Wealth Management
(Washington)
The DOL made an announcement yesterday, telling the industry that it would temporarily suspend enforcement action of various parts of its fiduciary rule. The department said it “will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules”.
FINSUM: This was largely expected given the DOL’s loss in the fifth circuit court, but evidently the wording of it came as a surprise.
(Washington)
On Friday we reported that the DOL had let its deadline for asking for an appeal to its fifth circuit court loss pass. That meant the DOL could no longer challenge the ruling and was effectively letting the rule die. However, the AARP, as well as the states of California, Oregon, and New York, had all requested the court to let them stand in as defendants in an appeal. After about a week of time in limbo, the court has now denied all the requests, meaning case-closed, the DOL’s fiduciary rule is no more.
FINSUM: The DOL rule is so dead, that even the Consumer Federation of America, which was a major champion of it, has said it is now just focused on getting the best version of an SEC fiduciary rule.
(Washington)
Last week the DOL put out a warning to firms about launching and holding ESG investments. About the socially and environmentally conscious investments, the DOL reminded fund providers that fund performance needs to trump any social impact considerations of the funds. Despite the warnings, Bank of America has just launched five new model ESG portfolios.
FINSUM: What does this mean exactly? ESG portfolios have an explicit focus on social good, which at times could mean the funds either out- or under-perform. To us, this is an odd and pointless warning.
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(Washington)
Ding, dong, the fiduciary rule is dead. As was widely expected, the Department of Labor missed its deadline this week to file for an appeal of the fifth circuit court ruling against its fiduciary rule. That means that the ruling given by the fifth circuit court, which vacated the rule, now stands, leaving the rule is all but dead. However, other bodies, including the AARP and the states of California, New York, and Oregon, have all applied to stand in as defendants in the case. None of these requests have been processed yet.
FINSUM: So it will be very interesting to see whether the fifth circuit court approves these requests, especially considering it was so adamantly against the rule.
(New York)
In what comes as an interesting article, Bloomberg has published a piece arguing that instead of the status quo, asset managers should be paying investors for the chance to manage their money. The idea comes from Mercer, a top asset management consultant, and argues that to overcome the problems plaguing active management, investors should agree to pay out a fixed percentage return to investors over a certain timeframe, with the manager keeping any excess that is produced. “We keep getting told by managers that their value creation process tends to be longer than the typical horizon of an investor … This in turn leads to short-termism. Under the new model their investment time horizon can be aligned to their value creation process”.
FINSUM: This would be a total reconceptualization of the way the industry works. The big question is how the investor would get paid if the manager fails to meet the minimum payout. It sounds like third party insurers would have to take part. This is a very interesting proposition.
(Washington)
We urge our readers in strong terms to not get their hopes too high about the new SEC “fiduciary rule”. Putting that in quotes was at the heart of why the rule looks very likely to suffer setbacks and ultimately fail to become an industry standard. The rule is already facing an onslaught of attacks, both externally and internally by the SEC’s own commissioners. The rule has been lambasted as not being a true fiduciary rule, and the long and arduous rulemaking process, combined with a formal public commentary period, mean the rule seems likely to fail.
FINSUM: We don’t think there is any way this rule will turn into an industry standard looking anything like it currently does. We suspect it is time to go back to the drawing board.