Wealth Management

(New York)

Advisors large and small need to worry about this next bear market, as the latter may not survive, according to Barron’s. The reality is that there are many small RIAs who have kept their business alive because of the long bull market. However, “The smaller you are, the more vulnerable you are, because if the market goes down 15%, it gets harder and harder to run a business”, says Fidelity’s clearing division. Margins are already quite slim for small RIAs and lower AUM from market losses would likely kill many businesses. “When the stock market drops, revenues drop, and no expenses immediately come out of the system”.

FINSUM: The big question is whether RIAs who feel vulnerable should perhaps try to sell to larger players now instead of risking a bear market.


So at first the recent court ruling against the fiduciary rule looked like good news for the industry. A court had finally ruled against the rule, which seemed to be a sign that it would never fully be implemented, while also raising the odds it would be reviewed by the Supreme Court. However, Barron’s says that the ruling may have a perversely negative effect as it may cause the SEC to re-examine its efforts at drafting a fiduciary rule. According to the Investment Adviser Association, the ruling “is likely to give pause to the SEC with regard to its own fiduciary rulemaking”.

FINSUM: The SEC likely won’t want to get involved in a protracted legal process over whatever rule it proposes, so it may continue what it has done 2010 with regards to the fiduciary topic—nothing.


The scandal for Wells Fargo’s wealth management division is deepening. The bank has already experienced major reputational damage following its checking account scandal, and now the US Department of Justice is investigating the wealth management division’s alleged misconduct. The move is part of an extension of the investigation into the retail banking misconduct, and the FBI is reportedly holding interviews in the Phoenix area. Earlier this month the bank disclosed its own independent review of its wealth management unit included “whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company’s investment and fiduciary services business”.

FINSUM: This scandal looks like it is going to keep moving deeper and deeper. We wonder how much damage this might ultimately have on Wells Advisors’ own businesses. This seems like a situation where advisors might be seen by clients as guilty by association.

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