Executive Summary
Given the party-lines debate that has revolved around the Department of Labor's fiduciary rule for the past year - ever since President Obama put the full force and backing of the White House behind the final rule - it was widely believed that once President Trump won the presidential election, it would just be a matter of time before he issued an Executive Order to delay the rollout of the regulation this April. And yesterday morning, the White House circulated a draft version of the coming Executive Order, to be signed that afternoon, that would impose a 180-day delay to the rule.
Except as it turns out, the final version of the Memorandum that President Trump signed did not actually include a provision to delay the fiduciary rule after all, despite wide media reporting to the contrary! Instead, the Secretary of Labor was merely directed to conduct a new "economic and legal analysis" to assess whether the fiduciary rule and its looming applicability date is causing harm to investors by limiting access, triggering dislocations in the retirement services industry, or likely to cause increased litigation and increased costs for consumers. And if that is the case, then the Department of Labor would undertake yet another proposed rulemaking process, with a Notice and Comment period, before proceeding. A direct Executive Order from the President to delay, though, is off the table (though notably, many had pointed out it wouldn't have been legally permissible to delay that way in the first place).
Given barely 2 months until the applicability date, it's still unclear whether the new economic analysis requirement and subsequent rulemaking process will be able to successfully delay the rule, especially since President Trump's Labor Secretary nominee Andrew Puzder hasn't yet been confirmed, and is now reportedly being delayed indefinitely due to ongoing questions about his ethics and financial disclosures paperwork. Nonetheless, a delay is still possible - and indeed, President Trump's Memorandum effectively directs the DoL to try to find some way to do so - whether by inviting a stay in one of the lawsuits, going through a "hasty" rulemaking process to at least get some delay in the applicability date on the table (and then expand into further rule changes thereafter), or getting Congress to intervene (and overcoming a Senate Democrats filibuster).
But for the time being, the fact remains that it's still "game on" for the Department of Labor's fiduciary rule. The President's Executive-Order-that-wasn't may still ultimately facilitate a delay in the rule, and/or start the process of making changes to the fiduciary rule's long-term provisions after the rule takes effect (but before any real enforcement and legal exposure kicks in). But that remains to be seen in the steps that acting Labor Secretary Ed Hugler does or doesn't take in the coming days and weeks to quickly push the required economic analysis and the start of a new rulemaking process! At a minimum, though, it's looking increasingly likely that the DoL fiduciary rule will be here to stay in some form... the only question is exactly what provisions last in the truly-final version, and when it will truly take full effect!
President Trump's Executive Order To Delay The Fiduciary Rule... That Wasn't
Yesterday (Friday) morning, Reuters broke the "news" - based on a draft version of the memo that had been circulating around - that President Trump would be signing an executive order directing the Department of Labor to implement a 180-day delay to the looming fiduciary rule. And at 1:18PM that afternoon, the President did in fact sign a "Presidential Memorandum" on the Department of Labor's fiduciary rule.
However, it turns out that the final draft signed by the President did not match the originally circulated draft! In fact, the final issuance was not an Executive Order at all, but a Presidential Memorandum (though in this context, that may be a distinction without a difference). The key difference that did matter, though, was the section that would have proclaimed a 180-day delay for the fiduciary rule... which was eliminated, along with any direct guidance to the Department of Labor about seeking a stay to the rule given the ongoing lawsuit. Instead, the actual text of the Presidential Memorandum was as follows:
Presidential Memorandum on Fiduciary Duty Rule
MEMORANDUM FOR THE SECRETARY OF LABOR
SUBJECT: Fiduciary Duty Rule
One of the priorities of my Administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies
One of the priorities of my Administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies
Term "Fiduciary"; Conflict of Interest Rule Retirement Investment Advice, 81 Fed. Reg. 20946 (April 8, 2016) (Fiduciary Duty Rule or Rule), may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration.
Accordingly, by the authority vested in me as President by the Constitution and the laws of the United States of America, I hereby direct the following:
Section 1. Department of Labor Review of Fiduciary Duty Rule. (a) You are directed to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As part of this examination, you shall prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule, which shall consider, among other things, the following:
(i) Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
(ii) Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and
(iii) Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.
(b) If you make an affirmative determination as to any of the considerations identified in subsection (a) or if you conclude for any other reason after appropriate review that the Fiduciary Duty Rule is inconsistent with the priority identified earlier in this memorandum then you shall publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.
Sec. 2. General Provisions. (a) Nothing in this memorandum shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
(b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
(d) You are hereby authorized and directed to publish this memorandum in the Federal Register.
DONALD J. TRUMP
What President Trump's DoL Fiduciary Memorandum Says (And Doesn't Say)
Notably, nothing in the final version of this Memorandum actually delays the Department of Labor's fiduciary rule. It appears that the "original" plan had been to rely on the authority of 5 USC 705 to postpone the effective date of the rule... except that in reality, the final rule already went effective last year (technically on June 7th of 2016, after the requisite 60-day review period under the Congressional Review Act had closed). The looming April 10th, 2017 date is merely the "Applicability" date on which key provisions of the rule will be enforced. But once implemented and effective, there is no legal authority to delay the rule, as the White House seems to have recognized at the last minute.
Instead, what the Memorandum actually directs is for the Labor Secretary to undertake a new "economic and legal analysis" to evaluate whether the looming applicability date of the Fiduciary Rule has harmed investors through to a reduction of Americans' access to retirement products and advice, whether it has resulted in dislocations of the retirement services industry (that may adversely affect investors), or whether the Fiduciary Rule is likely to cause an increase in litigation and the prices that investors must pay to gain access to retirement services. To the extent that the new analysis reveals problems, the Labor Secretary is directed to "publish for notice and comment a [new] proposed rule rescinding or revising the Rule."
In other words, all President Trump has actually done with this Memorandum is to direct the Labor Secretary to begin a new rulemaking process, taking the existing (and already-effective) Fiduciary rule as a baseline, to either rescind or revise once the new analysis, new proposal, and new notice-and-comment phases have been completed.
Yet Another Proposed Fiduciary Rule To Come From Department Of Labor?
Yet the reality is that conducting such an analysis, and issuing a new proposal, and running a notice-and-comment period, is no small feat! Bear in mind that the Department of Labor itself issued in April of 2015 its Proposed version of what ultimately became the final rule, and took almost exactly a full year to complete the Notice and Comment period, gather the feedback, and issue a final rule. And that Proposed rule had been developed over the preceding 4.5 years, since the original Proposed rule that first came out in the fall of 2010 (which in turn had its own Notice and Comment period at the time).
In other words, it took the Department of Labor about 5.5 years, across multiple phases of proposed rules, to issue a final rule. In this case, the Department of Labor has almost exactly 2 months. And President Trump's Labor Secretary nominee, Andrew Puzder, still hasn't even been confirmed, and in fact the Wall Street Journal reports his confirmation hearing has been delayed "indefinitely" due to ongoing questions about his ethics and financial paperwork. And at the same time, the advisor reportedly closest to Trump, who was also advocating against the fiduciary rule - Anthony Scaramucci - is also no longer expected to get a role in the Trump Administration. Which means not only is the timeline very tight, but it may not even be clear who's leading the charge.
Fiduciary Rule Delay Options That Still Remain (By April 10th?)
Notwithstanding this challenge, Acting Secretary of Labor Ed Hugler did issue a brief statement just hours after President Trump signed the official Memorandum, stating that the DoL "will now consider its legal options to delay the applicability date".
Still, as it stands today, the Department of Labor's fiduciary rule still has not been delayed, and the White House appears to have directly acknowledged that it doesn't have the authority to delay the rule at this point, given its decision to remove the 180-day delay language from the final version the President signed.
Nonetheless, there are still a few potential tactics that could result in at least a partial delay from here.
1) Invite a stay from the court on one of the pending lawsuits. The first option, initially reported by RIABiz the day after President Trump's inauguration, is that the Department of Labor, given the lawsuits against it that are currently underway, could invite the court to stay the case - and potentially the rule - for a period of time, ostensibly while it further formulates its legal "defense" and/or begins to go through the proposal and notice-and-comment periods. The end result of which might be at least a temporary delay in the applicability of the rule. However, there is still some debate about whether this could actually delay the applicability date (or just the legal proceedings up until the applicability date hits), and this legal tactic could not be used indefinitely; in some "reasonably" timely manner, the courts would still expect the case to resume. And while the tactic might still be attempted, at this point it's virtually the only known tool left in the toolbox for the new Department of Labor leadership, and it's still unclear whether the stay could last long enough to actually undertake the requisite new economic and legal analysis, to draft a new proposed rule, to complete the Notice and Comment period, and actually finalize a new alternative version of the rule (or rescind it altogether). In addition, a ruling is expected in the coming week on what is arguably the biggest DoL fiduciary lawsuit, a consolidation of those filed by the U.S. Chamber of Commerce, SIFMA, ACLI, NAIFA, and more... and obviously, requesting a stay in the case is a moot point once the ruling is issued!
2) An "expedited" proposed rule that suspends/extends applicability date. The second option is that the Department of Labor could try to hurry through its economic and legal analysis as speedily as possible, and then quickly proposed a "revised" rule making perhaps just minor changes... including pushing back the applicability date. This would still appear to require the Department of Labor to issue public notice and complete a comment period, and then get a final rule issued, all by April 10th, which may not be administratively feasible. Or at least, to complete its legal and economic analysis (perhaps focusing on the "easiest" point of contention, which is the third clause about the Fiduciary rule causing an increase in litigation), issue a proposed rule for notice and comment, and then try to delay the applicability date of the "old" rule pending completion of the notice and comment period of the newly-proposed rule. Pushing through a rule change so quickly, though, even if "just" for a change as minor as an adjustment to the applicability date, invites at least the potential of a legal challenge from the fiduciary advocates that the change was too hasty, arbitrary, and capricious, and in violation of the Administrative Procedures Act; after all, many industry companies are suing the Department of Labor claiming that its 5.5 year rulemaking process since 2010 was "too hasty"... so it would be more than a little ironic for the Department of Labor to now complete a rule-change process (which includes a delay) in barely 2 months! Expect a lot of people on both sides of the issue to be scrutinizing the Administrative Procedures Act this weekend, trying to figure out exactly how far into a new rulemaking process the DoL has to go in order to "legitimately" delay the applicability date of the already-effective rule.
3) A legislative fix from Congress. The only other viable option to entirely halt the rule would be an Act of Congress, which has the authority to override an existing regulation created by the Department of Labor and the executive branch (either by eliminating the regulation, or at least instituting an extended 2-year delay). However, the Democrats still have enough votes in the Senate to filibuster the legislation. And with Senator Warren both issuing a letter to banks asking whether any have proceeded far enough in their fiduciary implementation that they'd like it to move forward without delay, and re-issuing its report cataloguing the "salacious" sales incentives/prizes offered to annuity agents selling into retirement accounts, it appears that notwithstanding the amount of fighting already currently happening between the Democrats and Republicans on a wide range of issues in Washington, the Democrats are still prepared to fight to keep this particular rule on the books (especially since there's a clear endgame - they just have to make it to the April 10th applicability date, and then all firms will have had to comply, and legislation to delay the applicability date will be a moot point).
Overall, the biggest problem to delaying the rule remains that all of these strategies take time, and with the final applicability date just two months away, Financial Institutions have to continue to fully prepare for the possibility that the rule won't actually be stopped. And of course, the closer we arrive towards the applicability date, and the more actual compliance processes and systems are implemented, the less relevant it is to actually delay the rule anyway... because at some point, all the firms will have fully implemented their new compensation structures and compliance procedures anyway, which can't be turned off quickly (in the same way that it's taken a full year of intense development work at many firms just to get those systems up to speed in time).
Confusion Reigns On The Fiduciary Rule's Path Forward From Here
The irony of how President Trump's intervention has played out is that his delaying-Executive-Order-that-wasn't has angered the fiduciary advocates (and much of the mainstream media) who are characterizing the potential rollback as a consumer loss, while the firms that have opposed the rule find themselves facing even more uncertainty above whether the Trump administration is really aiming to stop or delay the rule, or simply begin a rulemaking process to alter it at some point in the future.
Certainly, at a minimum, if the rule is not delayed, the groundwork is clearly being laid to at least alter the rule later. In fact, the guidance in the Presidential Memorandum to "rescind or revise" (emphasis mine) already clearly contemplates the potential that the end game will be making adjustments to the fiduciary rule after it becomes applicable. And from that context, there will still be another battle wages between those for and against the fiduciary rule, about this next round of potential changes, from whether the extent of conflict-of-interest disclosures might be lessened, to a potential widening of the Best Interests Contract exemption, and especially the possibility that the DoL eliminates or at least alters the provision requiring that firms using the Best Interests Contract Exemption must have agreements that leave the door open to a class action lawsuit against them (whereas the industry would likely want to revert this to the existing "industry standard" of mandatory arbitration in all scenarios, which dramatically reduces the legal liability risk for the Financial Institution, but would alas also result in the loss of an important consumer protection that was created by having the class action clause).
In any event, though, the bottom line is simply this: notwithstanding Friday's headlines, it's still game on when it comes to the Department of Labor's fiduciary rule. Of course, even if the rule is fully implemented, there is now a material risk that it will be altered and "watered down" later (and still potentially before its full enforcement date at the start of 2018). And there's still the possibility that it won't even make it to the April 10th finish line before a new rulemaking process begins to replace it with something less threatening to the industry, as there are tactics that its opponents can still deploy between now and then, which should become evident when we see the haste (or not) with which the Department of Labor pursues its new "economic and legal analysis". Nonetheless, the one most popular option to stop the rule from rolling out - for the President to simply intervene and delay the rule - appears to be definitively off the table now (though as discussed previously on this blog, it really never was a viable option), and while the other options remain, they will take time to implement... when there just isn't much time left.
So what do you think? Should the fiduciary rule still proceed by April 10th? Is a delay necessary or appropriate? What do you think will happen over the next two months, and the coming year, to the fiduciary rule? Please share your thoughts in the comments below!
Hopefully the fiduciary rule stays in place. Investors need to be protected from the greedy salesmen out there
So impose unreasonable rules on honest advisors too? On top of it, limit advice to certain types of accounts or face class action lawsuits? No thanks
Raising the bar for the industry is great, the practical reality and associated unintended consequences that come with the rule need to go.
What unreasonable rules? Is doing what’s in the best interest of a client an unreasonable rule? If you do what is right, you won’t face a class action lawsuit, if you are a so called honest advisor. What are you afraid of? Shouldn’t that rule apply to protect the client with small assets as well? The lament we hear is that the small investor would get no advice under this rule. So advisors should be allowed to sell high commissioned products to these folks so they can get paid? Why shouldn’t advisors still have to do what’s in a clients best interest here?
Is it reasonable for individual clients that are in IRA brokerage accounts and do not want to pay fee based compensation to be forced to move to a self directed platform. I know you could apply the BICE but that doesn’t work for many firms for a variety of reasons. Think about an older client that may have paid commissions and is now drawing income from their portfolio in retirement. The reality is they will be moved to a no advice solution. That’s one example of an unintended consequence.
The older client drawing income probably doesn’t need any more advice if they already have the commissioned products. And they probably weren’t getting any anyway. And they probably don’t need to pay for any advice now
Client, I need help with my RMD.
Advisor, sorry but I can’t help you with that.
One of many examples. Clients need help in brokerage accounts too.
So give them help. The fiduciary rule doesn’t stop that
and let blood sucking lawyers go after the firm, I don’t think so.
Read what Michael wrote. If you do what’s right for the client you have nothing to worry about.
The point is that if you do “what is right for the client’–even apart from the fiduciary fiasco–you will have your compliance department on your back. And without benefit to the client. On the other had, a “fiduciary” jerk is still just a jerk.
I love honest lawyers just as much as you love honest advisors (like yourself). Buck up and keep enjoying your commissions while they last. Hopefully you’ll be retired before any serious damage to your bottom line ever materializes.
?? Why would the DOL rule stop such advice? If advice was being given before the rule it was illegal unless the “Advisor” was an IAR providing advice IAW an investment advisory agreement. Worse, RMD advice pretty clearly falls under “tax advice” which most “Advisors” disclaim. If a mere explanation of the RMD rules is the issue, then that is “education” and is not prohibited by anyone except perhaps the “Advisor’s” compliance department. The RMD calculation will be done by the custodian and should be validated and combined with others by a qualified tax preparer.
Ok, you got me. RMD is a bad example. The point is they need help on a variety of things and they are not going to get it. Many firms will move these accounts to self directed accounts. Many firms will exit the Ira business all together.
Fortunately, we live in a capitalist society where one business’s exit is another business’s opportunity. 🙂
We’re seeing this already – including Vanguard and Schwab launching advisory services that charge only 28-30bps for 24/7 access to a CFP professional (and one who is actually legally permitted to give advice beyond that which is just “solely incidental” to the sale of brokerage products). Specifically targeted at the mass affluent (usually defined as $100k – $1M) and even lower account minimums.
– Michael
Nothing against schwab or vanguard but the concept of ‘you get what you pay for’ applies to the advice industry as well.
Could very well be. Again, my my perspective which is in no way the only one, an industry-wide move to a fiduciary standard on a voluntary and self policed basis would be the ideal, but, alas, I do not see that in the near future.
They need help with RMD because you’ve trained them to be incompetent. Seriously how hard is executing an RMD. Lucky for you the upcoming snowflake generation appears to match or exceed the incompetence of our current elder generation.
Should the asset allocation be changed to account for sequence of return risk? Can AGI be managed in order to avoid higher Medicare Pt B premiums? Can the 3.8% Medicare tax on NII be avoided or reduced? Is the muni bond portfolio driving Social Security income to be taxed? Should a ROTH conversion be used to maximize family wealth? What is the best gifting program for Grandchildren and what is the most tax efficient solution? Should the estate plan be changed in order to maximize basis step up? I could go on, and on, and on. The “older client” in my experience needs knowledgable and personalized advice just as much as (if not more than) everyone else.
Provide these services if needed. The fiduciary law doesn’t stop you from doing that.
I agree with the above statement exactly.I have been in an IRA account for many years & have self directed it most all the time.I have no problem having commissions charged for purchases.or sales.I am told if this law is activated I will be charged a % fee every year based on the value of my account.As things stand now my account only costs me $100 per year maintenance fee plus any commissions I generate personally through purchases & sales.If I make no purchases or sales my account only costs me $100 /year.Keep the new law OUT !!!!!!
Legally, if that senior was in a commission-based account but was primarily getting advice from his/her broker, the broker was/is in violation of the Investment Advisers Act of 1940. The ONLY reason a broker can get paid a commission and NOT be subject to a fiduciary duty, already, as an RIA, is if the advice is “solely incidental to the sale of brokerage products.”
Unfortunately, the SEC has been lax in enforcing this rule in recent years, but the reality is that “commission-based investment advice” is actually not permitted under CURRENT LAW, and hasn’t been since 1940. Regardless of DoL fiduciary.
– Michael
In fact, that has been a problem and is in part responsible for the fact that plan participants are receiving little usable advice–brokers (even those who are dually registered) who sell retirement plans are generally not allowed to give (real) advice to participants.–so they are left to fend for themselves. The problem is too little advice–not the source thereof.
This is a good point and valid. This industry needs regulatory unification badly which as you point out is messy. The focus of regulation needs to be simpler. Do what’s right for clients, charge reasonable fees and disclose them.
This would weed out the bad seeds and advance the profession.
I personally believe commissions have a place and are not a bad thing when the advisor is well intentioned.
Clients should have choices in how they pay for advice. I recognize that not everyone shares that opinion it’s just what I believe.
This older client is getting “free” advice, and not paying anything for his or her investment account? Therein is the problem. This hypothetical investor is quite probably paying a 12b1 fee. Under the grandfather clause of the fiduciary rule, if there is no movement of the funds and no advice given to move the funds, then no BICE is required. The rule restrictions kick in if the sales agent recommends a change in investment. Is that the “advice”to which you refer?
Yes, its reasonable. My buddy’s advisor charges a tidy sum for the exclusive privilege of investing his millions in index funds. Are you offering some sage advice beyond that for your services? Unlikely.
About the TrumpSucks name and statement: This poster thinks that life is fair. (any by the way, the posting name is immature). Who is not going to agree that client’s best interest is paramount. Stupid to even think this is not important, and to continue to re-state. We are talking about the execusion of that. The bad guys aren’t reading these postings because they don’t care. So can assume we all want to put the client first?
If there weren’t so many bad guys you wouldn’t be having this discussion. Of course you cannot assume “we all want to put the client first.” The posting name simply says what I feel
What’s “unreasonable” about requiring advisors to give prudent advice based on what other experts would recommend, receive compensation that’s comparable to others who provide similar services, provide disclosures of their existing conflicts of interest, and document the reasoning for their advice?
The reality is that a fiduciary obligation has existed for decades in the RIA community. It’s not only NOT burdensome and “unreasonable”, but the RIA channel is actually the only GROWING segment of the advisory industry.
Simply put, the existing fiduciary segment of the industry already has decades of actual results to validate that complying with a fiduciary duty is not an “unreasonable” expectation…
– Michael
There is nothing unreasonable about applying a fiduciary standard. What’s unreasonable is the steps necessary to comply with the regulation for many firms. The government over reaches and causes harm when they do so. A unified standard regulated by finra on all accounts makes much more sense. Why should the DOL step in and apply costly rules on IRA’s only? Makes no sense. Commission based compensation is often the best choice for clients. Not as good as free but not a bad price to pay for quality advice. Class action law suites will be imposed on well intentioned practitioners. I agree the bar needs to be raised but the rules need to be reevaluated, that’s all. You don’t have to agree with me but many share my opinion and I’m a CFP practitioner who would do well in a DOL environment.
Just a few points here:
– I’ve been subject to both FINRA compliance and the compliance as a fiduciary. Frankly, FINRA is far worse a burden. The struggle for broker-dealers with DoL compliance is not a function of the compliance burden itself; it’s the burden of deliberately trying to run a heavily conflicted model under a fiduciary burden of proof. The level fee fiduciary streamlined exemption under the BIC is not cumbersome. It’s many of the broker-dealers themselves that have been choosing not to use the easier compliance path.
– The DoL fiduciary rule explicitly does NOT ban commissions, so I’m not sure why you’re raising the concern. You say “Commission based compensation is often the best choice for clients.” Great, then do it. Nothing in DoL fiduciary stops you, at all, if you can actually prove that point. Though for those who are willing to eschew commissions and operate as a level fee fiduciary with the reduced conflict, also get the reduced compliance burden. But that’s a CHOICE of the Financial Institution.
– Class action lawsuits will not be imposed on “well-intentioned practitioners”, nor any practitioners individually. The client base of a practitioner isn’t large enough to merit class action status. This clause is realistically only a “threat” to the Financial Institution itself, not the individual practitioner, and will focus primarily on the Institution’s systemic conflicts of interest and oversight of fiduciary advice, because those ARE widespread enough to potentially merit class action status.
I won’t say everything about the rule is “perfect”, but I don’t realistically expect that on any front. But having been subject to both FINRA regulation and SEC regulation, and having worked with state regulators and spent intensive time on these DoL regulations, I have to admit that “uniformed fiduciary standard regulated by FINRA” would truly be the LEAST appealing choice. By a large margin.
– Michael
The best commentary I have read on the fiduciary requirement (other than yours) is Cliff Asness” recent post. He makes the point much better than I, but the whole thing is little more than a turf war, fought more out of self-interest than with regard to the best interest of clients and prospects. And although the DOL regulation does not ban commissions, that is clearly the intention of many of the supporters (including those who composed the study on which the support for the regulation is built}.
All advice is “conflicted.” The “performance gap” is the larger and overwhelming reason for underperformance on the part of investors in retirement plans. Underperformance is in fact largely attributable to the lack of advice rather than to costs or conflicts. A responsible study could simply look at the results for participants in the Government thrift plan–my expectation is the participants in that plan achieve (poor) results just like most other plan participants.
I do like your point about the class action impact (and had not given it much thought before). However, our local ambulance chaser (whose ads in the past focused on car accidents) is already advertising that “If you have a 401(k), you could have a case–call me.” The problem is the large institutions are quickly forced to limit choice and favor conventional (and impersonal) solutions. As I predicted from the beginning, cookie cuter advice will be the result–none of which is to the highest and best interest of the client. And the advice (desperately needed) is largely eliminated rather than improved.
It doesn’t ban commissions if you choose to comply with the BICE which is corporate suicide for many large firms. Commissions in a fiduciary environment can be difficult to supervise especially when ‘best interest’ is grey and can subject firms to class action.
If you don’t think there will be frivolous class action for large firms with deep pockets that apply the BICE, I have a bridge to sell you.
The practical reality is clients are forced to go fee based or leave.
Blood sucking lawyers will stop chasing ambulances and start reading 1,000 page DOL regulations.
If not FINRA, then someone else like the SEC. The point is fair regulation should apply to the advice business not just IRA’s. It doesn’t make sense.
Lastly, I wouldn’t say that firms who offer clients choices in how they pay for advice are heavily conflicted. Some may be but not all. Besides, many clients like to have choices.
Level fee is not the best choice for all clients and firms and it’s not the role of government to impose that on an industry.
Attorneys will not even read the DOL. They will just start filing and figure it out. It’s called settlement or summary judgement.
Can I record the sale of the bridge on my cell phone?
I do fully agree 100% that ultimately, fair regulation should apply to the entire advice business, not just IRAs. The problem is that our history was the regulation of products (by product channel), and no regulator likes to cede turf, which makes the ‘consolidation’ from multiple product regulators to a single advice regulator a very messy process.
I certainly don’t see the DoL fiduciary rule as the “end”, because of that. At the most, it’s a waypoint to a more holistic advice oversight structure. But it has to start somewhere. In practice, if DoL fiduciary makes it to the “finish line” (the applicability date), it will simply become the foundation on which the SEC builds its own fiduciary rule to apply more uniformly across all investment accounts (not just retirement)… though even the SEC doesn’t have jurisdiction to cover advice related to fixed insurance and annuity products.
Regulatory “unification” of advice is messy. :/
– Michael
It is naive to think that based on the criteria you stated Michael, Class Action has no teeth. I’m surprised you would think this – you’re suck a resourceful guy. Example: FINRA and the U4 is the only industry that allows for a derogatory mark to be posted without any verification whatsoever. A client, with no basis, need only say “I’m not happy” and “I want my money back” and a broker dealer is compelled to add a derogatory to the U4 of their advisor. All advisors know a handful of clients who are that ill-behaved or reactive. That is unreasonable, but a track that exists today. The threat of using a Class Action will stimulate more claims from investors who do not take personally responsibility even after they have been advised properly. Yes, there are some scoundrel advisors out there. Punish them after even a little due diligence. Don’t punish everyone with little evidence. Class action will feed this as a way to “settle.” Michael, you made your first Millennial mistake by assuming that life is fair.
Individual clients who are unhappy with outcomes and want to challenge them can and do complain, and can and do sue. That has always happened, and still will.
But it takes a LOT more than that for a judge to certify a class in a class action lawsuit. The fact that all members of a class need a similar set of facts and suffered the same alleged injuries makes it especially difficult to certify a class to sue over financial advice (because the advice varies by client and therefore doesn’t meet the sameness test). That’s why most class actions will be over how a Financial Institution exercises its oversight OF fiduciary – because a systemic misapplication of fiduciary oversight would meet the sameness test, even as an individual financial advisor’s wouldn’t.
This is why the class action provision is primarily a threat for Financial Institutions regarding BICE implementation and oversight, and not to individual financial advisors in working with (even very unhappy clients). You can still be sued as an advisor (and bind it to mandatory arbitration if desired), but an individual-advisor-targeted class action lawsuit would be very difficult to certify.
– Michael
Maybe, will believe it when I see it. I don’t trust lawyers and believe honest firms will be forced to defend frivolous lawsuits. Why even introduce class action when arbitration to settle disputes has served the industry well?
Well, a lot of people would suggest the problem is precisely that it was necessary because using arbitration to settle disputes has served the industry well. Rather than serving consumers well. :/
Though I’ll admit, it’s ambiguous to me how many of the problems of mandatory arbitration are actually about arbitration, per se, and how many are because the suitability standard IN arbitration was a very low bar. We don’t really have much data on how mandatory arbitration protects consumers when the advisors in arbitration are consistently held to a fiduciary standard.
Either way, though, I would make the case that the existence of potential class action was a crucial step to drive Financial Institutions to take the rule seriously. Otherwise, it’s in the Institution’s interests to just let their advisors operate with limited oversight, and anytime they’re caught just call them “rogues”, cut them loose, pay a small settlement if necessary as a ‘cost of doing business’, and move on. The class action clause is the only part that actually holds the Financial Institution systemically accountable.
– Michael
Most of my point was about a single advisor, a single client, and an unqualified (not written complaint). That lands on a U4. But back to the big picture: A broker dealer or RIA has a process in place. The process is for all clients and all advisors. Impacting dozens and hundreds of families. Market goes down. Attorney sees an opportunity to put the process to task. As you know just from reading the attorney sites, attorneys can horribalize anything. Down market. People lose money. The good process will be victimized. Not because it is bad or wrong, but because it is easier to settle than fight. Lots of good people in the industry impacted by opportunists, as some are today in the regular FINRA process. Lots of advisor good work settled in the complaint process because it is MUCH less expensive. Still, bad apple advisors out there. Cut their hands off, but leave the good guys alone.
See Michael’s reply below
Just stop posting Youth Lacrosse Coach. You’re just making “honest advisors” look bad. The statement “Commission based compensation is often the best choice for clients” isn’t going to win over any prospective clients trolling this blog. Free advice has worked well for countless investors. I love the disdain in your posts and others I’ve read about unprofitable clients. In my area of the country we “the unprofitable investors” have salaries that equal or surpass doctors, lawyers, etc. We have millions in investments and we don’t use advisors. How is this possible without the advice and guidance of a seasoned CFP practitioner like yourself? You exist because of the hard work and wealth accumulation of others not because you have quality advice known only to a select few.
Wesley,
All perspectives are welcome here, but please keep it civil and focused on the subject matter, not personal attacks towards others.
I don’t agree with everything “Youth Lacrosse Coach” has posted either. But debate the statements and issues and ideas, not the person please.
Thanks,
– Michael
Thank Michael. I will try. I appreciate your blog for what it offers both advisors and non-advisors alike. I don’t appreciate the “drive by style” of Youth Lacrosse Coach. I’ve seen the results of his type of “advice” with family and friends over the years and its anything but honest.
Amen!
Michael:
Isn’t enforcement under the RIA regulations largely avoided by arbitration agreements (and a severely limited SEC staff)? In any case, the compliance requirements relative to those under FINRA are far less “burdensome.” For that reason, many have dropped their FINRA registration in part in order to be less restricted–far less paperwork and, for example, you can avoid more burdensome compliance requirements. To date, RIA registration has been little more than a license to steal!
The legality of arbitration agreements for RIAs varies by state. Some states allow mandatory arbitration, akin to what exists on the FINRA side. Others do not. (Alas, I’ve never seen a comprehensive list of all of them, state-by-state, anywhere.)
In terms of SEC enforcement, the regular SEC exam cycle is clearly limited by SEC staff. But the exam cycle isn’t the SEC’s sole means of finding enforcement cases. (And there’s a wide swath of state-registered investment advisers whose state securities regulators visit far more often as well.)
The difference in practice is that because so much of the conflicted behavior that’s commonly subject to lawsuits is outright barred from RIAs in the first place, there simply hasn’t been as much TO enforce. Except ACTUAL fraud, which of course is illegal under any regulatory jurisdiction. But fraud is greatly limited by the role that third-party custodians play in the RIA-client relationship. And is also why RIAs *ARE* subject to higher requirements, including annual third-party surprise audit exams, if they actually have self-custody. Simply put, the bulk of RIAs that have “lower” compliance paperwork also have fewer paths to “steal” under their business model in the first place, combined with a higher legal burden if they do (as even if they go to arbitration, it’s NOT an industry-friendly FINRA arbitration venue, it’s a neutral arbitrator that evaluates the RIA’s full fiduciary duty).
– Michael
I don’t know if that is the point, Michael. I hear all the time FINRA registered rep who specifically state FINRA requirements as the reason for dropping those licenses and going RIA. Nothing to do about it being easier to be a fiduciary. All about execution of oversight.
We, as an independent RIA firm, have looked long and hard at the rule and concluded that it mainly requires documenting what we already do, which is a good practice anyway. As to the class action lawsuit, yes they are there, but you would have to have a clear pattern of bad practices.
As a person who was a broker for 25 years (I hate the term “financial advisor.”) I well remember and still hear from the sponsors with the 7% and higher commissions with often more paid out to broker-dealers. I also remember the number of those high-commission products that failed to pay more than a fraction of the investment back to the IRA beneficiary.
As soon as sales agents began to call themselves “financial advisors” the clock started on when the public would demand that an “advisor” act as an adviser and not as a caveat emptor sales agent.
What are you missing. There is NO clear pattern of anything needed to file a claim of any type. Nothing. Zero. 0. Nada. Ziltch. Period.
There is not when it comes to suing an advisor individually. But there IS to certify a class action claim. That’s why the “individual advisors may have mandatory arbitration, but Financial Institutions must remain open to class action” matters (and helps to keep some teeth in the rule while ameliorating the burden for any one advisor in particular).
– Michael
Honest advisors? You made me choke on air. Next you’ll be talking about honest lawyers (my father-in-law, sister-in-law, and three cousins are all lawyers and they can’t stop laughing). Very few people need advisors and even then its really out of laziness, not lack of ability. And before you tell me how you save people from themselves, just save it. I’ve read and heard it all. Just because you sleep well at night knowing you duped the elderly or less business minded folks of the world doesn’t make your actions ethical to anyone other than yourself. My grandfather, father, and myself have done just fine without advisors and I expect the next generation won’t skip a beat. I read Michael’s blog primarily for his investing incites (usually a few investing articles mixed in here and there) but I’ll be the first to admit the articles for advisors generate quite a few laughs in my household. From an outsiders perspective some of these articles for advisors are just plain funny. Here are two just from the last few weeks: “Checklists To Enhance The Client Meeting Prep Process” and “On Becoming A More Referable Advisor”. Sometimes I think the Weekend Reading links should be themed, “101 Surefire Ways to Dupe Your Clients”. I get that everyone needs to make a living but lets not get carried away about honesty and necessity of advisors.
l love the blog Michael. Keep up the good work and entertaining posts/comments.
Oh Wesley, where to begin.
I’m happy you do well managing your own finances but find it ironic you are on a financial planning blog to berate our profession.
I doubt you’ve met with someone who’s husband passed and didn’t have the slightest idea where to begin when it comes to managing their finances and how they would sustain themselves moving forward.
You’ve probably never met with someone who is divorced and didn’t realize that their Ira beneficiary was their ex wife.
We intereact here because we care about our profession and believe we provide value added advice to our clients. You don’t have to agree with that but it doesn’t give you a license to disparage.
I’ll tell you what, be respectful and you might even learn something.
Like I said, I’ve heard it all. Cry me a river, its called life. There are countless widows and divorcees doing just fine. In fact, I know many personally and have gotten most to drop their “honest advisors”. The concept of “respect” apparently is very subjective to some. I have learned quite a lot from blogs over years. Most notably the complete and utter uselessness of “honest advisors”. Thanks again for the confirmation.
Alright Wesley, you win. Why don’t you start your own blog and we can refer everyone to you?
Thankfully, there are already countless blogs and books available to the public that provide that service. I’m on this blog to learn new things for which I am grateful to Michael for providing (I have referred probably about 50+ people to this blog).
I have a referral for Wesley: someone who wants to do his own heart surgery.
In the words of the great Rodney King: People, I just want to say, can we all get along? Can we get along? Do CFPs offer medical doctor advice as well?
Really? Rodney King is great? Now you are just babbling, Wes.
I thought it was funny. He was acquitted wasn’t he?
Wesley, if you’re going to be holier-than-thou
and assume that what works for your family works for everyone in the world, then you should learn to spell the word “insights” correctly. Also, just because you read information on investment “incites” from Kitces does not mean you are making good choices. And there is a whole family of you? That is a highly concentrated position. You know, Kitces was an advisor. I bet you when we crossed over to thought leader, his values and the service he provided to others did not change.
I was hoping someone would catch that. I tried to be too cute but I guess it went over your head. My family has weathered more downturns than I’d like to remember. We didn’t have blogs back in the day, just books. We and many others like me, have been just fine from the 1930s through today. You seem easily agitated over the success of others? Guilt? Jealousy?Former spell check programer at MS? I wish I could take credit for being the Almighty Thought Leader but alas I’m just a humble follower. I drank the koolade and have been living the confirmation bias lifestyle ever since.
Wesley, one word for the quality of these types of messaging: Bi-Polar. Could be two words, but who cares if the point is on point. And if you intended that misspell, not close to being clever. Keep practicing. Not any of the feelings you guessed at except… amused by your story and approach in this board. I call BS on your story.
My kids do say I get too much of a kick out my own jokes. Thanks for the unsolicited medical diagnosis and subsequent offending of all those who suffer from that hideous disease. I’m hardly the only non-advisor reader of Michael’s blog. Every once in a while I think it’s good to remind the advisors that we’re here enjoying the academic discourse as well. I love the idea of the new DoL rule and equally enjoy the perspective of advisors on this blog regarding its pro’s and con’s. I don’t see anything thoughtful or well researched in your posts as I do with Michael’s posts but again that’s just my opinion. I don’t think I made any false statements in my posts – just an honest assessment. But please correct me.
BS, Wes.
I see you edited your post. Sorry, my family wasn’t from Holland. Why is it so hard for some to believe one could be successful investing without a professional? Is it really that difficult? My grandfather was a small business owner and did stocks as a hobby. My father worked in finance for our local utility company and traded stocks on the side. My father made his fortune before he inherited anything from his family. I work in Pharma and trade on the side. I made my fortune before inheritance. No cobblers shoes, no snow just sunny skies and a pretty comfortable life. BS? Sounds pretty ordinary to me.
Where did Holland come from? Don’t answer, I don’t want to hear another story from you. And no one said it’s hard to believe financial success without advisors. Stop hallucinating and stop the drama. My point is simply, this is not your own story. Your story is a story you wish you had. So, BS.
Cobblers from Holland, no? How is my story BS? Because you say so? I thought this was a board of logic. Stop accusing and start listening, it will do wonders for your clients. I’m completely at peace with my finance’s not sure why my story is unique, unbelievable, or holy than thow as you say. Thanks, it’s been fun but all things must come to an end, good night.
Joe in NH
Just reading those that opposed this rulemaking and now are embracing is the point here. They have gone from a very dark way of remuneration to a fair transparent method. I do believe when the industry has presented itself as above, it could look a client in the eye honestly and be able to sleep at night. Thank you Michael for the timely update and your fair and honest views.
Some of the point is, the DOL is a good idea executed poorly. I think this is the point. Example: there is no reason for the class action aspect except to support chaos. That and the unnecessary reporting for clients that they do not read. Otherwise, good idea… executed poorly.
I’m in that camp
From a marketing point of view, if I were a broker dealer who had spent the last months preparing to go a more fiduciary route in line with the DOL rule, I would announce this next week that my firm was voluntarily instituting all the new rules. That firm would get a huge PR boost to their organization.
On the other hand, if I were an RIA, I would make PR hay out of any broker-dealer who refused to head down the fiduciary road.
Broker dealers were already losing market share yearly to fiduciary bound RIAs. It will only accelerate, in my opinion, if major broker dealers refuse to act in the best interest of their end clients.
Seems like there is better things to do with resources than using this rule as a differentiator. Other ways to show fiduciary without comparing to other firms. And how many clients really search for comparison charts of advisory firms.
Well frankly, I’ve long maintained that “fiduciary” is a terrible marketing strategy. See https://www.kitces.com/blog/fees-and-fiduciary-good-business-bad-marketing/ and also https://www.kitces.com/blog/why-saying-youre-a-fiduciary-destroys-trust-instead-of-building-it/
BEING a fiduciary and held to that standard is a good thing. Marketing that way (and especially leading with it), not so much… including because, as I warned almost 6 years ago now, if/when the fiduciaries win the fiduciary war, it will obliterate their fiduciary marketing differentiator altogether (see https://www.kitces.com/blog/if-the-fiduciary-fight-wins-does-your-marketing-plan-lose/) which is now happening!
– Michael
Amen. It is cheap to think that just because you are a fiduciary means that you are a smarter advisor. It’s like calling someone with a paint brush an artist. My dog had a paint brush in his mouth last week. He is not an artist. Still, I love the guy!
Turns out fiduciary is actually a pretty big differentiator in meetings with clients, once the potential client starts to think about it. In my opinion, it is already a big reason why RIAs are growing and broker dealers are shrinking. And, of course, most of the money is still at the broker dealers, so they still have a huge target on their back. They would be wise to make an intelligent adjustment.
Many broker dealer advisors are already fiduciaries. So, no difference except for those who don’t know that many broker dealer advisors are already fiduciaries.
From a marketing point of view, I wonder how many clients are really paying attention to the details of this legislation, and how it impacts or benefits them. General media accounts of the DOL are very superficial. And investors who read the details are the Vanguard folks, anyway. Just wondering, from a marketing perspective, if this is much to do about nothing… from a marketing-media perspective.
From a marketing point of view, there is now an abundance of information on the term “fiduciary” on the net. If a firm claims it will act as a fiduciary and anyone who wants honest advice rather than sales advice should use a full-time fiduciary, that is a heck of a marketing message. Our experience is that a couple of years ago practically no one understood the meaning of that word, but in the last six months or so people have been asking about it.
Loden111, be realistic. They ask about it. They don’t know what it means to them, and forget. They ask about their investments. They don’t know what it means and forget. Got Bless them. This is the avg. client. They know to ask. Most all don’t know what it means. If you tell me your clients are different because of you, this would be the equivalent of All Hat, No Cattle.
Hmmm, I guess that makes me George Strait. Yes, at least some of it is because of us. We have had a 2 hr. radio program each week for 14 years and most of our listeners are our clients, or at least our clients listen frequently and now hit the podcasts frequently. We have often talked about what a fiduciary is, and yes, we have been explaining that term to them for at least that long. Now, they comment that they have seen the term in financial publications and the WSJ. We strongly encourage them to subscribe to Morningstar where the term also appears. At least some of them are busy educating their friends as to the meaning of the term. It took years but recently we have been reinforced by at least some of the media and they are suddenly aware we have been talking about that issue for years.
Loden, why in each of your responses do you have to talk about you … extensively. Try advocating without tooting. And why begin with “Hmmm.” Something Wesley would do. When someone does that, it tells me that they are adding drama to the message. What is the value. No drama, just straight message. We need more cattle!
Mr. T, since you asked “why”, I presume you are desiring an answer. My answer is that theorizing is good, but personal experience in something is, in my opinion, valuable. For whatever it is worth, “All hat, no cattle.” is a pretty brutal dig where I live. You specifically asked about our clients being different, and I answered. Yes, our clients may be different, but that may be because we have made them so. And, yes, I have had a lot of experience in close proximity to cattle. Sorry for irritating you. That was not my intent.
Not irritating at all. Just semi-amusing. And you referenced “I” or “our” or some variation at least 10 times in that short paragraph. Try less you, and more cattle.
GAINING PERSPECTIVE. As adopted, the “Rule” has expanded the scope and application of the Investment Advisers Act of 1940 to provide the legal community with enough “substance and ambiguity” to bury RIAs with an endless array of potential complaints and lawsuits. It creates a palette offering a range of possible allegations only limited by the imagination of the plaintiff’s attorney. David F. Sterling, Esq.
I’m not sure how many new lines of legal argument were introduced by DoL fiduciary that weren’t ALREADY there under the Investment Advisers Act of 1940 and the fiduciary duty as applied by SEC vs. Capital Gains Bureau Research. Especially since in practice, DoL fiduciary is basically just relying on the ERISA fiduciary framework that’s already been around for 40 years.
But I’ll grant that the 1,000 pages of explanatory material the DoL issued along with the rule certainly has a lot of material to get the creative legal juices flowing. :/
– Michael
I believe it is somewhat misleading to cite SEC vs. Capital Gains Bureau Research in that this case involved the application of the Adviser Act in the context of regulatory enforcement over the “undisclosed nature” of investment transactions. Moving along to the ERISA fiduciary framework.
This is an excellent reference which distinguishes the RULE from the Investment Advisers Act. However, without reviewing the details of ERISA, I do not believe that ERISA goes to the lengths that the existing RULE does to specify advice rendered in the context of dispositive consequences, which brings into purview considerations involving retirement plan transfer and distribution elements.
For example, would ERISA address the impact of a recommended IRA Rollover that changes the legal jurisdiction of potential claims founded on federal compared with state statutory and common law based principles that would be germane to “creditor claims?”
Or, consider the failure of an agent to discuss the implications of recommending a irrevocable joint income benefit or settlement option on a qualified annuity where the attorney had previously prepared and properly filed an IRA trust beneficiary election.
Are these examples outside of ERISA boundaries? Frankly, I cannot say at this time; however, they are not outside the boundaries of the DOL Fiduciary Rule, as written.
– David F. Sterling, Esq., Consultant
Amen
David, long before the fiduciary rule I survived three adversarial charges via the NASD and came out clean. That was while i was a broker. On the most direct and threatening of those I spent nine long hours under direct examination from a very skilled and hostile litigator. He made every conceivable effort to show that I gave investment advice other than related to the sale of a security. He failed, but had he been able to demonstrate that I was acting as an investment adviser while I was selling investments, I would have been toast. My attorneys told me that he was famous for using that tactic and winning big settlements almost every time.
My attorneys also told me that an RIA firm without conflicts has to commit fraud to get in the litigators’ cross hairs.
All that has changed is that it is out in the open now. “Financial advisors” provide financial advice and all too frequently, investment advice. The SEC has traditionally ignored them because they are supervised by a FINRA firm. FINRA ignores investment advice because that is the realm of the SEC. Good attorneys jump in the middle and eat up fake “advisors.” All it takes is a big market downturn like we had in 2000-2002 or more recently in 2008-2009.
By the way, we voluntarily have placed ourselves under the Prudent Investors Act.
Re: Misrepresentation or Misunderstanding
“My attorneys also told me that an RIA firm without conflicts has to commit fraud to get in the litigators’ cross hairs.” I suggest that you revisit this discussion with your attorney to review the multiple categories of infractions, legal theories and allegations that attorneys will engage. However, to your point about “fraud,” I offer this simplistic explanation.
There are many aspects to fraud; however, in general, it may be viewed as a purposeful act or one of “intent,” as in intentional misrepresentation. Based on your understanding of your attorney’s observation about getting into the litigator’s “cross-hairs,” his comment would suggest that attorneys will not consider actions brought under the allegation of “negligent misrepresentation.”
By example, negligent misrepresentation may constitute the issuance of a false statement in circumstances where care should have been taken. To assign liability, one consideration are those circumstances “where care should have been taken,” which is quite expansive under the “fiduciary rule.” David F. Sterling, Esq., Consultant
David,
Indeed, my expectation is that within a few years, we’ll see advisory agreements get MUCH more specific about the precise scope of the engagement – what it includes, and more importantly what it does NOT include. Otherwise, as you note, advisors risk negligent mispresentation lawsuits by unwittingly making inaccurate statements about subjects that should have probably been placed beyond their scope of care in the first place…
– Michael
Michael, I continue to be amazed by the inclination of investment advisors and other financial services providers to allege compliance with the DOL Fiduciary Rule or for any fiduciary rule for that matter. Your reference to disclosures and rules of engagement may be on point but leave me baffled and troubled about the practice management implications. By way of example, allow me to reference an item we may have discussed previously, but warrants consideration now more than ever.
I am referencing the proposals that have been submitted to the FPA for the adoption of standards by which investment accounts under trust registration are to be managed in accordance with applicable laws and documents. As you know, this would only pertain to specific types of trusts; however, the protocols required to comply with this requirement are rarely evidenced in the advisory world and represent, in my opinion, a next round of complaints and lawsuits.
The trust example is but one of many. Somehow, it seems to me that a “way” must be found to create and implement clear yet manageable criteria by which the financial community can promote and render its services. Otherwise, the broad strokes of legislative and regulatory reform will leave advisors and other providers forever in the cross-hairs of the disenchanted. Simply put, it’s getting real crazy out there. – David F. Sterling, Esq., Consultant
I bow to your expertise. Perhaps it (The DOL rule) should die a natural or in this case perhaps unnatural death. My observation is that the commission generating brokers masquerading as “advisors” would be the low-hanging fruit and be the target of the litigators. In fact, I would prefer a system like that in the UK where the boundaries are clear and the safe harbors are well defined.
Thank you Michael for this update. You are far more reliable than most trade publications on this reporting. I was terribly concerned that Trump had abandoned his “forgotten man” thesis that got him elected. The fact that 40% of the earnings on retirement savings are lost to brokerage fees, commissions and administrative cost tells us that the “forgotten retail investor” has been taken advantage of which is in the Trump wheelhouse. Hope, fair and equitable dealing is championed by Trump. There is in development a more than 50% cut in advisory services cost without affecting the advisors take home compensation. The best interest of the investing public will win, with or without the support of the brokerage/insurance (SIFMA, FSI, SEC, FINRA) lobby, which are comprised of brokerage member firms. SCW
The linchpin of Obamacare was the prohibition on pre-existing conditions. Once that was passed, it ensured the permanence of health care reform. That is not the case with the Fiduciary Rule, whose linchpin is the class action lawsuit threat on the BICE exemption. President Trump;s memo addresses that. Without the threat of legal action, brokers can allow their reps to use the BICE exemption and do what is really in the best interest of their clients.
The fiduciary ruling is a good point and valid but it should not be on IRA’s and 401K only. Also should not effect anyone that has an online direct account. The industry has had a set rule in place for years but it has not been enforced. The focus of regulation needs to be simpler. Do what’s right for clients, charge reasonable fees and disclose them up front.
I personally believe commissions have a place and are not a bad thing when the advisor is well intentioned and when an investor makes all his/her decisions (example: trading stock etc.)
Bottom line: It is the person(s) money and they should not be forced to pay that annual or monthly fee if they choose not too. All people should have choices in how they pay for advice.