Wealth Management
(New York)
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.
(Washington)
The SEC best interest rule has been facing a very tough time. All sides of the argument seem to be against it. Consumer protectionist groups hate the muddled and weak delineating between brokers and advisors, while the industry dislikes the strong rules on title use. Now, there is a new weak spot in the SEC’s approach. The SEC has decided to have “roundtables” with consumers to discern their level of understanding of the rule and get feedback. The move is unusual and the SEC has not disclosed who or how they will do it. All sides again hate this idea, with the head of the Consumer Federation of America saying “Asking investors whether they like the disclosures is virtually meaningless … That needs to be done by disclosure testing experts who know how to design the tests and interpret the results”.
FINSUM: It is very obvious that the SEC’s current poorly defined delineation between brokers and advisors is not going to be easy to understand for consumers. We suspect any kind of consumer testing will help them realize that, but this does seem to be a rather odd and opaque approach.
(New York)
Barron’s has run a new piece warning advisors that they need to keep an eye on some new and growing financial data software that clients are increasingly using. The services, offered by new and old companies like eMoney, SigFig, and Betterment, focus on financial data aggregation, or letting consumers see their full financial picture in one place. The article warns that investors need to stay abreast of these kind of developments to know how to keep their services one step ahead and not let their business be eaten by commoditizing technologies.
FINSUM: The wealth management landscape is changing rapidly, and given how much tasks that used to be very time-consuming have been revolutionized, it should now be second nature for advisors to constantly look over their shoulder to discern how they can continue to add value.
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(New York)
In what certainly seems to be a sign of health for the industry, RIA average account sizes just hit a new high. The average client at a US RIA now has an account averaging $2m (at firms with over $250m in AUM). This is the first time the figure has ever crossed the $2m threshold. Median AUM for firms grew over 16% in 2017, with average revenue increasing to $3.6m. The stats come from an annual Charles Schwab survey, with the firm saying about the healthy results “Firms are fueling their organic growth by differentiating and marketing their value propositions, improving the client experience and strategically expanding their service offerings to meet the needs of their ideal clients”.
FINSUM: The fiduciary duty of RIAs seems to be a differentiated and continued source of new client demand. It is a testament to the quality of RIAs in this country.
(New York)
The media is reacting very strongly to a new move by Morningstar. The legendary fund rating company has just taken the somewhat surprising move of replacing outside funds with some of its own in its “managed portfolio service”, which allows financial advisors to outsource investment decisions to Morningstar. It will now rely on its own funds as the building blocks of those portfolios. Its own funds will be scored by the company itself, but it says an algorithm will do this. The company’s CIO says “We have structures in place to make sure [investment management] is at arm’s length from research. There is structural separation of research and investment management”.
FINSUM: We think this is a ridiculous conflict of interest, made even sillier by the fact that Morningstar acts like an algorithm is any less biased than a human rating system. As if Morningstar did not write the algorithm in the first place…
(Washington)
Everyday it seems less likely that the current SEC best interest rule, “Regulation best interest”, will make it through to implementation in anything near its current form. Not only has the industry complained about its governing of titles, but many say the rule’s complex grouping-but-delineation between brokers and advisors just doesn’t make sense. Now, the group of advocates that succeeded in bringing down the DOL’s fiduciary rule have officially turned their sights on the SEC rule. The group, called NAIFA, says it supports a best interest standard, but vehemently protests the restriction on the use of titles.
FINSUM: We commiserate with the SEC because we understand the logic they used to make this rule, but we do feel the current iteration is doomed.