Wealth Management
(Washington)
There are a lot of articles saying that the DOL’s fiduciary rule is on its last legs (and we aren’t sad about it). However, the reality is that despite the ruling, the DOL’s infamous rule lives on. Even if it does not stay in its current form (which seems likely), the fiduciary focus the rule brought to the industry is going nowhere, and the coming SEC rule will likely take what the DOL did to even greater lengths (but hopefully more convincingly). As an example of how the spirit of the rules lives on, here is a comment from the CEO of the Investment Adviser’s Association, who says “Now, are you really going to send a letter to your clients saying, never mind I'm not going to act in your best interest? No. No, it's too late. So some of this is not going to change in real life”.
FINSUM: Fiduciary duty is here to stay but the “fiduciary rule” is not. We think that could be a win for all parties.
(New York)
Goldman Sachs is in the middle of beefing up its wealth management business. It is adding advisors and trying to boost AUM. The division is very small compared to competitors, but its advisors have very high average revenue ($4.5m vs $1.1m at Morgan Stanley). Now, it is also boosting its securities-based lending offering. Through a program called GS Select, the firm aggregates other wealth managers and makes loans of between $75k to $25m to their clients, all backed by the securities held in the portfolio of the borrower. The program was just joined by LPL, which is now one of 40 firms participating in GS Select.
FINSUM: Aggregating other wealth managers to provide lending sounds very profitable. Evidently GS is also allowing much smaller managers onto the platform.
(Washington)
Advisors should breath a sigh of relief today. Following the fiduciary rule’s resounding court defeat last week, the DOL has done what the industry has been hoping it would—accept the decision. Following the ruling, the DOL now says it will not enforce the fiduciary rule in any way. A DOL agency spokesman said clearly “Pending further review, the [Labor Department] will not be enforcing the 2016 fiduciary rule”. The DOL will also very likely not challenge the court’s ruling.
FINSUM: Given that this is an entirely new DOL versus the one that drafted the rule under Obama, their behavior makes total sense. The way is finally nearly cleared for a new rule.
More...
(Washington)
The ruling against the DOL’s fiduciary rule last week threw a monkey wrench into everyone’s assessment of the future of the rule. While the DOL looked less likely to ultimately implement it, the big worry was that the ruling might dissuade the SEC from getting involved in the space. Well, it appears there is no immediate reason for concern, as SEC head Jay Clayton went on the record yesterday to clarify his agency’s position. Clayton said the ruling “hasn’t affected the way I’m approaching this … I haven’t had any discussions with DOL about what it means from a broader perspective of administrative law. But, as far as I’m concerned, we’re moving forward”. Speaking about the timing of issuing a new rule, Clayton said “the sooner the better”.
FINSUM: This is good news. Whether or not you want any fiduciary rule, one needs to be happy the SEC is stepping in because it lowers the likelihood that each state creates its own rule.
(New York)
Advisors large and small need to worry about this next bear market, as the latter may not survive, according to Barron’s. The reality is that there are many small RIAs who have kept their business alive because of the long bull market. However, “The smaller you are, the more vulnerable you are, because if the market goes down 15%, it gets harder and harder to run a business”, says Fidelity’s clearing division. Margins are already quite slim for small RIAs and lower AUM from market losses would likely kill many businesses. “When the stock market drops, revenues drop, and no expenses immediately come out of the system”.
FINSUM: The big question is whether RIAs who feel vulnerable should perhaps try to sell to larger players now instead of risking a bear market.
(Washington)
So at first the recent court ruling against the fiduciary rule looked like good news for the industry. A court had finally ruled against the rule, which seemed to be a sign that it would never fully be implemented, while also raising the odds it would be reviewed by the Supreme Court. However, Barron’s says that the ruling may have a perversely negative effect as it may cause the SEC to re-examine its efforts at drafting a fiduciary rule. According to the Investment Adviser Association, the ruling “is likely to give pause to the SEC with regard to its own fiduciary rulemaking”.
FINSUM: The SEC likely won’t want to get involved in a protracted legal process over whatever rule it proposes, so it may continue what it has done 2010 with regards to the fiduciary topic—nothing.