Wealth Management
(Washington)
Here is an eye-opener for you: odds are that 7 months from today the SEC’s Reg BI and the new fiduciary rule will be no more. The Democrats—who are currently leading in the polls—have published an action plan for a potential Biden presidency. Included in it was a clear plan to reverse the current version of Reg BI, all according to a section of the report entitled “Guaranteeing a Secure and Dignified Retirement”. On page 24 of the document, Democrats say “Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing”.
FINSUM: Because of how polls are trending, these kind of manifestos are becoming very relevant for advisors to consider.
(Washington)
Many feel that the current version of the DOL’s Fiduciary Rule might be in jeopardy if Biden wins the election. The thinking is that he would quickly undue the current proposed legislation and replace it with something similar to the Obama era Fiduciary Rule. However, that seems unlikely since many courts have now blocked that version of the rule, clearing saying it overstepped its bounds. That means that a return to the Obama era version is unlikely unless Democrats also win the House and Senate, in which case they could introduce new legislation.
FINSUM: Based on how the old version of the ruled fared in courts, we think it is highly unlikely it returns intact. That said, a much stronger version than the current proposal seems likely if Biden wins.
(Washington)
The reality of the political situation in the US is that markets and the media are betting that Biden is going to win the presidency. Many also think the Democrats have a fair shot at sweeping Congress and the presidency. If either eventuality happens, especially the latter, tax hikes look likely. Biden formally announced his plan to do so recently. Therefore, a rise in corporation tax and a hike in the top tax bracket back to Obama-era levels seems highly probable.
FINSUM: The tax hikes that seem most likely will create a host of considerations for high earners. For instance, a reversion to previous tax levels would change the utility of certain pass-through entities versus other types of businesses.
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(New York)
The huge market volatility that accompanied COVID has laid the state of American retirement very bare. Not only are countless people under-capitalized for retirement, but many pulled money out in March, missed the big recovery and are now sitting with considerably smaller portfolios. This has led even the most ardent anti-Annuities advisors—mostly RIAs—to start recommending the products to some clients. Annuities can lock in income that is very hard to get elsewhere right now given ultra-low rates. Annuities ae complicated products and there are many different varieties, ranging from immediate income to variable annuities to fixed income annuities with income riders. For fixed index annuities, check out joint-life policies from Protective Life, Minnesota Life, and Delaware life. For variable annuities, look at Jackson National Life, Transamerica life, and Brighthouse Financial.
FINSUM: Annuities can be a good choice right now depending on the state of a client’s preparedness for retirement and the other assets in their portfolios. Just pay attention to the fact that most annuities providers have significantly cut payouts recently because of the Fed’s actions on rates.
(Washington)
Brokers all over the country have been nervous about enforcement of the new Reg BI rule since its implementation a couple weeks ago. While the law itself is understood, enforcement of its particulars is not, as there is no precedent or real world examples to go on. For its part, FINRA recently made comments about its forthcoming enforcement policy. According to the Associate General Counsel of FINRA, “by and large, we're going to be looking at the compliance obligations of policies procedures and training, and we're not looking at it to say
‘did a firm do everything the way that we would have done it,’ or ‘did they do everything perfectly.’ We're looking to see do they understand the obligations, and do they make a good faith effort to implement the changes that needed to be made and incorporate those in their policies procedures and training.”
FINSUM: This is generally what firms have been expecting because it is what has been broadcast, but this is a little more comforting than previous efforts out of other regulators.
(Washington)
The SEC’s new Reg BI rule has been in full force since June 30th. However, many brokers are still nervous about complying with the rule as the whole industry is still waiting on more practical guidance. Many firms feel reasonably comfortable following the principals of the rule, but certain items—rollovers being key among them—are still a little uncertain. The SEC has said it will take “good faith efforts” into account in this initial enforcement period, but that is not nearly as comforting as knowing you are following the letter of the law.
FINSUM: Given this is a whole new regulatory package and there is no historical precedent, anxiety is high. We expect new guidance will be issued soon.