Wealth Management
(New York)
For several years Vanguard was seen as the champion of low-cost investing. It led the revolution in ever-lower cost ETFs. However, just recently, it seems to have fallen on hard times as it is facing challenges on multiple fronts. In particular, it is suffering at the hands of Fidelity, which is undercutting it on fund pricing. Fidelity’s recent no-fee index funds mean they are even cheaper than Vanguard’s lowest cost funds. The second, and perhaps even more worrisome challenge, relates to investment minimums, which Fidelity did away with on its cheapest funds. Vanguard’s minimums are now starting to look old-fashioned by comparison.
FINSUM: The best way for Vanguard to compete would be to merge some of the classes of their products. However, doing so would require a big revenue haircut, all of which means the company has some tough choices to make.
(New York)
Fidelity made a huge splash in the asset and wealth management world’ about a month ago when it launched the markets first completely free indexed mutual funds, and with no investment minimums. The move sparked big share price losses for other asset managers and seemed to spell doom for the industry. But how have the funds actually performed so far? The answer is well. The pair of funds have taken in almost $1 bn of client money in just a month, which is considered a solid success.
FINSUM: We think this is a good showing for Fidelity, but one of the other issues the zero fee funds have brought up is that there are many other terms of index funds that investors need to pay close attention to. Not just price.
(New York)
New academic analysis has found part of the full cost of the DOL rule on the financial sector. A group of academics analyzed the market cap movements of the top 30 brokerage and fund providers and found that, in aggregate, the DOL rule cost firms $14 bn of market cap. That figure does not include the money spent to prepare for the rule, just changes in share valuation that directly resulted form the rule. However, the same firms have since benefitted strongly from the so-called Trump Effect.
FINSUM: The DOL rule ended up being an enormous waste of time that in hindsight appears to have been doomed from the beginning. We will say that its lasting effect was to bring consciousness of fiduciary duty to the wider public.
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(Washington)
By far the biggest focus of the recent tax package has been its limiting of SALT deductions to just $10,000. The current implementation of the rule was considered phase one by Republicans, with phase two—making the changes permanent—supposed to happen this fall. However, given how tight the congressional races are, including in high tax states like New York, New Jersey, Minnesota, and Illinois, many Republicans are now considering delaying the vote so that sitting representatives don’t have to take a stand on the package.
FINSUM: The SALT limits are wildly unpopular in many locations, and the Republicans are rightfully worried that pushing for making them permanent could cost them some seats. Will this eventually lead to the repeal of the rule?
(New York)
Since the end of the Broker Protocol, it seems that many firms have shied away from recruiting. Especially at the senior level, but even at the junior level, firms have not been investing as much in recruiting. But that may be starting to change, as recent reports of increased recruiting activity have emerged, such as word today that Edward Jones is ramping it up. Edward Jones says it aims to hire 250 senior advisors from other firms this year. Additionally, there is some news out that Morgan Stanley and Merrill Lynch may be working on a so-called Broker Protocol 2.0.
FINSUM: This seems an encouraging sign on the recruiting front after a rough year. FYI Edward Jones is not part of the Broker Protocol.
(New York)
The IRS just ended the best loophole in town for high income residents of high tax states like New York, California, Connecticut, New Jersey and Washington DC. Many high tax states had been working a loophole where residents could categorize their tax payments as charity donations, allowing them to deduct it from their taxes. However, the IRS has now closed that loophole effective today, meaning there is no way around the $10,000 SALT deduction limit.
FINSUM: It is no surprise home sales in the northeast are plummeting, as this is a serious economic issue for retaining the wealthy, and even upper middle class.