Despite No More Delay, DoL Fiduciary Still Not A Done Deal Yet!

Despite No More Delay, DoL Fiduciary Still Not A Done Deal Yet!


The big news this week was an Op-Ed published by Labor Secretary Acosta in the Wall Street Journal that declared, in no uncertain terms, that there will not be any further delay in the Department of Labor’s fiduciary rule beyond June 9th. Despite all the industry protests, that have continued for more than a year, and various attempts at (further) delays, financial advisors who provide investment advice to retirement investors will be required to adhere to the “Impartial Conduct Standards” after June 9th, requiring that they give Best Interests advice, for Reasonable Compensation, and make No Misleading Statements… as any fiduciary should. However, the permanence of the rule on June 9th still doesn’t mean the fighting over DoL fiduciary is done yet!

As regular followers of this blog know, the fact that the DoL fiduciary rule will not be delayed further shouldn’t be news. As has been discussed here repeatedly in the past, and now fully confirmed by Secretary Acosta, the requirements of the Administrative Procedures Act simply left “no principled legal basis” to further change or delay the June 9th applicability date. However, it’s crucial to recognize that the full DoL fiduciary rule is still not going into effect come June 9th, because part of the prior delay also delayed enforcement for most of the rule until January 1st of 2018. As a result, there is no actual Best Interests Contract… annuity agents will not have to honor the Best Interests Contract Exemption between now and the end of the year (and can rely on the less stringent PTE 84-24 when selling annuities into an IRA instead)… new disclosure requirements won’t apply… and firms can still sell proprietary products while brokers receive conflicted compensation!

What does apply, though, is the requirement to adhere to the Impartial Conducts Standards, which is the core of what it takes to be a fiduciary under the rule: providing best interests advice, for reasonable compensation, and make no misleading statements. However, there will be no requirement to actually sign a Best Interests Contract, which means there won’t necessarily be a full fiduciary contract in place, and in turn means it’s not really clear how enforceable the fiduciary rules will really be through the end of the year. Especially since the Department of Labor itself said, in a follow-up 11-page 15-question FAQ, that it will be focused on “compliance assistance” in the coming months (and not necessarily focusing on citing violations and doling out penalties).

But the real reason it matters that full DoL fiduciary enforcement won’t be coming until the end of the year, is that it provides another 6 months for fiduciary opponents to lobby for modifying the rule. In other words, DoL fiduciary may not be getting repealed and the June 9th date is final, but that doesn’t mean this is the final rule. President Trump’s Executive Memorandum back in February, which directed the DoL to re-evaluate the rule and consider amending it, is still in effect, and a proposal may be coming. In fact, Secretary Acosta’s Op-Ed emphasized that while the rule is final, the Department of Labor is still considering revisions to the fiduciary rule, but that “the process requires patience”, and that there may even be another enforcement delay (further into 2018) while the DoL considers new exemptions or other potential revisions as it issues a new Request for Information and new Public Comment periods.

In the end, this means that while a new fiduciary rule may soon be the law of the land for all retirement accounts, what, exactly, will be required to comply with that fiduciary rule in the long run, is still wide open and uncertain. The Impartial Conduct Standards requiring best interests advice, for reasonable compensation, with no misleading statements, will take effect soon. But the true obligations of Financial Institutions to monitor and oversee that activity, and the nature of enforcement and accountability for the fiduciary duty, is still not yet fixed and permenant… so get ready for a whole lot more DoL fiduciary debate over the next 6 months!

Why Do People Like Balanced Budgets?

Why Do People Like Balanced Budgets?

Various views over budgets have clarified these points:

  1. The US government does not operate like a household or business and operates with an inflation or currency constraint and not a traditional solvency constraint.
  2. The US government was never at risk of a solvency crisis and its bonds were never at risk of default.
  3. Government debt bolstered private sector balance sheets during the financial crisis and the deflationary bust and never posed a risk of hyperinflation.
  4. US government debt does not compete with private sector debt in a loanable funds model and therefore never posed a risk of causing high interest rates.


Balanced budgets are attractive looking for a good reason – they imply fiscal responsibility. Running a persistent deficit implies fiscal irresponsibility. Of course, life is more complex than that. For instance, at the aggregate global level all balance sheets balance. Balanced budgets are the natural state of being. But we’re necessarily talking about a more micro case of governments and households so let’s dive deeper.

First of all, US households are always in debt and increasingly so. This does not mean US households have always been irresponsible.  In fact, household net worth tends to increase over time in large part because debt is being used to create equity which strengthens our balance sheet.  Said differently, debt can be used to create assets that become more valuable over time. This is a very good thing and it would be self defeating if we said households should always be fiscally responsible and balance their budgets. In fact, we want households and businesses to be responsibly irresponsible so that they take risks on innovations and products that improve our living standards and the health of our balance sheets.¹

But what about governments? Is a balanced budget good or bad? It really depends on the specifics of the environment. Just like US households, the government is just about always taking on more debt and like private sector borrowing this is not always necessarily productive or adding to our long-term well-being. So again, we have to be careful about generalizing. I mean, I think we can all agree that a government in a hyperinflation will not solve its inflation by spending money recklessly.

Anyhow, I think the relevant question to answer here is whether the government’s deficit or surplus position is contributing positively to the environment in which the private sector can increase the health of its balance sheet by innovating, producing and building equity. This is an exceedingly complex point to prove or disprove, but here are a few things I think we can reasonably agree on:

  1. Governments issue assets/liabilities that are of inherently high credit quality because they are backed by the ability to tax a productive private sector. They are the inherently low risk financial assets/liabilities because of this aggregated taxing power.
  2. Because governments are not prone to solvency crises in the same sense that a household is, they can operate in a more flexible manner that counteracts private sector strength or weakness during times of economic boom/bust. Because of its unique ability to spend without worry of profit the government can act as a spender/lender of last resort during times when the economy freezes or slows. Likewise, it can close the spending valve when the economy is operating above capacity because it does not rely on the income to remain solvent.²

So, as a starting point we should all agree that it can be good for a government to issue some level of liabilities because they serve as inherently risk free assets that can serve as natural foundational components of a healthy private sector balance sheet. Holding AAA rated US government bonds in my portfolio allows me to operate with a higher degree of certainty than holding AA rated corporate bonds.  In addition, we should all agree that it can be a good thing for the government to operate its balance sheet in a countercyclical fashion that naturally offsets the boom/bust tendencies of the private sector. That is, when the economy is booming it can be good for the government to be more constrained and try to halt the excesses of the private sector (this does not always work as the late 90’s show). And when the economy is busting it can be good for the government to operate as a spender/lender of last resort to try to restore some semblance of normalcy to an economy that is faltering.

That second point is of particular importance here. Many people blame President Obama for the surge in debt and the deficit. But this was not his doing. The deficit and debt surged because tax revenues collapsed and automatic stabilizers (like unemployment benefits) surged.  Our deficit expands and contracts across time in a natural manner that responds to the state of the economy. Ie, the deficit in 2009-2016 increased automatically. And this was a good thing as it provided income and assets to the non-government sector when non-government incomes and assets were deteriorating. The opposite occurred during the Clinton boom. Bill Clinton did not create the surplus any more so than Obama created the deficit. But politically motivated people often infer cause and effect in order to promote a certain political agenda when the reality is that the economy is much bigger than Washington DC and its antics.  The key point is that the deficit is largely an ex-post effect of other things occurring in the economy.

I still haven’t answered the real question though. Are balanced budgets good or bad? Well, it depends. But let’s run through a simple thought experiment. Let’s say we have a highly productive and stable private sector worth $100 and growing at 1% per year. If the government currently has a national debt of $10 (that’s $10 worth of assets for the private sector) and decides to run a $1 surplus every year then they are retiring $1 worth of debt each year. Now, remember point 1 above. Those government bonds are equivalent to the quality of the aggregate private sector income stream because they are a function of the strength of the private sector. As a result they MUST be an inherently higher quality asset. So, at the end of 10 years we will have no government debt and an economy that has grown to be worth $110.46. This seems great, except for one point. Our balance sheet has grown and appears healthy, but it MUST, by definition, be a lower quality balance sheet. That is, it is now comprised entirely of AA rated instruments whereas it was before bolstered by 10% AAA rated instruments.

But here’s the kicker – if balance sheet expansion is good and necessary then why would we operate our government in a manner that inhibits private sector risk taking? In other words, if we can run a reasonably small deficit in perpetuity and this deficit adds to the certainty and credit quality of our aggregate balance sheet thereby allowing risk takers to do what they do best (take risks) then isn’t this a no-brainer way to operate the government’s balance sheet?

So, I guess I would throw the question back to the debt boogeymen – given that the US government doesn’t have a solvency constraint like a household or business and can provide safe balance sheet bolstering assets in near perpetuity (assuming we have a healthy productive private sector³), why do we feel the persistent need to run a balanced budget or surplus?

¹ – People should really stop with the dangerous generalization that debt is always bad. Debt reflects the expansion of a balance sheet wherein two parties obtain offsetting assets and liabilities. Whether this balance sheet expansion is good or bad is a function of whether the borrowing party can sustain this debt position which is a function of how that debt is used. Debt, in this sense, is like a drug. It is neither inherently good nor inherently bad, but can be used for good and for bad.  When used for good it is not just a net benefit to the economy, but an essential component of sustainable growth. 

² – I should note that government debt and spending can be a slippery slope. In moderation some degree of government debt is probably good and totally sustainable when accompanied by a productive private sector. However, a government that disincentivizes its private sector from being productive will obviously create an environment ripe for inflation and a devalued currency as that currency becomes less valuable relative to the productive goods and services it can purchase. 

³ – Having such an extraordinarily productive private sector is an exorbitant privilege that provides the US with a greater scope of policy flexibility. As I’ve said in the past, capitalism makes socialism sustainable and no one does capitalism better than the USA. So it begs the question, why would the wealthiest society in the history of mankind convince itself that it cannot afford some modest degree of government deficit?  

2017 Consulting Fees Study

2017 Consulting Fees Study

We recently asked over 25,000 consultants about their approach to pricing and fees as part of our 2017 Consulting Fees Study.

Below you’ll find the results from our survey as well as my commentary and observations.

Pricing Structure


The most common pricing structure and approach for consultants is project based pricing.

However, when you combine hourly rate and daily rate pricing (both are often, but not always, driven by number of hours involved) the ‘Hourly’ driven approach has the majority at 41.3%.

Consulting fees based on a monthly retainer equal 15.1% of the total.

Average Project Value


43% of consultants who participated in the survey earn $5000 or less per project.

About 15% earn $5,000 to $10,000 per project.

13% of consultants earn between $10,000 and $20,000 per project.

13.9% of consultants charge on average between $20,000 and $50,000 per project.

8% of respondents charge $50,000 or so per consulting engagement and about 6% charge over $100,000 per project.

A whopping 80% of consultants would like to earn higher fees. While about 20% are happy with that they are currently making as a consultant.

Annual Consulting Income


The chart represents monthly income.

Almost 50% of all consultants who responded to this survey are earning less than $60,000 per year as a consultant.

However, 22% earn up to $120,000 per year and 20% earn up to $240,000 per year.

A minority of this group currently earns between $300,000 and $1.2M or more per year.

Consulting Profit Margin


54% of consultants run a high margin and usually very profitable consulting business and enjoy a 60% or greater margin.

The largest single majority, at 25.5%, enjoy an 80% margin or better. Few businesses have such a great margin.

About 22% of consultants run their consulting business at a 30% or lower margin.

Consulting Experience


23.7% of consultants have been consulting for over a decade. 35% or so have been consultants for over 7 years.

Close to 40% are new to consulting and have been consultants for less than two years.

Location of Consultants


A large majority, almost 60% of all respondents are based in North America.

While Europe, Asia and Africa being the next largest with about 33% collectively.

Deeper Insights

The next thing I did was look deeper into the data and cross-reference different categories. Here are some additional insights for you.

Consultants earning over $20,000/mo are split almost equally between project based fees and hourly and daily rate pricing structure. This is the same for consultants earning $10,000/mo or less. On question we’ll look at in a further study is “The intensity and number of hours worked to generate a certain level of income.” I believe we’ll see consultants using a project based fee approach will conduct their work with more freedom, flexibility and less time intensity.

While consultants who try to figure everything out themselves and don’t take the time to really learn how to grow their business the right way or are not committed to consistently implementing are the ones that struggle.

Another interesting finding is that many consultants are earning well into six-figures in their first 1-2 years as consultants. And this study showed that there are plenty of consultants who have been consulting for over 10 years and yet still struggle to create a high-level of income.


My observation from coaching and working with hundreds of consultants is that those that focus on their marketing and have a clear plan of action are the ones who most often reach six-figures, then into mid-six figures and then create million dollar consulting businesses – and this can happen quickly.

While consultants who try to figure everything out themselves and don’t take the time to really learn how to grow their business the right way or are not committed to consistently implementing are the ones that struggle.

The consulting industry continues to grow as we see the number of consultants who are new remains strong.


Spring Cleaning Your Finances

Spring Cleaning Your Finances

Longer, warmer days are the perfect excuse to open the windows and clear out the clutter. Just like spring cleaning out your space helps clear your mind, organizing your finances can show you where you need an adjustment.

Spending just a few dedicated days a year to your finances can help you make massive changes, and spring is an ideal time for that. Here are some tips to take advantage of the season and get your money under control:

Spring Cleaning Tax Time Advantages

Tis the season for taxes. Even though your taxes might be done by spring, you can still benefit from the work you did to gather all of your documents. Chances are good that as you were rifling through all your tax documents, you had some ideas for how to organize them better for the year ahead. Maybe you want to keep better track of your work expenses, or you thought of a simpler way to file away useful paperwork.

Implement those ideas now as you’re spring cleaning before you find yourself behind again.

Ditch the Paper

Not only is paperwork overwhelming in your space, but it’s easy to lose track of and gets in the way of important documents. Many banks, credit cards and utility companies offer paperless options so that your bill comes directly to your email. That makes it easier to search for, file away in your email, and come back to later. In the mean time, sort through the paper you have already. Save only what you need.

Here is a guideline for how long you should hang on to paper documents.

Get Automated

Streamline your payments and cut down on late fees by automating whatever you can. If you set your bills to pay automatically each month, you won’t have to deal with penalty fees or even the hassle of manual payments. It might only save you five minutes, but across all of your monthly bills, that time adds up.

The same goes for your savings. Did you set some savings goals for yourself this year? The easiest way to hit those goals is to set up automatic deposits to your savings account every month. That way, your money can go directly to savings before it ever hits your checking account.

Take a Look at Your Spending

Wondering where all your money goes? Taking some time to answer that question can help you overhaul your budget. Here’s one activity to illuminate any problem areas:

Gather a few highlighters and the past few months of credit or debit card statements. With one color, highlight necessary payments, like bills. Using another, highlight expenses that might not be mandatory, but you’d really like to continue (gym memberships or your Netflix account, for example.) With a third color, highlight those impulse expenses that you really didn’t need. This exercise gives you a visual representation of where your funds are going and any areas of excess.

Even if you only dedicate ten minutes to your financial house, you will start to notice major benefits over time. Take that spring cleaning motivation and use it to make your money life as simple and efficient as possible.

Focus Financial’s ‘Great’ Buy Of $16B AUM SCS Capital And What Stone Point Might Do Next

Focus Financial’s ‘Great’ Buy Of $16B AUM SCS Capital And What Stone Point Might Do Next

Just last month, private equity firms Stone Point and KKR bought a majority stake in RIA roll-up aggregator Focus Financial for a deal reportedly worth nearly $2B. And in the weeks since, Focus has been on an acquisition tear, buying a $18.5B of AUM from a series of ultra-HNW multi-family-office-style independent RIAs (in a world where by one estimate, Focus only had about $40B of AUM between advisory and some non-discretionary transactional accounts). However, the acquisitions don’t appear to merely be an effort to more rapidly grow revenue through acquisitions under new ownership; instead, it’s rumored that Stone Point may be encouraging Focus Financial to shift its business model and begin to encourage its advisors to cross-sell insurance, as life insurance in particular still has big-dollar potential amongst ultra-HNW clientele who still face substantial estate tax exposure.

The intended shift both helps to explain the recent acquisitions – which all focus on ultra-HNW clientele with estate tax concerns – and the willingness of Stone Point to make the Focus acquisition at such a high price point, recognizing the potential for expanding into a new revenue line (and akin to how PE firm Madison Dearborn monetized National Financial Partners since 2013, which also expanded into P&C insurance cross-sales to recognize a 10X valuation in just a few years). The caveat, however, is that the entire strategy is predicted on the advisors at independent RIAs engaging in insurance sales, in a world where many advisors join or found RIAs specifically to get away from the advisory industry’s product-sales roots, and may bristle at being asked to push any kind of insurance products, whether life insurance or property and casualty insurance. Nonetheless, the prospective shift is a good reminder that even as advisory firms evolve away from selling products to selling advice, the allure remains – for advisory firms, and the investors who may acquire them – to reintroduce the cross-selling of products given the trust that clients place in their advisors.

What You May Not Know About Cambria ETFs

What You May Not Know About Cambria ETFs

The ETF world is full of articles touting the advantages of mega-firms like Vanguard, BlackRock, and State Street.  These companies have set the bar high for delivering exceptionally transparent, diversified, low-cost, and liquid vehicles to every American investor.

Nevertheless, many ETF shareholders have yet to identify with the broad array of smaller firms that are pushing the envelope in terms of their innovative funds.  These companies often escape notice because of their smaller regional size that is dwarfed by the industry titans.  I’m talking about issuers such as Alpha Architect, Davis, Elkhorn, O’Shares, Reality Shares, and the focus of today’s article: Cambria Investment Management.

The one thing each of these firms has in common is they seek out sound investment strategies backed by evidence-based research or a proven index methodology.  Their funds may also offer closer identification with investors that are looking for sound tactical exposure or differentiation in the form of a reliable ETF wrapper.

Without further preamble, here is my take on one of the smaller firms that is doing it right…

Cambria was co-founded by Mebane Faber and Eric Richardson, who develop and manage the individual ETF strategies produced by the firm.  The company has nine ETFs currently available for trading with a host of others that are currently in registration.  According to data from, the firm has $417 million in total assets spread amongst its suite of funds.

The flagship strategy is the Cambria Shareholder Yield ETF (SYLD), which I have mentioned on the blog before.  SYLD is classified as an actively managed ETF that owns a basket of 100 U.S. stocks demonstrating the characteristics of paying cash dividends, repurchasing shares, or paying down debt on their balance sheets.  These stocks are actively trying to return profits to shareholders in the form of sound financial management (shareholder yield) rather than just focusing on a single factor like high dividend payouts or share buybacks.

SYLD is on the cusp of celebrating its fourth anniversary and has delivered sound results to-date.  The returns since inception are similar to that of a broad-market benchmark such as the SPDR S&P 500 ETF (SPY).

In my opinion, this ETF has a great deal of potential as a long-term equity strategy with the potential for outperformance over varying market cycles.  It’s also worth noting that SYLD has an international brother in the Cambria Foreign Shareholder Yield ETF(FYLD).  As you can imagine, the strategy is roughly the same with the exception that it’s focused on developed markets outside the United States.  Both funds charge an annual expense ratio of 0.59%.

One of the core tenets of the Cambria family is a focus not just on a home country bias, but also diversifying around the globe.  One example of that thesis is the Cambria Global Asset Allocation ETF (GAA).  This “fund of funds” style ETF owns a basket of other underlying ETFs spread across domestic and international stocks, bonds, real estate, and commodities.  Think of it as owning the entire global public investment market in a single vehicle.

It’s also the first ETF to not charge a management fee or expense ratio.  The only on-going costs are the underlying expenses of the ETFs that GAA owns, which are around 0.25%.  That’s rock bottom pricing for a solid and extremely diverse mix of assets.

In a similar structure, the Cambria Global Momentum ETF (GMOM) seeks to own a basket of underlying assets in stocks, bonds, commodities, or currencies showing top measures of momentum.  This actively managed fund shifts its holdings to target the top one-third of a universe of 50 potential ETFs to try and capture the funds demonstrating the strongest trends in the current environment.  The strategy is based on research conducted by Mebane Faber demonstrating that quantitative analysis of momentum and trend can lead to outperformance.

Lastly, I will note the popular Cambria Global Value ETF (GVAL) is an index-based approach to screening for over 120 stocks (both foreign and domestic) that are showing intrinsic value characteristics.  This global equity portfolio dives deep into several developed and emerging market nations that have potentially underperformed in the past and may be ripe for a deeper appreciation based on their fundamental qualities.

The Bottom Line

It’s difficult to highlight the benefits of every single ETF in the Cambria fund family in such a short forum.  However, I would urge investors who believe in evidence-based investment management with an emphasis on global strategies to investigate their offerings.

They continue to push the bar based on their wide body of research and even originate investment ideas from leading social or emerging investment trends.  The greatest evidence of which may be a fledgling ETF (currently in SEC registration) based on medical marijuana stocks.

As the ETF world becomes more congested, I would urge investors to look to smaller companies like Cambria who are differentiating themselves from the herd.  Depending on the strategy, these types of funds can augment traditional core index exposureor allow for greater diversification across a wide range of assets.

Measuring the Efficiency of Revenue Weighted ETFs

Measuring the Efficiency of Revenue Weighted ETFs

It’s become difficult to distinguish the efficacy of various index weighting strategies that pervade the ETF universe.  Some work best during specific market cycles or are designed to take advantage of distinguishable trends.  Others are tailor-made for the long-term with the broad diversification, reasonable costs, and sensible philosophy that investors can identify with.

It’s these latter characteristics that best describe the revenue-weighted index methodology that is delivered by a select group of Oppenheimer funds.  The Oppenheimer Large Cap Revenue ETF (RWL) is a fund that was born during the nascent months of the great financial crisis and has risen from those dark times with an impressive track record.