Wealth Management
(Washington)
The SEC just put out a shot across the bow of brokerage firms as it regards Reg BI. Firms and industry attorneys have been expecting the SEC to ratchet up enforcement over the coming year as the agency starts to bring Biden’s priorities into reality. However, the SEC made it very clear this week, telling firms that it is not enough to tell reps what Reg BI says, but educate them with examples of how to meet Reg BI’s requirements. Investment News summarized the SEC’s comments this way, saying “Financial firms that are failing to comply with the broker standard of conduct aren’t aligning their internal controls to meet its requirements”. The SEC is now checking to see if firms have set up a robust Reg BI compliance program, and if not, they will be in hot water”. According to Corey Schuster, assistant director of Division of Enforcement’s asset management unit, “firms may want to consider: Have you done a deep dive on conflicts? … Have you examined your disclosures regarding conflicts? And is there a need to mitigate certain conflicts of interest?”.
FINSUM: The SEC is gearing up to drop the hammer on Reg BI enforcement, which has long been expected. However, the reality of heavier enforcement and the specifics of how it is executed are very different than seemingly far-off expectations.
President Joe Biden is expected to nominate Professor Saule Omarova for the office of the Comptroller of the Currency, one of the leadership positions in banking oversight and regulation. Omarova is currently teaching at Cornell University Law School and is a critic of the role fintech is playing in the current financial system, all the way from cryptocurrency to robo-advising. Additionally, she believes regulation should be tightened across the board in banking, calling for a larger role in government supervision. She has also advocated for restructuring the Fed and having them provide consumer bank accounts. This is only the beginning of the journey as both fintech and the banking sector will lobby hard to make sure she doesn’t get confirmed for her position.
FINSUM: This would be a drastic leadership change in regulation compared to the relatively hands-off approach fintech has benefited from so far. The suggested changes to the Fed would pump shockwaves through the financial system.
(New York)
Annuities have a long and complicated past that ultimately created a less-than-stellar reputation. However, over the last few years, the asset class has undergone a transformation of newer and better products, combined with better sales practices. Now, two big elements are creating a major tailwind for the product: growing demand from retirement plan inclusion, and aging demographics. According to TIAA, TIAA “nearly nine in 10 plan sponsors who do not offer in-plan guaranteed lifetime income annuities are at least somewhat interested in offering them” (from ThinkAdvisor).
FINSUM: Baby boomers are in peak retirement years and many don’t have as much saved as they would like, so annuities have a role. Further, Gen X is aging and likes annuities more than the Boomers, so they are presenting a very fertile market as well. Accordingly, many firms are seeking more annuities participation.
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Between fee compression and clients migrating to do-it-yourself platforms like Robinhood, advisors have experienced real fee compression. One potentially high-income / low-effort business line to offset these losses and keep your advisory business growing is referring clients interested in selling their life insurance policies.
A life settlement is a legal sale of an existing life insurance policy (typically of someone 70 or older) for more than its cash surrender value but less than its net death benefit to a third-party investor. The investor assumes the financial responsibility for ongoing premiums and receives the death benefit when the insured dies. The primary reason the policy owner sells is that they can no longer afford the ongoing premiums, they no longer need or want the policy, or they need money for expenses. Investors like the asset class because of the attractive returns and because the asset is uncorrelated with the market.
Due to large investment firms entering the asset class with billion-dollar funds, investor demand for life settlement policies significantly exceeds supply. As a result, for advisors interested in referring prospective life settlement cases, this can be a compelling revenue source. Agile Insurance Solutions (www.agileinsurance.net), via its AgileDIRECT program, offers the most attractive compensation, paying well above the industry average. Fees can be as high as 30% of the purchase price. This means the advisor can make a fee of over $100,000 for referring a single case – if it is purchased for $350,000. Moreover, the income your client makes from selling the policy should add to the client’s assets under management. To help your client and you, Agile offers transparency on its pricing so the advisor and client can understand the pricing logic. By being able to extend an offer within as little as 24 hours, advisors and clients save time and money, as compared to a long-drawn-out process.
The is a significant change from industry norms, where advisors got paid only a modest fee – if anything at all for referring policies, and the life settlement intermediaries captured all the fees. By going direct to Agile, Agile can pay the advisor a significant referral fee instead of paying intermediaries. Finally, extending an offer with 24 hours saves the client significant time and money.
For more information on AgileDIRECT, please visit their website (www.agileinsurance.net) or contact them directly at This email address is being protected from spambots. You need JavaScript enabled to view it..
Large financial firms have dedicated research teams that construct portfolios. Individuals or even sub-teams dedicate to different factors, and smaller firms previously had a hard time competing. However, technology is shifting the balance, as tools like machine learning and artificial intelligence can augment current labor to boost productivity. These measures can enhance productivity without increasing one of the largest input costs in finance: labor. Magnifi’s powerful artificial intelligence can amp up your research department by providing detailed analytics, and powerful search features that navigate thousands of portfolio opportunities without the large teams. Technology is leveling the playing field and giving small firms the edge in labor output.
(Washington)
Congressional Democrats are pushing for more ways to increase taxes on wealthy Americans, and their newest mechanism is closing a loophole on Roth IRA contributions. Currently, people making in excess of $400,000 can convert pre-tax retirement saving accounts into a Roth IRA. Technically, individuals can’t contribute to their Roth if their income exceeded $140,000, but the ‘backdoor’ loophole allowed you to convert the pre-tax contributions into a Roth IRA. Additionally, House Democrats are trying to end the ‘mega backdoor’ Roth’s which were saving up to $38,500 for wealthy individuals. The Democratic proposal also is requiring minimum reporting for certain balances and further Roth restrictions. These are significant changes to the potential tax code for the wealthiest, and if implemented these provisions would all come into effect Dec. 31, 2021.
FINSUM: Democrats are also considering automatic enrollment in Roth retirement vehicles in order to boost retirement savings on the lower-income spectrum. These are some of the largest changes to the tax code in recent years, all in an attempt to boost the tax base and pay for a $3.5 spending bill.