Wealth Management
(Washington)
The SEC’s new best interest rule has garnered a great deal of feedback. While on the whole the industry’s reception has been positive, there is some criticism and the view that the rule needs fine tuning, particularly in regards to the use of the “advisor” title. Well, there is apparently also a big loophole in the rule: there is no best interest standard for brokers providing advice to 401(k) sponsors because such sponsors to not fall under the SEC’s definition of a “retail” investor. According to the American Retirement Association, “The commission should clarify that the definition of retail customers include nonprofessional fiduciaries of retirement plans … Otherwise, what you have is an unlevel playing field”.
FINSUM: This seems like something the SEC just missed (especially because the loophole is created by two separate components not fitting well). We suspect this will be amended.
(New York)
2017 was great news for the wealth management market, especially for fiduciaries. The total AUM for the RIA market grew an astounding 20% in 2017, and not all of it was because of market gains. Alongside AUM growth, revenue also increased a median of 15.8%. That led to a great deal of new hires, which correspondingly sent profit margins a bit lower. According to one wealth management market analyst at TD Ameritrade, “Clearly firms feel they are producing enough to warrant the added headcount … It’s a very good sign here in terms of firms willing to reinvest in talent”.
FINSUM: The RIA market continues to look very strong as clients keep moving in that direction.
(Washington)
After about a thousand steps, the years-long saga of the DOL fiduciary rule is finally over. As of this week, the DOL missed its final deadline to apply for an appeal of its fifth circuit court loss. The DOL had until Wednesday to file for a Supreme Court appeal of the ruling, which vacated the rule back in March. The missed deadline is no surprise, as the Trump-era DOL has completely backtracked from enforcing the rule.
FINSUM: This seems to be the final nail in the coffin. Now it is time to worry about the SEC’s best interest rule, especially with regard to titles.
More...
(Washington)
Brokers rejoice, FINRA is about to makes updating your records simpler and easier. In an effort to reduce the compliance burden and costs, FINRA is reforming its CRD system. The WebCRD interface will see an overhaul, which should make things easier for brokers. According to FINRA president Cook, “The transformation will allow FINRA to develop systems that help firms effectively maintain compliance programs and reduce compliance costs, while continuing to operate and enhance BrokerCheck as an essential tool for investors”.
FINSUM: The update is pretty short on details at the moment, but at least FINRA is trying to reduce the regulatory burden.
(Washington)
Well, it was inevitable. The industry has officially started its major fight against the new SEC rule which seeks to stop brokers from using the title of “advisor” (or “adviser”). The National Association of Insurance and Financial Advisors (NAIFA) is on a winning streak, having been part of the group to take down the DOL’s fiduciary rule. Now it is turning its focus to the SEC title rule. According to NAIFA “We are still analyzing the almost 1,000 pages, and we’ll certainly comment on it, but one area where we have an issue already is the limit on who can use the term ‘advisor”.
FINSUM: It is critical to mention a couple of things here. One, this group, which has been very successful in taking down regulation, is an association of mostly brokers, not fiduciaries, so they have a keen interest in solving this situation. Secondly, the word “advisor” is part of their own name, so the new rule cuts to the heart of their very existence. We have a feeling this component of the SEC rule might prompt as much backlash as the DOL rule did.
(Washington)
There has been a great deal of industry feedback on the SEC’s best interest rule already and the comment period has only just begun. One point of contention among many is that the SEC proposal did not define the term “best interest”, leaving it vague and wide open to interpretation. However, that was likely the point, and the SEC may be very clever in doing so. According to Charles Schwab, “Once you define something, then it becomes easier to figure out how not to be engaged in that definition”.
FINSUM: The SEC left the definition of best interest out of the proposal because it wants to make it harder for those in the industry to side-step the regulation. Smart play.