The fate of the fiduciary rule is unclear, but some things are not: that big firms are making loads of money on conflict-free advice. For instance, Bank of America Merrill Lynch saw a big jump of $29.2 bn in fee-based client assets in the first quarter. JP Morgan saw $8 bn of inflows, including those with a recurring fee. The piece argues firms had already begun the switch well-before the rule was released, and that the new rule just helped them cement the changes. Fee-based accounts are great for firms as they can get as much as 50% more revenue out of an account than with a commission-based model, says Morningstar. Merrill Lynch is already seeing gains from its fee-based model, with revenue up 3% in the first quarter.
FINSUM: This article highlights the inherent flaw of the fiduciary rule and the measure is not even finalized yet. What good is a conflict-preventing rule if it ends up raising costs for so many retirees?
Source: Wall Street Journal
This Financial Times article is ostensibly about the global rise of recalling former glory to influence views of the future, especially by conservative politicians. However, within the piece is a recent anecdote from Bank of America’s research team that argues that this stock market run is going to end badly. In the bank’s own words, normalization of the market is “unlikely to be peaceful”, because of “a 5,000-year low in interest rates, a 70-year low in fiscal stimulus across G7 nations, an all-time high in the US stock market versus the rest of the world, and a 75-year low in bank stocks” (quote from FT). The bank is recommending clients to buy gold as a hedge to “potential manias, panics and crashes”.
FINSUM: This is both warning on what is to come and a smack in the face of perspective. We are not nearly so bearish, but there are reasons to worry. The issue we have with this assessment is that there is no clear catalyst.
Source: Financial Times
The delay of the DOL’s fiduciary rule has turned into a saga and a debacle all at once (maybe “sabacle”?). The DOL has practically fought itself in court, there is a great deal of uncertainty over the fate of the rule, and no one seems to be confident on the timeline. Despite this, there is still a great deal of hope that the rule will never come to pass. With that in mind, it is notable that both Merrill Lynch and Morgan Stanley have forged ahead by launching products designed to abide by the rule. Both have launched new products aimed at small business with retirement plans under $10m, with the firms taking on a fiduciary role, allowing advisors to act in a fiduciary capacity with reduced risk.
FINSUM: The fact that they are moving ahead with these changes shows that both believe “fiduciary” is here to stay whether or not the DOL’s rule formalizes the notion.
Source: Think Advisor
The whole wealth management market is on pins and needles at the moment waiting to see if the fiduciary rule actually gets implemented. But alongside that wait and see game, many firms are watching to see if big brokers will go through with moving to only fee-based retirement accounts even if the fiduciary rule gets scrapped. In particular, BAML—who has been the biggest proponent of fiduciary duty—and JP Morgan may have different plans. JP Morgan says it will move forward no matter what, but that makes sense given its smaller share of the retirement accounts business. Wells Fargo and Morgan Stanley have already said they would use the BIC exemption to keep commission-based accounts.
FINSUM: BAML really seemed to waiver last week on its promise of getting rid of commission-based accounts altogether. We wonder how it will all play out.
BAML is making two major predictions about Japan. The arguments are based on the idea that there is a “backlog of yen-bearish ‘magma’” that will erupt soon. When this happens the Yen will fall from its current Y101 level (to the Dollar) to between Y115 and Y120. Perhaps more interestingly, this eruption will coincide with a big surge in the Nikkei as Japanese stocks benefit from currency devaluation, jumping 20%. The bank does however admit there are some road blocks in the way, such as a nervous BoJ in September, and Yen-supportive stress like worries over the Italian referendum or the US election.
FINSUM: If the Yen falls considerably it seems very likely that stocks will rise. However, we are worried about the Italian referendum result, so it stands to reason there may be some Yen inflows because of volatility, which throw off this thesis.
Source: Financial Times