Wealth Management
(Rome)
In a very interesting, or maybe offensive, release, the Vatican has just put out commentary from the Pope which criticizes financial advice. In a bulletin called “Considerations for an ethical discernment regarding some aspects of the present economic-financial system”, the Pope appears to criticize advisors who are not fiduciaries, listing among its “morally questionable” activities, “a failure from a due impartiality in offering instruments of saving, which, compared with some banks, the product of others would suit better the needs of the clients.
FINSUM: We have no problem at all with fiduciary advice, but we think it is very close-minded when anyone broadly calls non-fiduciary advice immoral.
(New York)
A lot of advisors have been under pressure to cut their fees. Pressure from competition, both digital and human, has reportedly put downward pressure on the fees advisors feel they can charge. However, Barron’s has put out a piece arguing that advisors should not cut their fees. The reason why stems from the results of a survey which found that advisors who lowered their fees actually brought in less assets and experienced less revenue growth than when they left fees higher. An industry commentator summarized the situation this way, saying “That supports something we’ve seen, frankly, for 15 years, which is, clients don’t leave because of price; they leave because of service issues”.
FINSUM: We think this is a bit of a misleading survey, at least if you buy the “services issues” theory. The reason why is that it is only advisors who have service issues that are cutting fees, which means the lower asset growth does not really have to do with fees, it has to do with a problem with the advisor.
(Washington)
The fiduciary rule saga presses on. Just when it looked like it was all over and the DOL had finally avoided its own rule, the court battle is not over. A new group of state attorney generals has just asked the to be allowed to appeal the fifth circuit court’s ruling against the DOL rule. California, Oregon, and New York have all asked for a rehearing of the court’s May 2nd decision to deny their request to step in as defendant. In their appeal, the states said “The federal government is no longer pursuing this appeal … Given that posture, the exceptional importance of the issues, and the grave harm the states will suffer as a result of the panel opinion — billions of dollars in lost retirement income to their residents and tens of millions of dollars in lost tax revenue — the states respectfully request that the court reconsider the decision”.
FINSUM: This is dragging on so long it is even getting annoying to report on! This does not seem likely to be granted, but one can never be sure.
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(Washington)
Advisors have recently been feeling relieved about the fifth circuit court ruling that struck down the DOL’s version of the fiduciary rule. However, it may not be time to jump for joy yet. The fifth circuit is supposed to issue a mandate which vacates the rule, which takes it out of force. It is unclear why the fifth circuit court has not done so yet, but it is starting to make the industry nervous.
FINSUM: Most say the court simply has not gotten around to issuing the mandate yet, but that seems odd given it has been two months since the verdict. The next date to watch is May 16th, as that is the deadline for states and other entities to apply for appeals to the ruling.
(New York)
There is a lot of scuttlebutt in the wealth management industry about fee compression. The narrative is that there is much price competition across the industry and investment advisors are having to cut their fees and add services to stay relevant. Well, the reality is fees are actually moving higher. According to a new survey from FinancialAdvisor, many advisors are actually hiking fees between 10 to 25 basis points. The finding adds to another survey from Pershing which found that 84% of advisors had not changed fees in 2017, and those that did had hiked rather than cutting.
FINSUM: This is a very healthy sign for the industry, especially given the fee war going on in ETFs and the asset management industry.
(Washington)
The saga of the fiduciary rule seems to be never ending. Odysseas had an easier time. Now, just when things were starting to look clear—the DOL rule is effectively gone and the SEC has proposed a new one—everything is murky again. A senior figure, Michael Piwowar, at the SEC has just resigned. According to InvestmentNews, “Mr. Piwowar’s departure could significantly delay a rulemaking that already was projected to last for months — or make it impossible to complete”. Piwowar was a major ally of SEC chief Clayton, and now there are an equal number of Democrats to Republicans on the SEC commission. Trump could try to replace Piwowar and Democrat Kara Stein (whose term has lapsed) all at once, but the Senate would need to fast track approval.
FINSUM: Even if everything gets fast-tracked by Trump, the Senate needs to get the approval done, and that very well may not happen soon, especially because the Democrats might take the Senate back.