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The INsiderblog

InvestmentNews reporters offer their take on intriguing or controversial articles from around the web.

Oct 10, 2019

How free trading threatens the RIA business model

By Jeff Benjamin

With Fidelity Investments jumping on board Thursday as the fourth major discount brokerage firm to eliminate commissions for most online trades, the new game for brokerages officially centers on net interest income, or so the firms are suggesting.At first blush, it's easy to follow the argument that the discount brokerage business is now openly pursuing an ultimate goal of gaining scale and making money like a bank."If you look at Fidelity and its closest competitors in the discount brokerage space, they all derive the majority of revenues from the net spread between the interest they pay on assets and the interest income on those assets," said Cathy Seifert, an equity analyst covering the brokerage industry at CFRA.While the lost trading revenue will hurt some brokerages more than others, it's true that they are all adept at making the most of idle cash accounts. However, a more critical or perhaps cynical view might focus on where... Read full post

Oct 3, 2019

Investigation into 403(b) costs, sales could be an A+ for teachers

By Greg Iacurci

New York's investigation 403(b) plan costs and sales tactics used by insurers is welcome action from regulators that will hopefully be accompanied by long-overdue reforms and financial relief for vulnerable consumers.The exploited consumers in this case are schoolteachers. Whereas corporate workers save for retirement in 401(k) plans, which afford them a relatively high degree of protection, many teachers don't enjoy such luxuries. They save in 403(b) plans, which are offered by public schools and tax-exempt organizations and most of which don't fall under the purview of federal retirement rules. This dynamic exposes teachers — primarily those teaching kindergarten through 12th grade, according to experts — to shady sales practices and high fees, primarily from insurance companies, which offer the bulk of 403(b) products. "It's ripe for abuse," said Tony Isola, who heads the 403(b) division at Ritholtz Wealth Management,... Read full post

Sep 11, 2019

The SEC botched title reform. New York got it right

By Greg Iacurci

Imagine you want to go skydiving. Jumping from a plane is a high-risk activity. You, as a novice, seek out professional advice to ensure you use the proper technique. After all, how could you possibly know how and when to deploy a parachute, and to accurately steer to a desired landing spot? You have the choice of hiring one of two "skydiving advisers" to help guide you safely to the ground. Ostensibly, their business cards and storefronts display the same qualifications — they're both professional advisers. Both of them must be equally qualified, you think.But these titles mask a simple truth — one "adviser" has over 1,000 hours of jumping experience while the other "adviser" is a parachute salesman. Would this glaring difference be something you'd like to know before jumping from the plane?This situation parallels the financial-advice industry's problem with titles — whereby brokers and insurance agents selling... Read full post

Jul 19, 2019

Goldman Sachs has what other 401(k) firms want

By Greg Iacurci

Goldman Sachs is poised to reap big profits from the 401(k) market. I'm not talking about its traditional asset management business, however — it's in wealth management that the firm could make its biggest mark.To many 401(k) industry executives, consultants and financial advisers, 401(k) participants represent the profit engine of the future, especially as margins continue to shrink in other business lines. Battle lines are emerging in the race to manage the household wealth of these retirement savers, whether through a full-blown, high-touch service for ultra-high-net-worth business owners or a more hands-off, digital approach for the rank and file. Goldman has positioned itself as an early front-runner in this 401(k) profit war through various business lines that give it access to employees across the wealth spectrum.Goldman Sachs Private Wealth Management and The Ayco Co. can cater to high-net-worth and ultra-high-net-worth... Read full post

Jul 9, 2019

Embracing the highs and lows of cannabis investing

By Jeff Benjamin

When it comes to investing risks and opportunities, there is currently nothing quite like cannabis.While its recreational use is still illegal at the federal level, the momentum behind a push to regulate marijuana alongside alcohol is unmistakable.Since Colorado and Washington set the pace in 2012 by making cannabis legal for recreational use, nine other states have followed suit. Marijuana has been decriminalized in 15 states and it's legal for medical use in 47 states. In layman's terms, at the federal level, one could say marijuana is less illegal than it is frowned upon.There are currently four proposals before Congress that present various ways of decriminalizing pot at the federal level, which would, or at least should, open the floodgates for investment opportunities.Until then, despite the availability of some easy entry points into the space, financial advisers, being the responsible adults that they are, have generally... Read full post

May 2, 2019

Alexander Acosta is the Night King from 'Game of Thrones'

By Greg Iacurci

For those of us who love the HBO series "Game of Thrones" — and I'm guessing that's pretty much everyone reading — one question has nagged for the majority of the show's run: Just who is this Night King guy?We know a few things. The signature villain was once human. He has ominous horns jutting from his head. He doesn't talk much. He has glowing blue eyes. He reanimates scores of dead folk into murderous zombies, all with a nonchalant half-raising of his arms. Oh, and he wants to kill everyone in the Seven Kingdoms and create an "endless night."But we don't know much else of substance about the Night King or his back story. I repeat, who is he?Well, folks, we now have our answer. It's Alexander Acosta. The secretary of Labor is the Night King, and he's bringing something back from the dead: the DOL fiduciary rule. The Department of Labor's rule, an Obama-era regulation that raised investment-advice standards in retirement ... Read full post

May 1, 2019

Asset managers preparing to launch nontransparent ETFs

By Jeff Benjamin

Financial advisers would be wise to start boning up on the ins and outs of nontransparent exchange-traded funds, because they might be coming soon to a platform near you.For years, asset managers have been trying to quietly nudge the concept of an ETF that discloses its portfolio holdings on a delayed basis, like a mutual fund, through regulatory approval. The three-quarters nod of approval earlier this month from the Securities and Exchange Commission is as close as these ETFs have gotten to reality.Even though the SEC's preliminary approval applies primarily to Precidian Funds and a handful of asset managers that have already entered into licensing agreements for its new ActiveShares, the industry has a distinct appetite for the products.A Cerulli Associates survey of 35 asset management firms found that 46% would build out nontransparent ETF capabilities if they receive SEC approval. And 55% of respondents said they would launch a... Read full post

Apr 12, 2019

Who benefits the most from non-transparent ETFs?

By Jeff Benjamin

After years of scrambling and determination, it looks like the actively managed mutual fund industry might finally get its wish to manage exchange-traded funds without having to publish daily investing positions like all other ETFs.The question now is, who benefits from this much-coveted nontransparent ETF structure?The short answer is, it could be investors.The preliminary nod of approval by the Securities and Exchange Commission earlier this week for a new type of ETF by Precidian Funds has been interpreted by some as an opening of the flood gates for big brand-name fund complexes that haven't yet climbed aboard the fast-moving ETF bandwagon.It has long been argued that concerns over exposing portfolio positions through traditional active ETFs have kept such major active managers as T. Rowe Price and Capital Group from entering the ETF space.(More:​ Demand for growth stocks produces record inflows for ETF)That fear of... Read full post

Apr 10, 2019

Will Merrill Lynch plan to add fresh advisers to offices be a boon — or a bust?

By Bruce Kelly

Merrill Lynch's plan to seat up to 300 young advisers in branch offices with its most experienced and profitable financial advisers could be a boon to business, with referrals flying back and forth, or it could backfire and add unnecessary friction among its sales force, according to industry observers. Merrill Lynch has long been the financial advice industry's leading trainer of young brokers. Along with two key competitors, Morgan Stanley and UBS Financial, the firm has said in the past couple years that it was going to reduce its effort to recruit experienced financial advisers from rivals, which is expensive and risky. Instead, those firms want to focus on organic growth, push advisers to use new technology and, in Merrill Lynch's case, reward advisers for selling products from its parent, Bank of America. Now Merrill Lynch is taking those initiatives one-step further. It said on Monday it intends to hire 300 young advisers, who... Read full post

Apr 2, 2019

What's keeping advisers from using investment model marketplaces?

By Ryan W. Neal

Investment model marketplaces were one of the advice industry's buzziest trends in recent years, hyped as a potential disruptive threat to turnkey asset management platforms (TAMPs). About a half-dozen of these marketplaces launched in 2017 and 2018, offering a digital platform for independent advisers to select third-party investment models. Fintech vendors including Orion Advisor Services, Riskalyze and Oranj all produced their own offerings, as did some major custodians.(More: NorthStar Financial acquires $10 billion TAMP)But in 2019, it's unclear how much traction these platforms really have with advisers. I was unable to find a single adviser using a model marketplace to select third-party investments, and the firms won't say how many advisers are actually using the platforms. "Have you seen any press releases come out about the raving success of any of those model marketplaces? Yeah, me neither," wrote Kyle Van Pelt, a strategist ... Read full post

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