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Quarter-End Insights

Financial Services: Accounting for Brexit and the Fiduciary Rule

Brexit increases the uncertainty around global financials, and the U.S. Department of Labor's fiduciary standard rule will reshape many business models in the sector.

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  • The financial services sector remains reasonably undervalued and recently traded at a market-cap-weighted price to fair value estimate ratio of 0.88.
  • We see Brexit as having negative implications for the U.K. economy and bank moats. We are currently reviewing our fair value estimates and economic moat ratings for affected financials.
  • We believe that Brexit effects on interest rates, currency exchange rates, asset price levels, and capital market volatility will likely be more material to capital-markets firm earnings than the potential disruption caused by relocating operations out of the United Kingdom to other European Union countries.
  • In terms of advised retirement assets, we initially estimated that the fiduciary rule primarily affected $3 trillion of advised, commission-based IRA assets. In addition to the $3 trillion of IRA assets, we further estimate that advice services are being offered to approximately $4 trillion of private, defined-contribution-plan-participant assets, and there are upward of $800 billion of plan assets that are using advice and could be subject to the rule.
  • In regards to product and service offering, we continue to see the acceleration of three key wealth management trends--a move to fee-based from commission-based accounts, increased usage of digital advice offerings, and a shift to more passive investment products from actively managed.


Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.