Advisors need to prepare themselves for a nasty eventuality that looks like a near certainty when the market next crashes. According to a top wealth management lawyer, there are likely to be a great deal of lawsuits filed by clients against their advisors whenever the next big crash comes. The lawsuits will be focused on claims of reverse churning, or that advisors put client money in fee-baseds account in order to collect fees without offering significant advice or trading. Since switching clients into fee-based accounts (versus commission-based accounts) has been a very common practice over the last several years, the atmosphere is ripe for a massive wave of lawsuits.
FINSUM: This article is worryingly insightful. The big switch to fee-based accounts, which preceded but also corresponded to the DOL rule, might have set up advisors for some major legal headaches in the next downturn.
If you are a strong advisor looking for a change, Deutsche Bank may be interested in speaking with you. At least that is what Deutsche Bank is saying. The US wealth management arm of the German bank says it wants to growth the ranks of its wealth advisors by 25% this year. According to the head of Americas wealth management there, the orders from the top are to “grow, grow, grow”, adding that “We’re getting dollar investment going into the unit for headcount . . . there’s great access to the management board.”
FINSUM: This is a big initiative considering that the only European brand to have any foothold in US wealth management is UBS. The other big names are all American.
Everyday it seems less likely that the current SEC best interest rule, “Regulation best interest”, will make it through to implementation in anything near its current form. Not only has the industry complained about its governing of titles, but many say the rule’s complex grouping-but-delineation between brokers and advisors just doesn’t make sense. Now, the group of advocates that succeeded in bringing down the DOL’s fiduciary rule have officially turned their sights on the SEC rule. The group, called NAIFA, says it supports a best interest standard, but vehemently protests the restriction on the use of titles.
FINSUM: We commiserate with the SEC because we understand the logic they used to make this rule, but we do feel the current iteration is doomed.
Not only is the broker protocol collapsing underneath the feet of advisors, but a new court ruling has just set a precedent which will likely make it harder for advisors to switch firms. A recent ruling by the Georgia Court of Appeals says that advisors who have agreed in a contract to give advance notice of departure, but then do not, are not covered by the Broker Protocol. The case stemmed from a smaller firm, Aprio Wealth Management, making a claim against a group of advisors who moved to Morgan Stanley. “We’re really pleased with the court-of-appeals ruling on this case … We think it’s a very meaningful decision for small and midsize firms, especially for registered investment advisers that can feel confident they’ll be protected from poaching like happened to us”.
FINSUM: The bottom line of this story seems to be that one needs to make sure to give appropriate notice. However, that is not always be easy as there might be extenuating circumstances.
The SEC rule has been a getting a lot of pushback both in the press and by industry commentators. Now, in what only seemed a matter of time, a more formal campaign against the new rule is taking shape. The new “Raise Your Voice” campaign is being organized by a group of RIAs and seeks to unite fiduciaries in a push against the grouping of brokers and advisors in the new rule.
FINSUM: While we do see the SEC’s logic in how it drafted the new rule, brokers and advisors are very different animals and we believe more delineation needs to be drawn between the two.