The Wealth Management Digest

Featuring Zoe CEO & Founder, Andres Garcia-Amaya, CFA

November 9, 2023 Watch Time: 3 minutes

https://youtu.be/TFTxP8Rh2N0Transcript: All right, so let’s start with the first one here: President Biden’s junk fee crackdown. The White House put out a statement they’re proposing through the Department of Labor, an update to the definition of an investment advice fiduciary standard under the ERISA Act. It would also ensure that financial advisors, brokers, and insurance agents would be held to the fiduciary standard on rollover RIA. In the past, the rule was held more on retirement accounts like 401(k)s, etc. They are now trying to broaden that fiduciary responsibility to roll over. Specifically, they touch on annuities, where insurance agents could recommend those products, and that regulation for those types of products for RIAs are usually done at the state level. So that’s where they seem to be focused. As always, when it comes to these proposals, the devil’s in the details, but it’s a good start for the government to try to take a stab at attacking some of this junk fee, especially when it comes to annuities that insurance brokers try to sell to clients in their RIA accounts.

The second headline here is that Charles Schwab announced a mass layoff of 2,000 employees in the United States. No doubt, this has to do with the further consolidation of TD Ameritrade in Schwab. We’ll see how much of an effect it has on service, considering many of these layoffs were done on the custody side, on the RIA custody side of the business.

The third one is that Fidelity announced they’re removing high-yield funds as automatic cash sweep options for RIAs. So, they’re saying that starting later this year, FCash, which is Fidelity’s core cash option, will be the only automatic cash choice available for all new brokerage accounts open by custody clients. FCash’s current yield is 2.26, which is much lower than other money market options out in the marketplace. So essentially, what you’re going to get as an RIA is you’re going to have to kind of like similar to Schwab, it creates more work for you to move cash clients cash accounts to make sure that they’re not getting paid 2.26 versus what’s out in the market at 5%. Schwab already has done this. Their current bank sweep rate is at 0.45. So Fidelity’s will still be higher. But now, Fidelity will be much lower than what market rates would give you in a money market currently. That’s it for this week on what is affecting RIA out there in the market. Have a great week, and look forward to chatting next week.

– Andres

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