Wealth Management
(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.
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(New York)
A lot of advisors have been under pressure to cut their fees. Pressure from competition, both digital and human, has reportedly put downward pressure on the fees advisors feel they can charge. However, Barron’s has put out a piece arguing that advisors should not cut their fees. The reason why stems from the results of a survey which found that advisors who lowered their fees actually brought in less assets and experienced less revenue growth than when they left fees higher. An industry commentator summarized the situation this way, saying “That supports something we’ve seen, frankly, for 15 years, which is, clients don’t leave because of price; they leave because of service issues”.
FINSUM: We think this is a bit of a misleading survey, at least if you buy the “services issues” theory. The reason why is that it is only advisors who have service issues that are cutting fees, which means the lower asset growth does not really have to do with fees, it has to do with a problem with the advisor.
(Washington)
The fiduciary rule saga presses on. Just when it looked like it was all over and the DOL had finally avoided its own rule, the court battle is not over. A new group of state attorney generals has just asked the to be allowed to appeal the fifth circuit court’s ruling against the DOL rule. California, Oregon, and New York have all asked for a rehearing of the court’s May 2nd decision to deny their request to step in as defendant. In their appeal, the states said “The federal government is no longer pursuing this appeal … Given that posture, the exceptional importance of the issues, and the grave harm the states will suffer as a result of the panel opinion — billions of dollars in lost retirement income to their residents and tens of millions of dollars in lost tax revenue — the states respectfully request that the court reconsider the decision”.
FINSUM: This is dragging on so long it is even getting annoying to report on! This does not seem likely to be granted, but one can never be sure.
(Washington)
Advisors have recently been feeling relieved about the fifth circuit court ruling that struck down the DOL’s version of the fiduciary rule. However, it may not be time to jump for joy yet. The fifth circuit is supposed to issue a mandate which vacates the rule, which takes it out of force. It is unclear why the fifth circuit court has not done so yet, but it is starting to make the industry nervous.
FINSUM: Most say the court simply has not gotten around to issuing the mandate yet, but that seems odd given it has been two months since the verdict. The next date to watch is May 16th, as that is the deadline for states and other entities to apply for appeals to the ruling.