Concerns have been swirling in the news headlines lately regarding the future of this financial reform legislation. Why? Since taking office, President Trump and Republicans in Congress have called for a repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation, passed in 2010, was aimed at better protecting consumers and addressing the risk of “too-big-to-fail” banks. Dodd-Frank’s major provisions include
A repeal of Dodd-Frank would have wide-ranging impacts, in both the short and long term. Yet, in reality, eliminating or even overhauling the multifaceted legislation can’t be done with the stroke of a pen and a flurry of executive orders. It would involve approval by multiple government agencies; the passage of new legislation by Congress that could gain the President’s signature, or withstand a veto; and mandatory public comment periods. Each step of the process would be subject to delays and protracted negotiation by multiple interest groups.
In short, this issue is likely to play out over years. We will certainly monitor developments, but it would be unusual for us to make changes to our portfolio positioning based on the possibility of deregulation within an individual industry or sector.
The Department of Labor’s (DoL) Fiduciary Rule had been scheduled to become effective in April 2017. This Obama administration rule requires advisors and broker/dealers who advise on retirement, ERISA assets, or IRA accounts to act in clients’ best interests and place clients’ needs before their own. However, last week, Trump signed a memorandum requiring the DoL to review the rule. While officially this only delays it, the action was widely interpreted as the first step to tabling it.
In terms of impact, as a registered investment advisor, Litman Gregory is already bound to a fiduciary standard. Putting clients’ interests ahead of our own is firmly embedded in our company’s DNA; nothing will change in the way we advise or interact with clients. The DoL rule was designed to ensure that, for the first time, others would be subject to fiduciary standards.
Financial stocks, especially those of big banks, including JPMorgan Chase, Bank of America, and Goldman Sachs, initially jumped. The eventual outcome—repeal, rollback, or status quo—is highly uncertain though. While we don’t make calls on individual sectors, we’ve been cautious on U.S. stocks for quite some time, believing valuations are expensive relative to fundamentals and versus other regions’ equities. That makes them especially vulnerable to a negative surprise.
Do you have more questions or want to discuss the topics covered in this post? Please call your Litman Gregory Wealth Advisor or contact us here.
Our Perspective and Strategy During Turbulent Times
It’s been a difficult year, to say the least. As September comes to a close, we’ve weathered a disappointing month in the financial markets after a relatively benign August and a strong July. As is the case in any bear market, investors are braced for more to come. In this post we provide a summary on the forces that brought us here, how we’re responding, and what to expect going forward.
With Inflation Rising, Why Have Inflation-Protected Bonds Declined?
As the outlook for inflation turned less “transitory,” treasury inflation-protected securities became interesting to many investors. But these bonds have shown they aren’t immune to broader bond market declines, leaving investors to wonder, “How can my inflation-protected bonds be down when inflation is on the rise?” In this post we explain how these bonds are impacted by different market variables, including inflation, and why we believe they still deserve a place in our client portfolios.
I Savings Bonds Currently Offer a Generous Yield
With current yields over 9%, Series I Savings Bonds seem to offer a "free lunch". These bonds are issued by the U.S. Government and pay interest linked to current inflation rates, making them an attractive option for most savers and investors.