Fiduciary Duties Need to Extend to Research Most of the coverage of the SEC’s recent proposal to replace the DOL Fiduciary Rule has focused on the different standards for brokers vs. advisors and the shortcomings of a disclosure-based approach to regulation. We agree with many of these criticisms, as we wrote last week before the proposal was released. However, the SEC’s proposal contains an even more fundamental flaw. Even if brokers were held to a fiduciary standard of conduct, the ambiguous interpretation of the fiduciary Duty of Care makes any regulation difficult to enforce and confusing for all parties. The SEC needs to offer a more

Investing in a company without thoroughly analyzing all of its 10-Ks and 10-Qs is like hiking in unfamiliar terrain without a map or GPS. Even if you’re physically fit, you’re putting yourself at unnecessary risk by not being as informed as you should be about the journey you’ve undertaken. A new study from Alan Crane, Kevin Crotty, and Tarik Umar of Rice University shows just how important reading financial filings can be. The authors found that funds accessing SEC filings in a given month averaged 1.5% higher annualized returns than those that didn’t download any filings. Sadly, the study also found that

After lengthy delays and attempts to kill the regulation, the Department of Labor’s Fiduciary Rule went in to partial effect in June 2017. Now, the fifth circuit court has struck down to the rule, after concluding that the rule “overreached” and was “unreasonable.”  While the ruling could end the Fiduciary Rule as law, it cannot erase the awareness the DoL raised nor can it stop market forces leading the business towards a more ethical place. Fiduciary Rule as Law May Still Exist Despite the ruling, attorneys note that the Department of Labor has many ways to respond. First, it could

For March 5, 2018, our forensic accounting red flag comes from a specialty pharmacy company with rising supplier concentration. We pulled this highlight from yesterday’s research of 133 10-K filings, from which our Robo-Analyst technology collected 20,292 data points. Our analyst team used this data to make 3,309 forensic accounting adjustments with a dollar value of $434 billion. The adjustments were applied as follows: 1,415 income statement adjustments with a total value of $38 billion 1,370 balance sheet adjustments with a total value of $167 billion 524 valuation adjustments with a total value of $228 billion Figure 1: Filing Season

Despite over 92% of the 193,000 comment letters opposing delay, the Department of Labor’s Fiduciary Rule has been officially delayed until June 9. No matter the legalities, investor awareness is higher. As Michael Kitces recently tweeted “…Can’t unring this bell now…” Interest In Fiduciaries Driven To New Highs Figure 1 provides the data behind the term “fiduciary” reaching all time highs as measured by Google Trends. Figure 1: Interest In “Fiduciary” Remains Elevated   Sources: New Constructs, LLC and Google Trends. Major wealth management firms [e.g. Fidelity and Bank of America (BAC)] have announced their intentions to embrace the Fiduciary

Uncertainty defined 2016. Analysts tried in vain to predict the Fed’s actions on interest rates. Changing commodity prices defied investor expectations. And of course, the presidential election provided ample drama for the markets. In the midst of all that uncertainty, investors grew more and more aware of the need for real diligence. The market is increasingly aware that the accounting constructs reported by companies (especially those non-GAAP results) don’t always represent the underlying economics of the business. In 2016: Big institutional investors began pushing companies to tie executive compensation to return on invested capital (ROIC) instead of GAAP EPS. The

From: New Constructs, LLC Sent: 3/14/17 To: EBSA Fiduciary Rule Examination Subject: RIN 1210-AB79 To Whom It May Concern: New Constructs submits the following comments regarding the Department of Labor’s proposed rule entitled Definition of the Term “Fiduciary” – Delay of Applicability Date. General Comments We applaud the Department of Labor for raising awareness of the importance of fiduciary standards, especially the duty of care, the focus of our comments. No matter the final legalities, countless investors are better equipped to navigate financial markets by knowing their right to a fiduciary level of service. Few would argue against the idea

We applaud the DOL for raising awareness of the importance of fiduciary standards. No matter the legalities, the new fiduciary rule is here to stay. Few would argue against the idea that all advisors should act in their clients’ best interests. Investors are better served, and the investing business has more integrity, when the fiduciary level of service is applied. Investors want advice that is aligned with their best interests. No advisor wants to be perceived as not having the clients’ best interests top of mind. However, many people throughout the industry are still unclear as to how the fiduciary