The Securities and Exchange Commission is putting a stopper in new leveraged funds, for now.

The agency on Tuesday sent warning letters to nine issuers — including Direxion, GraniteShares and ProShares — halting reviews of leveraged ETFs that provide more than 2x exposure to their underlying securities. In stopping reviews and asking issuers to either revise their strategies or withdraw their applications, the SEC, which has been on a deregulatory streak since the beginning of the second Trump administration, introduced its first hurdle for new product launches in months.

“We write to express concern regarding the registration of exchange-traded funds that seek to provide more than 200% (2x) leveraged exposure to underlying indices or securities,” the SEC’s letters stated. An SEC spokesperson declined to comment.

Putting My Foot Down

The SEC’s move comes after a slew of proposals from Direxion, Defiance ETFs, REX Shares and Themes ETFs for 3x strategies — as well as some 5x fund filings from Volatility Shares — in October. Volatility’s products were aimed at pumping up the returns of notoriously volatile stocks like Nvidia, Coinbase Global and Tesla. The proposals ran up against the agency’s existing framework prohibiting the creation of new 3x leveraged ETFs, setting a maximum leverage of 2x.

Meanwhile, despite the recent interest in leveraged products, their performance has varied:

• The largest leveraged ETF is the ProShares UltraPro QQQ ETF (TQQQ), which seeks 3x the daily performance of the Nasdaq-100 Index and is up 40% this year.
• But others, like the Defiance Daily Target 2X Long MSTR ETF (MSTX) or the GraniteShares 2x Long COIN Daily ETF (CONL), have lost 88% and 40% this year, respectively.

Risk Alert. Since leveraged single-stock ETFs reproduce the performance of their underlying holdings by a set multiple, returns can be outsized. While that makes them appealing to retail investors, their volatility means losses are amplified, too. “Not a lot of people are making leveraged ETFs on Treasurys,” Morningstar research analyst Lan Anh Tran told The Daily Upside in October. “They’re making them on single stocks. The more volatile the underlying stuff, the more chances for you to have a drawdown that is very, very difficult to get back from.”

You can’t please everybody. And with ESG efforts, BlackRock is finding it increasingly difficult to please anybody.

The world’s largest asset manager is caught in the crossfire between critics who say it’s pushing environmental, social and governance initiatives too aggressively and those who insist it’s not doing nearly enough. On one side, Sen. Ted Cruz last week reintroduced the Stop TSP ESG Act, aimed at preventing managers of federal employee retirement funds from using shareholder votes to advance ESG or diversity, equity and inclusion priorities at American companies, a tactic he says could harm plan participants. The Texas Republican singled out BlackRock and State Street as the main offenders.

Also last week, but on the opposite end of the political spectrum, New York City Comptroller Brad Lander — a one-time Democratic candidate for mayor — urged the city’s pension fund to drop BlackRock, along with Fidelity and PanAgora, arguing the firms aren’t aligned with the system’s net-zero climate strategy.

Looks like the firm is stuck between a BlackRock and a hard place. (Yes, we know the pun is terrible.)

Don’t Mess with Texas

The Thrift Savings Plan, which serves more than 7 million federal employees and service members and holds over $1 trillion in assets, is at the center of Cruz’s bill. He first introduced the measure in 2023, only to see it stall in the Democratic-controlled Senate. But with Trump-era executive orders pressuring the private sector to roll back ESG and DEI initiatives and Republicans now in control of the chamber, the bill may achieve more momentum. “Americans deserve assurance that their retirement savings are being invested in the most fiscally responsible ways,” Cruz said in a statement.

State Street declined to comment, and BlackRock didn’t respond to a request from Advisor Upside.

I ❤ NY. Meanwhile, Lander is urging New York City pension officials to re-bid $42.3 billion of public equities managed by BlackRock, claiming that the firm’s scaled-back climate engagement will wind up hurting participants. “The systemic risk of the climate crisis threatens the long-term value of New York City’s pension funds,” he said in a statement, calling climate stewardship a core fiduciary responsibility. BlackRock pushed back in a letter, describing Lander’s stance as “another instance of the politicization of public pension funds, which undermines the retirement security of hardworking New Yorkers.”

Stores like Walmart, Costco and Sam’s Club have thrived by offering everything to everyone, which begs the question: Why go to two separate places for your steaks and your winter tires?

The financial industry and clients have been trying to replicate that one-stop shopping experience for portfolios. Advised households tend to use multiple shops, having a full service account with their wealth manager, as well as a self-directed brokerage account at another firm. However, as investible assets increase, advised households are more likely to use only one store than unadvised homes, according to new data from consultancy Hearts & Wallets. This year, 25% of advised households with $1 million to $10 million have used one store vs. 18% of unadvised households.

For roughly the past decade, the percentage of advised households using one shop was trending down, but it spiked this year, surpassing rates not seen since 2013. More and more, clients are looking to consolidate their assets and services under one roof, which can be quite a tall task for firms. “Having only one firm is intriguing,” said Laura Varas, Hearts & Wallets’ CEO. “That means the firm must meet all the household’s needs for saving, retirement, investing, etc.”

Mo Firms, Mo Problems

Why are so many clients moving their assets to one firm? Part of it can be chalked up to consolidation within the industry itself. But for plenty of clients, it’s just easier. More firms mean more statements, more log-ins and more coordination between accounts unless an advisor takes on that role, Varos told Advisor Upside. Working with a handful of firms can become particularly complex when doing taxes with multiple 1099s and trying to calculate required minimum withdrawals from various 401(k)s and IRAs, she added.

It’s not just advising clients looking to simplify managing their assets, though. Whether it’s their banking, retirement savings, investing accounts, or insurance policies, more American consumers want it all in one place:

• Between 2024 and 2025, the percentage of households with $1 million to $5 million in investible assets held at just one firm has doubled from 11% to 22%. Meanwhile, households with more than $5 million in assets using a single firm jumped from 9% to 22%, per the data.
• Year over year, the number of households with less than $10 million in assets working with one firm has jumped from 45.2 million to 56.7 million. As a result, those one-shop households now control $14.6 trillion, more than double the $6.8 trillion they held in 2024.

A Second Trip. However, there are drawbacks to one-stop shopping as it can limit clients’ access to certain services and investing products. Someone may really like the advice they get from their wealth manager, but still want to keep their own hand in the game by having a DIY brokerage account. “For some, this self-service relationship can be as much as half of their portfolios,” Varos said.