Wealth Management
(Washington)
In what will surely go down as a landmark case, the state of Massachusetts is going after Scottrade in the first prosecution of misconduct under the fiduciary rule. Massachusetts says the broker held sales contests for its reps, before the acquisition by TD Ameritrade in September, which violated fiduciary standards. The state said about the prosecution that “If the Department of Labor will not enforce its own laws and rules, then the states must do what they can to protect retirees from firms who believe they can play with peoples’ life savings by conducting sophomoric contests”.
FINSUM: The developing role of states in both creating and enforcing the fiduciary rule/s is quite interesting. We are afraid the leadership vacuum currently surrounding the federal law might lead to a patchwork nightmare.
(New York)
When you think of the big wealth management players in the country, even just the big wirehouses, Goldman Sachs is not a name that comes to mind. More associated with investment banking, the bank now plans to greatly expand its wealth management practice as it tries to bring in ultra high net worth individuals as customers. The bank plans to grow advisor headcount by 30% by 2020, with CEO Lloyd Blankfein commenting “The world seems to be growing rich people faster than we can grow advisers to cover them”. Goldman Sachs currently has 700 advisors.
FINSUM: So they only have 700 advisors, but the typical client has over $50m in assets. Goldman is certainly going after the high margin strategy here.
(New York)
While the idea is more important for retail investors, we thought Bloomberg’s article today warning about buying ETFs might also be relevant for advisors. Bloomberg argues that the name “ETF” has become so vague as to be almost meaningless, and that investors need to be very disciplined in understanding the fund before buying it. The catch-all term “ETF” now encompasses everything from ultra-low cost index tracking funds to hugely leveraged volatility funds, all traded under often simple names and tickers.
FINSUM: The name of the game here is to read the fund prospectus and deeply understand the product being bought. But advisors already know that!
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(Washington)
The SEC says that a lack of fee disclosures related to conflicts of interest may be rife across the wealth management industry. Now the SEC is giving a free pass to those that have failed to disclose. So long as investors come clean and give money back to investors, they won’t be punished. The biggest abuses seem to be in the lack of disclosure of mutual fund fees, which goes against the rules laid out in the Investment Advisers Act of 1940. Those who come forward will not face civil monetary penalties, but that special treatment will only be for those who come forward voluntarily.
FINSUM: Hard to say how big of a problem this is. But it does sound like this might be a good way to clean up the issue quickly.
(New York)
The president of Wells Fargo Advisors, David Kowach, shared his views on the industry yesterday. He says that advisors must embrace technology, bridge the generation gap, and become more professional in order to thrive. While some see technologies, like robo advisors or artificial intelligence, as a threat, Kowach says these may “displace lower-value activities, but not meaningful, deep client relationships and caring”. He says it is hard to disrupt advisors who really deeply understand their clients.
FINSUM: Pretty vague and bland platitudes about wealth management, but we thought some of our readers might like to hear them. We do agree that there is a human element to the client-advisor relationship which will be hard to disrupt.
(Washington)
Yes, yes, we know—yesterday we said the new SEC fiduciary rule would be launched in the fall, now we are saying the spring. Yes, it is confusing, but so is the whole DOL-SEC joint fiduciary rule process. A new article in WealthManagement cites two well-respected experts on the issue as saying that they expect the rule to debut within 3-5 months, which could mean either in May or July, much earlier than the autumn date we reported yesterday. However, aside from timing, there are two huge questions lingering over any new rule. Firstly, how comprehensive will the rule be; and two, will states—which are fed up with the federal government wasting time—accept the new rule, or press ahead with their own.
FINSUM: There is still a very good chance that the new rule will get smashed by political fighting and states will forge ahead in creating a national patchwork of rules.