true than in regards to healthcare. Since healthcare costs tend to increasing very significantly as one ages, it is difficult for the average person to understand just how costly medical expenses can become when they get older. To make things more complicated, the situation is highly variable for each person. For example, in a married couple, do they enroll in Medicare at the same time or are they of different ages; does one spouse still work full-time and give healthcare access to other? There are also several financial products which can help in supporting these costs, such as HSAs and annuities, both of which can help offset the inevitable costs that arise even when covered by Medicare.
FINSUM: Retirement healthcare costs need to be a critical of advisors because they are generally poorly planned for by clients’ themselves.
(New York)
If advisors ever feel like hold their fates in the palms of their hands, they’d be right. At this very moment, a big change is looming for all brokers. In the near future, industry lawyers are expecting that SEC chief Gary Gensler will announce a definition of “best interest” within Reg BI. Previously, the thinking had been that defining the rule might actually make it easier to get around, but the emerging industry view is that defining it would indeed make the rule look much tougher.
FINSUM: A definition of “best interest” seems like a foregone conclusion to us at this point. The main question is when, and how restrictive is the verbiage.
(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?