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.
Commentary from Our CIO—Second Quarter 2021
Global stock markets continued to surge in the second quarter. In our assessment of the macroeconomic backdrop and outlook, we continue to expect a strong global economic recovery over at least the next 12 months. In this quarterly commentary, our Chief Investment Officer, Jeremy DeGroot, reviews the current reasoning for our portfolio positioning, outlook on inflation, and forward-looking scenario analysis on the broader economy and markets.
Research Update: Increased Return Expectations for U.S. Stocks
As the economy and financial markets continue their recovery from the pandemic’s impact, our recent analysis resulted in improved expected returns for U.S. stocks. In this post we summarize our analysis and why we think an increased allocation to U.S. equities could benefit the risk-adjusted return profile of our portfolios.
Advisor Q&A: Tax Planning and the American Families Plan with Senior Advisor Chris Wheaton
The American Families Plan was recently released by President Joe Biden and includes many of the provisions outlined during his campaign. We asked Litman Gregory Senior Advisor, Chris Wheaton, to answer some questions about key proposed tax law changes, and related tax planning ideas for our clients to consider in 2021 and beyond.