Wealth Management
(Washington)
The SEC rule has been a getting a lot of pushback both in the press and by industry commentators. Now, in what only seemed a matter of time, a more formal campaign against the new rule is taking shape. The new “Raise Your Voice” campaign is being organized by a group of RIAs and seeks to unite fiduciaries in a push against the grouping of brokers and advisors in the new rule.
FINSUM: While we do see the SEC’s logic in how it drafted the new rule, brokers and advisors are very different animals and we believe more delineation needs to be drawn between the two.
(Washington)
Advisors all across the country see a major flaw in the SEC rule. Fiduciaries feel they are being completely short-changed by the rule because the way the SEC has drafted it makes advisors and brokers look like identical twins, almost eliminating the distinction from a client’s perspective, according to the “Raise Your Voice” campaign, or a group of advisors pushing against the rule. “The proposed rules depict broker and advisers as essentially the same, like identical twins, but without identical investor protections”, says the spearhead of the campaign, continuing that “The legal, contractual, business and cultural differences dividing brokers and advisers are important and must be clearly stated and explained”. The campaign is encouraging advisors to make their opinions heard while the SEC comment period is open (it closes August 7th).
FINSUM: The SEC tried to make a rule that avoided over-delineating things as part of an effort to avoid loopholes, but this non-standard approach has made many quite angry. We suspect the rule will be edited significantly.
(New York)
If you are an RIA looking to sell your firm, the environment is looking stronger and stronger. Terms for deals have improved mightily. For instance, whereas terms from a few years ago were typically 30% paid up front with the rest paid over five years based on client retention, currently 60-80% is being paid up front with the remainder paid off over a year. According to Joe Duran of United Capital, “The market is frothy, and terms for sellers are getting better”.
FINSUM: The market is getting better because there are many more buyers than sellers, which is raising prices and pushing terms in favor of sellers.
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(New York)
For the first time since WWII, Americans are retiring in worse financial condition than the generations that preceded them. Those aged 55 to 70 are preparing to retire with the biggest financial burdens and lowest benefits since Truman was in office. Many have high debt, including paying off children’s tuitions and for aging parents. Their 401(k)s are in poor shape, with a median income of just $8,000 per year for a household of two. According to the study, which was conducted by the Wall Street Journal, more than 40% of American households headed to retirement lack the resources to maintain their current lifestyles. That is about 15m households.
FINSUM: We are having a hard time reconciling this with all the reports of how wealthy the Baby Boomer generation is, yet this comes from quite a reputable source. It must ultimately come down to wealth inequality within that generation.
(Washington)
If there is a core element to the debate going on over the SEC rule, it is whether the rule actually does anything new. Some argue that the SEC’s best interest rule is just a rehashing of the well-established FINRA suitability standard. For instance, the CFP has commented that “Our concern is that as introduced, the rule proposal may offer the appearance but not necessarily the reality of increased investor protection”. There are two areas of consternation about the rule, at least as far as consumer groups are concerned—the lack of a definition of “best interest”, and how the rule has differing standards for brokers versus fiduciaries.
FINSUM: While it does seem unconventional, the SEC’s lack of a definition of “best interest” means it may ultimately be more broadly applicable than defining it, and thus creating loopholes.
(Washington)
The SEC has been getting a grilling over its new best interest rule. The industry doesn’t like its proposed disclosure document (CSR) or its restriction on the use of titles, while consumer protection groups say the rule is not stringent enough. Yesterday, SEC chairman Clayton faced questions over the rule from the House Financial Services Committee. Answering questions on whether the rule went far enough and whether the rule should be harmonized between brokers and advisors, Clayton explained that brokers and fiduciaries have different relationships with clients and said “There is no conflict-free relationship … Disclosing [conflicts], mitigating them, making sure everybody understands what the motivations are ... that's what I want to do in this space”.
FINSUM: We think Clayton stood his ground quite well, and we particularly like that final quote, which was grounded in realism.