Every RIA’s worst nightmare looks likely to become true in the very near future. In what can only be described as paradoxical, DOL chief Acosta announced this week that despite the long-term delay of the fiduciary rule and its overall uncertain fate, the DOL would begin enforcing it. While Acosta conceded that the main enforcement mechanism of the rule—lawsuits—are not available for clients at the moment, he said the DOL would go after firms which are willfully violating the rule.
FINSUM: Okay so bad behavior is one thing, but where does the line get drawn on this. Many firms could surely be forgiven at this point for halting their fiduciary rule prep, yet now the DOL seems to be acting like all is moving ahead as normal. This whole process has seen astonishingly poor management.
We are rounding home towards 2018 and with that in mind, Goldman Sachs has published its top trade ideas for the new year. Goldman’s overall mantra for 2018 is “Late-cycle optimism”, and its seven trade picks all stem from that notion. Goldman’s bets are not very US-centric, and include shorting ten-year US Treasuries in advance of four rate hikes in 2018. It also says to go long the Euro, and emerging market credit (it is not favorable on US credit). Asian currencies will also do well, while metals seem like a good bet on the back of a strong economy.
FINSUM: This gives a good approximation of Goldman’s views, but we feel they are slightly over optimistic. Although the tightening cycle in the US may emerge.
The Republican tax package is half way home. Yesterday, the House passed a tax overhaul, sending the package on to the Senate. The package passed is considered the most sweeping since Reagan, and would lower overall government tax revenue by $1.4 tn. However, the bill faces an uncertain future. Senate Republicans have an even more extreme iteration of the tax package, and there is already a serious pushback from not only Democrats, but Republicans too. This makes passage uncertain, and anything that does get passed by the Senate is likely to be sent back to the House.
FINSUM: It is very hardtop predict how this will play out. There have been many times this year where measures passed in the House only to die in the Senate.
The Fed has seen a wild ride over the last 12 years—a crisis, QE, rate tightening, but after all the turbulence, it is effectively right back in the same pickle in which it found itself in ~2005-2006. That pickle is how to handle a very late cycle, high valuation environment, when the economy looks likely to overheat. 12 years ago the yield curve inverted, and could do so again next year as the Fed continues to tighten.
FINSUM: The Fed did not do very well in managing the last cycle, obviously, so there is no formula to handle this. Additionally, the big worry is that short-term rates got to 5%+ before the crash last time around, giving the Fed a lofty position from which to cut during the recession. That seems unlikely this time.
Barron’s has run a rather obtuse article in which it tells advisors who might be seeking a sale of their firm to make sure to focus on building aspects of their business which would be valuable for acquisition (who isn’t focused on building value?). However, it does point out that the key perspective in building value for the sale of an RIA should be “new clients plus flows from existing clients less attrition, is what you should really be focusing on”. Profit rate and revenue growth are the big valuation drivers for RIAs.
FINSUM: We don’t like that this article is so dismissive of RIAs’ business sense in terms of creating value, but some of the points it makes are clear and good to keep in mind.