Wealth Management
(Washington)
The Department of Labor has just clarified one of the major uncertainties surrounding the current iteration of the fiduciary rule, and the news is not good for advisors. The DOL now clearly states that any invest recommendations that would occur post rollover are directly akin to recommending the rollover itself. NAPA Net summarized the changed, which was clarified by Tim Hauser at the DOL (Deputy Assistant Secretary for National Office Operations at the Department of Labor’s Employee Benefits Security Administration) this way: “Suggesting investments that could occur after a rollover is tantamount to recommending a rollover, and if it meets the rest of the five-part test will constitute fiduciary advice, regardless of how it’s phrased. It doesn’t require the ‘magic words’”.
FINSUM: This is a response to some clever drafting that firms were trying to use to get around the “rollovers are fiduciary advice” mandate. Very important development.
(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!
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(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.
(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.