Wealth Management
(Washington)
The DOL rule is on the way out and the SEC best interest rule is on the way in, but that did not keep the SEC from taking a parting shot at the DOL. Outgoing SEC commissioner Michael Piwowar, long a critic of the fiduciary rule, said yesterday “I think it was a terrible, horrible, no good, very bad rule … It set up an unworkable, impossible set of standards for people to comply with. The Department of Labor couldn’t have cared what we thought and what you all thought, didn’t listen to Finra, didn’t listen to state regulators or the insurance regulators, and went forward with a rule that proved to be unworkable”. Piwowar is expected to leave the SEC on July 7th following his resignation.
FINSUM: We could not think of a more comprehensive critique of the DOL rule. We think the SEC really “gets” it.
(Washington)
Advisors all over the country are wondering about a simple question—why the SEC did not use the word “fiduciary” in its new best interest rule. The answer to the question had remained obscure until this week, when SEC chairman Clayton answered it at a conference following a question by FINRA CEO Robert Cook. Clayton said that the new rule is “definitely a fiduciary principle, just like the fiduciary duty in the investment advisor space is a fiduciary principle”, but continuing that calling standards for both brokers and advisors “fiduciary” and “then defining them would not make it clear that the relationship models were different”.
FINSUM: So basically the SEC avoided using the word so as not to muddle the difference between the relationships of brokers to clients vis-a-vis advisors to clients.
(Washington)
It was already all but over, but now it is really over and done with. States, including Oregon, California, and New York, made a last ditch (and well-worded we might add) bid to step in as defendants in the Fifth Circuit court case regarding the DOL fiduciary rule. The sates want to step in to appeal the rule. Last week was their second attempt to do so, and now the Fifth Circuit Court has turned down their second push, which means the ruling appears final. The denial was made by the same panel of judges as originally vacated the rule, though the denial was unanimous this time.
FINSUM: We think the rule is finally gone for good, but never say never in this story.
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(Washington)
So we don’t usually write a story this “editorially” driven, but we wanted to share our view on the new SEC fiduciary rule, and not so much on the rule itself, as the way the SEC is handling it. While we all know the SEC’s new rule came in way less onerous than expected and there are major hurdles to its implementation, we really like the way the SEC is approaching its process. The rule is now open for comment, and listen to SEC chief Clayton’s comments on it, “I am very interested in the comments that come in, whether people think this current proposal fits their current relationships with their clients … I also want to understand, are we doing violence to the investment advisor model in any way? Are we doing violence to the broker-dealer model in any way? People should comment”. Commenting on the broker-dealer model specifically, Clayton said “there are clearly many people for whom that relationship is a more economical model than the investment advisor model”.
FINSUM: Clayton really understands the different considerations for clients and advisors. In our view, these are the most insightful comments we have heard from any wealth management-focused regulator in some time.
(New York)
Morgan Stanley is a world leader in wealth management, but its asset management unit has long left something to be desired. It first sold off the arm after the Crisis, but has been building a new one since. The firm currently has $469 bn under management, paltry compared to Goldman Sachs and JP Morgan, both of which has over $1 tn. However, CEO James Gorman says one of his seven year goals is to reach $1 tn. The area is a priority for the firm and according to Gorman “one of the most important growth vehicles we have as a firm right now. I’m very excited about it”.
FINSUM: We imagine there would be a lot of synergistic growth between the wealth and asset management businesses, which would be great for the firm. Additionally, asset management is a capital light business that boosts ROI, which both investors and management love.
(Rome)
In a very interesting, or maybe offensive, release, the Vatican has just put out commentary from the Pope which criticizes financial advice. In a bulletin called “Considerations for an ethical discernment regarding some aspects of the present economic-financial system”, the Pope appears to criticize advisors who are not fiduciaries, listing among its “morally questionable” activities, “a failure from a due impartiality in offering instruments of saving, which, compared with some banks, the product of others would suit better the needs of the clients.
FINSUM: We have no problem at all with fiduciary advice, but we think it is very close-minded when anyone broadly calls non-fiduciary advice immoral.