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.
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.
Every investor knows ETF have surged in popularity. However, one the big questions of major importance in the industry is “who owns them?”. The answer is, mostly, investment advisors. There has been a major shift in the ETF industry since the Crisis, as ETF consumption by Investment Advisors has surged as AUM in that area has grown. What’s more, that holding is rocketing year on year, with total AUM ownership in the segment growing by around $400 bn between 2016 and 2017. Brokers, by contrast have seen their total share of ETF ownership plummet, from 16% in 2007 to just 2.2% now.
FINSUM: Retail still owns the majority, but investment advisors have been the major growth driver for the segment and their influence is widening considerably.
Anyone who owns or works for an RIA will probably be aware of the huge boom in M&A in the sector. There seem to be many willing buyers of RIAs at the moment and the acquisition terms for such deals have been getting increasingly sweet. However, within the apparent euphoria, make sure you don’t make a bad decision. For instance, some RIAs might be seeing offers with good valuations, but all in stock of the buyer. There have been a lot of unsolicited purchase offers, which may characterize “an unsophisticated, stupid buyer who is just trying to grab assets”, according to on managing partner at an RIA speaking at a Pershing industry conference. RIAs need to beware because “[Buyers] aren’t just overpaying but may also overpromise and not be able to deliver”.
FINSUM: We suppose the old mantra is best here— if it sounds too good to be true, it probably is.
There have been a lot articles and discussion lately about the new cap on so-called SALT deductions (state and local taxes). Much of this conversation has been centered around wealthy New Yorkers and others in the northeast considering moving their primary residences to low-tax states like Florida. Well, if anecdotal evidence is worth anything, the conversation is just that, talk. The reason why? New York’s onerous tax collection department dives into credit card records, confirms doctor’s appointments, and does door to door checks to make sure you have really uprooted your life and left the state. Evidently, after speaking with the financial advisors and lawyers, many residents have decided to forget about moving, saying it is just too big a disruption.
FINSUM: This makes sense given how rigorous the tax inspectors are. Further, New York is probably going to find a way around this lack of SALT very soon, so it is not worth uprooting.