Wednesday, 26 September 2018 10:45

Why Advisors Stick with Mutual Funds

(New York)

One of the very interesting aspects—which is thoroughly underreported—is that despite the rise of ETFs, mutual funds have held a major portion of market share in the advisor allocation business. One of the trends which has emerged is that the growth of ETFs has not really cost mutual funds as much as one would expect. Rather, advisors have just started to use them in different ways. ETFs are seen as better for broad passive exposure, but when it comes to active management, mutual funds are seen as the superior choice. This helps explain why smart beta and other forms of active ETFs have been relatively unsuccessful.


FINSUM: It is not mutual funds that have suffered from the shift to ETFs, rather it has been variable annuities and individual stocks. This is a quite a positive development for the asset management industry, in our opinion.

Published in Wealth Management

(New York)

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.

Published in Wealth Management
Tuesday, 28 August 2018 08:48

Wealth Management Recruiting Ramping Up

(New York)

Since the end of the Broker Protocol, it seems that many firms have shied away from recruiting. Especially at the senior level, but even at the junior level, firms have not been investing as much in recruiting. But that may be starting to change, as recent reports of increased recruiting activity have emerged, such as word today that Edward Jones is ramping it up. Edward Jones says it aims to hire 250 senior advisors from other firms this year. Additionally, there is some news out that Morgan Stanley and Merrill Lynch may be working on a so-called Broker Protocol 2.0.


FINSUM: This seems an encouraging sign on the recruiting front after a rough year. FYI Edward Jones is not part of the Broker Protocol.

Published in Wealth Management
Friday, 10 August 2018 08:33

Regulations are Killing the Industry

(New York)

There was a great deal of anxiety over the fiduciary rule, and now there is mounting consternation about the SEC’s Regulation Best Interest. But within that story, there is a lost narrative—the fate of the US’ small broker-dealers. Mounting regulatory pressure continues to dwindle their ranks. The number of Finra-registered broker-dealers has fallen 10% since 2013, and last year the number fell to a total of 3,726, down 109 from 2016. One industry commentator summarizes that “It is getting to the point that the many firms under 10 advisors dread Finra audits and are positioning themselves to be under a larger broker-dealer in order to simplify their life”. “This used to be a fun business, but not anymore”, says the commentator, citing a B-D owner.


FINSUM: We can personally testify to the difficulties that smaller B-Ds face, and not just in terms of direct regulatory costs. Additionally, factors like limits to markups constrain revenue, so there is pressure on both sides.

Published in Wealth Management
Wednesday, 08 August 2018 09:17

Deutsche Bank is Hunting Top Advisors

(New York)

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.

Published in Wealth Management
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