Wealth Management
(New York)
Goldman Sachs says it has a new wealth management strategy, and it has to be one of the oldest and simplest ideas in the book. The bank is trying to aggressively grow its wealth business, and wants to increase revenue there by $1 bn in the next three years. Its big plan for doing so: get the money it makes for founders through its investment banking business to stay at the firm in its wealth management arm. One of the bank’s top wealth management managers says that there is no formal requirement for founders to do so, but “it’s obviously a very positive introduction”.
FINSUM: A very good strategy indeed, but then again, that is an incredibly narrow segment of clients!
(New York)
While it is the first high profile closure of a robo advisor in recent memory, it feels like the start of a big change in the industry. This week, robo advisor Hedgeable announced it was closing its doors. The platform was a smaller rival to Betterment and Wealthfront and was founded by two former employees of Bridgewater Associates. The platform received a good deal of media coverage and tried to differentiate itself via a unique offering. However, it was unable to attract sufficient assets to keep operating. The $80m it had in client AUM will now be passed on to Folio.
FINSUM: All the VC money that was funding these robo advisors is going to start running out, which means a mass wave of consolidation is coming.
(Washington)
Try not to lose your mind, but just when the industry thought the DOL’s fiduciary rule was fully dead and gone, it might be coming back. A financial advisor news site, BenefitsPro, has run a piece covering an obscure court move in North Texas on June 28th where a judge issued an order allowing anyone advising “relief” regarding the DOL rule to let the court know by July 12th. What the order means is that state attorney generals, such as from New York, California, and Oregon, could still step in to try to make a case out of the DOL rule.
FINSUM: Those states already tried to step into the Fifth Circuit Court case, but were refused. It is unclear what they will do here, but it stands to reason that they may make a go of it.
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(Washington)
A senior wealth management expert, Scot MacKillop, has just run a piece in Wealth Management, arguing that the SEC has made a big mistake in the drafting of its new rule. The piece carefully employs various SEC statements to show that there is no sound logic for why the regulator created an entirely new two-tier structure for regulating brokers versus advisors. The piece makes clear the idea that if there is no fundamental difference between the service of brokers versus an advisor (something the SEC’s Clayton has said), then why should there be a regulatory difference. The SEC could have simply extended the rule from the Advisers Act of 1940 to also cover brokers.
FINSUM: It is true that simply extending the rules to brokers would have created the littlest amount of confusion amongst clients (one of the stated aims of the SEC). But at the same time, the nature of the relationship between brokers and advisors and their clients is different, so we understand the road the SEC took.
(Washington)
Trump has named his next choice for the Supreme Court—Brett Kavanaugh. Mr Kavanaugh has a long judicial history to review, and by all accounts, he looks like a very friendly pick both for Wall Street and wealth management. He has consistently sided with the interests of financial businesses in his rulings, including rulings against regulators like the SEC.
FINSUM: Obviously all the focus of the media is on Kavanaugh’s impact in a wider sense, but from a purely financial standpoint, he appears to be very anti-regulation.
(New York)
It may have become such a part of your daily routine that you don’t notice it, but new technologies have completely transformed the RIA business. “The revolution in fintech has allowed advisors to now do in minutes what it used to take them all day to do”, says Wealth Management. With all the portfolio management software, robos, and beyond, technology has changed the nature of the business more towards client engagement and offering insights and opinions. One small RIA says new technology means they can grow AUM 10x but only make two new hires.
FINSUM: Technology does seem to have changed the nature of the business by taking out much of the mechanical work. We haven’t seen anybody that is upset with the change.