Wealth Management
(New York)
Morgan Stanley just put a big threat on the table, and they are not alone. The bank says that it may withdraw wealth management services entirely from states considering new fiduciary rules, such as Nevada. Wells Fargo issued a similar threat. A number of states, including Nevada, New York, New Jersey, and Maryland, are considering making their own fiduciary rules. Such rules would be a major headache to the brokerage industry as they would create patchwork rules across the country. Morgan Stanley said bluntly “Absent substantial changes to the [state] proposal, Morgan Stanley will be unable to provide brokerage services to residents of the state of Nevada”. Edward Jones, TDA, and Charles Schwab also said they would need to at least pair back offerings.
FINSUM: This is a strong move by the brokerage industry but we do not think it will work. The political mood in the states mean lawmakers would rather say “good riddance” than back off, but time will tell.
(New York)
“Cross-selling” has been the name of the game at Bank of America Merrill Lynch for years, but Merrill is about to take the idea to new heights. Partnering with BofA, the Thundering Herd is now offering mortgage discounts of up to half a percentage point to clients if they bring more of their business to the brokerage or the bank. According to Barron’s “Merrill is testing the rate reductions in California, Oregon, Washington, New York, New Jersey, Connecticut and Florida. The 50-basis-point reduction is available to clients with $500,000 in deposits or investments to qualify for the half a percent mortgage reduction.”
FINSUM: This could be a considerable competitive advantage for luring clients away from other brokerages. We expect Wells Fargo will follow suit, but it will be harder for Morgan Stanley and UBS to do so.
(Washington)
In what seemed an inevitable development, House Democrats are starting their push against the SEC’s Regulation Best Interest. The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will devote a hearing next Thursday to the SEC’s new rule proposal. The chairwoman of the committee is Maxine Waters, who was a champion of the defunct DOL Rule. Waters has commented on the SEC BI Rule that “When you have investment advisers who are not acting in [clients'] best interests but acting in their own best interests, it does not bode well for our senior investors in particular”.
FINSUM: We think the SEC BI Rule is a long way from ever getting enacted and will likely experience significant redrafting before implementation.
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(New York)
As our readers will know, we have been covering some of the best funds we met at February’s Inside ETFs conference. Today we want to profile a great service we found that we think would be useful to our readers. The service is a new ETF screener and research tool called ETF Action. The service was built by an experienced team from a major distributor and their experience shows in the design of the system. We were offered a free trial for their screener and found the user interface and functionality of the system very appealing. It was not only fast, but it was also useful to compare different funds side by side and search for new ones. For instance, we compared various dividends funds to help choose the best for our purposes, and the platform offered easy-to-access and multifaceted information for doing so. We preferred the system to the numerous other ETF screeners we have used. The company is building out the tool as a paid service and they have promotional pricing for advisors.
FINSUM: We really liked ETF Action and were impressed with the functionality. The management team clearly knows what they are doing and have in-depth industry experience, which is invaluable when it comes to thoughtfully building the system.
(New York)
If there was ever a stat that really represented the big changes underway in the wealth management industry, it is this one: a new survey shows that broker-dealers are earning more revenue from fees than they are commissions. That is a major shift for the group, who until recently existed mostly as commission engines. The stat also reflects the growing trend towards dually-registered B-D/RIAs, allowing advisors to perform both functions.
FINSUM: The regulatory trend and customer trend is moving towards fee-based payment. This stat reflects just how pervasive the model is becoming.
(Washington)
One of the most contested parts of the 2010 Dodd-Frank legislation was the legal mandate the act gave to regulators to create pay caps for Wall Street. The industry has fought tooth and nail to block their imposition, successfully curbing any changes for nine years. The last major push to cap pay was in 2016, but nothing has happened since then. Now a consortium of regulators, including the Fed, FDIC, and the Office of the Comptroller of the Currency and Federal Reserve are coming together to create new rules. The most likely target are high ranking executives, but talks in the past have extended to rank and file employees.
FINSUM: Caps for top executives will be anathema to some, but restrictions for regular employees are a whole other issue that will cause a major uproar.