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Fiduciary Rule

Fiduciary rule delay unleashes torrent of public commentary

ByAndrew Welsch, Ann Marsh
March 16, 2017 4:07 PM

Editors’ note – The comments below were culled from the Department of Labor’s public database. Following a news report casting doubt on the authenticity of some comments about the fiduciary rule, Financial Planning independently verified each one in the piece. One comment was removed from the original post because there was not enough contact information to reach the writer.

The Department of Labor’s move to delay the fiduciary rule unleashed a torrent of public commentary.

By March 13, more than 560 wealth management firms, advisers and investors had posted opinions about the rule on the DoL’s public commentary board, in hopes of nudging the department closer to their position.

Some say the rule will bring higher compliance costs and increased litigation. Others say delaying the rule is unconscionable because of pernicious conflicts of interests among advisers and firms.

Click through to see some of the most insightful comments.

Fiduciary rule delay comments cover image 03.16.2017
Editors’ note – The comments below were culled from the Department of Labor’s public database. Following a news report casting doubt on the authenticity of some comments about the fiduciary Financial Planning independently verified each one appearing in the piece. Some comments were removed from the original post because they did not offer enough contact information to confirm them with the writer.

The Department of Labor’s move to delay the fiduciary rule unleashed a torrent of public commentary.

By March 13, more than 560 wealth management firms, advisers and investors had posted opinions about the rule on the DoL’s public commentary board, in hopes of nudging the department closer to their position.


Some say the rule will bring higher compliance costs and increased litigation. Others say delaying the rule is unconscionable because of pernicious conflicts of interests among advisers and firms.

Click through to see some of the most insightful comments.

Robert White (adviser)

The term fiduciary means making sure the client comes first. It does not, however, guarantee a profit.
JonStein

Betterment (signed by CEO Jon Stein)

Some firms that have opposed the rule claim that a “unified best interests standard,” which would also cover non-retirement accounts, would be preferable. That sounds great in theory, but it is not realistically happening any time soon—and these firms know it. The fiduciary rule has already let to positive changes in the investment industry, such as reductions in fund fees and changes to conflicted service models. If the rule is delayed or watered down, these positive changes could disappear.

Charles Mann (adviser)

[The fiduciary rule] would cause more potential litigation in an industry that has too many unscrupulous attorneys that are willing to litigate for no valid reason on the hope of corporations paying them off to get rid of the lawsuit.

Sally McCray (adviser)

Don’t get me wrong. As a CFP, CPA and RIA, I already adhere to a fiduciary standard in dealing with clients. In addition, I support expanding the fiduciary standard to all financial professionals. The issue for me is that this is the wrong way to do it. The rule should be written by the SEC and FINRA, not the DOL, and it should cover all investment accounts, not just IRA type accounts.

Brooke Salvini (Salvini Financial Planning)

There is no reasonable basis for any delay. The DOL has already conducted a full review and justification including a legal and economic analysis, concluding that the rule is necessary in order for Americans to save and invest for retirement. Courts have supported the rule. The rule, effective last year, should be applicable on April 10.
Department of Labor
Last week, the Labor Department determined that the rule failed to meet the standards for worker protection under the Fair Labor Standards Act and withdrew it.

Aaron Carlson (adviser)

Nearly all of my clients have retirement accounts that are small by most standards, under $50,000. I have helped many folks whose place of work has no retirement plan to open an individual IRA, starting with $250 or whatever they can afford.

Most large financial firms simply will not service this segment of our work force because the accounts are too small. I do it because it is the right thing to do for my clients, but it generates a very small amount of revenue for me.

If our industry moves completely away from commission-based business, I will be forced out of business and my clients will be left with no financial adviser. Commissions on these small accounts barely cover my actual costs. If I were forced to work on a fee-based model, my clients would not pay the fees required to cover the cost of their service.

As far as I understand this new ruling, the practical outcome is that it will prevent many self-employed and small business workers from starting a retirement account, and owners of small IRAs will be orphaned and not have access to good financial service.

Anne Bryant (investor)

There is no way to defend a policy that favors a financial adviser's profit over his obligation to his client.

Financial Engines

…the need for additional rules is clear since potential conflicts of interest exist in the retirement business. We believe that the fiduciary standard predating the conflict of interest rule (“prior regulations”) was no longer tenable given the immense stakes associated with the shift to the defined contribution model for retirement savings.

Bonnie Hogue (former real estate agent, investor)

As an investor, I want to rest assured that a fiduciary I hire is working for me, and making decisions in MY best financial interest.

Ladenburg Thalmann

Due to the rule’s requirements that compensation be level within a product category (ex. Fixed Index Annuity product category), Ladenburg will be forced to significantly reduce retirement products available to investors. This is because product sponsors simply have not had the time necessary to modify their products to meet this requirement. For some product lines, this will be a reduction from thousands of available options to less than 10 available options. This is one area in particular where the industry needs more time to comply with the rule; otherwise, retirement investors will likely be harmed.
Raymond James

Raymond James

It is clear to us that some clients, especially smaller clients that are more likely to buy and hold, would pay less for advice if they pay a one‐time commission rather than an ongoing annual fee on assets. Consequently, it is our intention to utilize this exemption. However, under today’s structure, the commissions on packaged products such as mutual funds, annuities and unit investment trusts are set by product manufacturers rather than distributors. While Raymond James can certainly provide input (and has) to these product manufacturers, packaged providers as a whole have not demonstrated the ability to meet standards set forth by the rule by April 10. Therefore, we face a dilemma. Do we continue to offer products that pay different levels of compensation and are clearly beneficial to clients, or do we instead remove products to insulate the firm from unreasonable compensation claims or allegations from the Department of Labor or others that compensation was not based on the ambiguous concept of “neutral factors” outlined in the rule?

Bambi Snodgrass (investor)

I think everyone would naturally assume that a broker that you have charged with managing your finances would be REQUIRED to act in your best interest. That is the normal order of things. Now you are considering changing this REQUIREMENT? After Wall Street almost destroyed the United States economy (and impacted the rest of the world) in 2008?

Michael Graef (adviser)

…from an industry standpoint, the technology is in the process of flux, with the technology vendors seeking to change their software to be consistent with the requirements of the rule. As the rule is being re-evaluated, all of the technology will also need to be re-evaluated, and any changes would also create disruption in the industry, which again would harm investors.

Brett Burzynski (adviser)

Increased compliance and potential litigation costs could ultimately lead to advisers only wishing to work with higher-income families — hurting those in the middle-to lower class. It could also have a negative impact on the consumers by the ways of increased costs, passed on from insurance companies — due to increased compliance and litigation on their end. Ultimately, I believe the consumers are going to benefit more from a rule designed to keep their best interests at heart, within the current confines of the existing regulatory rules. I fear the baggage this rule adds could ultimately harm the consumers, more than help them.

Dempsey Lord Smith (wealth management firm)

The DoL's fiduciary rule will lead to substantial uncertainty for our clients, our financial advisers, and the financial markets as a whole. Add this to the significant uncertainty that surrounds the increased liability this rule links with providing advice and products to our clients, **which we believe this rule will shake the financial industry to its core. Thus, clients will have less access to retirement advice and financial products. It is our opinion, that U.S. consumers need more advice, more product access and more retirement security; not less!
Baird courtesy of Baird
“Advice around transactions, advice around investment portfolios, advice around wealth management plans: it’s all advice and I’d say the term ‘financial advisor’ is probably a blanket term that would apply appropriately to all those models,” says Baird vice chairman John Taft.

Baird

We wish to point out that we believe a 60-day delay will not provide sufficient time to enable the department to consider and evaluate the comments received to conduct the examination and make the determinations directed by president's memorandum. It seems more appropriate to delay the applicability date by a year or more.
Andrew Welsch
Former Managing Editor, Financial Planning
Ann Marsh
Fiduciary Rule Fiduciary standard Regulatory relief Regulatory actions and programs Compliance Raymond James Financial Baird DoL
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