Displaying items by tag: fiduciary rule

(New York)
So across the wealth management industry there has been a gnawing and anxious debate that may be keeping advisors up at night—does the fiduciary rule mean that advisors need to always offer the lowest cost funds to clients? Well, one lawyer’s opinion is a resounding “no”. Citing the rule itself, the DOL says “Adviser and Financial Institution do not have to recommend the transaction that is the lowest cost or that generates the lowest fees without regard to other relevant factors”. That other relevant factor could be a myriad of things, such as the other holdings in a portfolio or whether one fund has higher performance than another or a different fee structure and so on.

FINSUM: We have personally seen a lot of debate on this issue, and while many do realize that they do not have to offer the lowest cost investments, fear of regulatory trouble pushes them to do so.

(New York)

InvestmentNews has run a very ominous article. The piece cites recent evidence published by the Wall Street Journal showing that large discount broker-dealers often mislead clients by saying they do not have incentive fees when they do. Firms like Charles Schwab and TD Ameritrade often brand themselves in a very positive light, saying things like being “champions of investors" and putting clients first etc. However, such misleading behavior may lead to the current or future fiduciary rules being extended to cover broker-dealers entirely, not just regarding disclosing conflicts of interest.

FINSUM: We don’t think the current DOL rule is going to be extended in any way, but it does seem likely that the SEC might take this into account as it creates a new, more comprehensive rule.

(New York)

Morgan Stanley’s wealth management can be described as nothing other than an unmitigated success in the fourth quarter. The numbers are in, and the data show that the unit is minting cash as the broker enjoys the transition from commission-based to fee-based accounts as provided by the fiduciary rule. Revenue increased a whopping 10% and the profit margin rose from under 10% the previous year to an eye-watering 26% in 2017.

FINSUM: We realize the importance of fiduciary duty, but how is a transition to much more expensive fee-based accounts—which are hugely boosting net profits to big firms—in the ultimate best interest of clients?

(Washington)

On Wall Street has run what we consider to be a very bad article, but we thought our readers might enjoy, or cringe, in hearing about. In an article entitled “Why Financial Planners Should Support a Strong Fiduciary Rule”, the director of consumer protection for the Consumer Federation of America manages to make almost no discernible argument. Attacking those who oppose the fiduciary rule, the article fails to make any salient points in support of the current DOL version of the rule. In fact, the most interesting part of the article is actually an inadvertent support of those who oppose the DOL rule. The author acknowledges that commissions-based payments are no more inherently conflicted than fee-based accounts.

FINSUM: This article was incredibly mind-numbing. While we have been in consistent opposition to the DOL rule, we are not against fiduciary duty in principal, and have been trying to find arguments in its favor. In this piece we kept reading and reading waiting for a good point to be made, but it never arrived.

(Washington)

If there was ever exciting news in the fiduciary rule saga, this is it. The Wall Street Journal is reporting that the SEC will deliver a proposed comprehensive fiduciary rule in the second quarter of this year. The challenge of delivering a rule governing all accounts will be very challenging however, even as the SEC says it is fast-tracking development, as it will be bombarded from both sides. One of the directors from the Consumer Federation of America puts it bluntly, “It’s difficult to see how they can come up with a solution that does not land them in court … If they propose a rule we like, industry will sue them. If they give industry a disclosure-based best interest standard that they want, we’ll sue them”.

FINSUM: The SEC is in a tough position, but them coming up with a proposal for a comprehensive rule would be a step in the right direction.