Robo advisers' response to Trump's fiduciary order: We can't be stopped
Digital wealth management and fintech firms shrugged off President Trump's move to potentially delay and possibly reverse the fiduciary rule, arguing it was no hurdle to their own growth.
"Everyone sees the need to offer a better digital experience, so the investment in better technology will only continue," says Jon Stein, CEO of Betterment.
During debate over the rule, industry analysts predicted that robo advisers would get a windfall from its enactment, picking up smaller accounts deemed by large firms and RIAs too burdensome to service.
Though that scenario is now in doubt, Trump's action on the rule does not hurt digital advice firms, even if it eventually leads to a complete replacement of the regulation, says Sean McDermott, senior analyst at research firm Corporate Insight.
"The delay of the rule preserves digital advice providers’ ability to market themselves as white knights in the financial services, committed to putting their investors’ interests ahead of their own," he says.
"Digital advice providers can continue to focus on the fact that they operate as affordable fiduciaries that bring conflict-free advice to the masses, a powerful differentiating feature and marketing narrative."
Stein was among several leaders in digital wealth management adopting that refrain.
"[It was] a sad day for individual investors," he says. "Repeal means favoring the bottom lines of the financial services industry over the American people, who deserve financial transparency and honesty.”
"We'll continue to act in our clients' best interest as a fiduciary regardless of whether or not it's required," he adds. "That resonates with customers."
Last week, Trump instructed the Department of Labor to review the rule's impact on investor choice and the industry, and to possibly issue a new rule. The department said in a statement that it is looking into its legal options in order to delay the regulation's implementation.
But delaying the fiduciary rule will not slow technological change in wealth management, argued Rob Foregger, co-founder and executive vice president of Next Capital.
"If you believe the regulatory, industry and consumer winds are still pushing toward personal advice, then the tailwinds are still very much with the digital wealth management providers," Foregger says.
"Our market observation is that the industry has embraced the new fiduciary rule, and very few players want to actually go backwards now — the core investment has already been made."
Mark Trousdale, executive vice president and commercial director at Investcloud, wondered aloud about the effectiveness of any delay.
Rob Foregger, co-founder and executive vice president of Next Capital, says that "very few players want to actually go backwards now — the core investment has already been made."
“Even if an executive order is signed that repeals the fiduciary rule, it doesn’t change anything for digital advice. At this point, the genie is out of the bottle," Trousdale says.
Wealth managers and large financial institutions have realized the opportunity of digital advice, he says, as it is an industry expected to have as much as $8 trillion in assets by 2020, according to various analyst predictions.
"Whether you’re a bank looking to attract investors who prefer a fiduciary, looking to increase your scale or simply managing your margin on record-keeping accounts, digital advice is a better way to do business," Trousdale says.
Some took a more combative tone, voicing concerns about the intent of the delay.
In a company blog post, Personal Capital CEO Bill Harris took swipes at Gary Cohn, a Trump adviser and director of the United States National Economic Council. Harris mocked his analogy to junk food in describing his opposition to the fiduciary rule, stating, "encouraging people to die younger is one way to solve our retirement crisis."
Next, Harris noted the stock price of Cohn's former employer Goldman Sachs went up after the announcement of the order. Finally, Harris added that it was "equally troubling, the nominee for Secretary of the Department of Labor is not known for upholding the work of the Labor Department."
"It’s tragic that providers of retirement accounts, who benefit from tax advantages bestowed by Congress to encourage retirement savings, so often charge high fees and put participants in inappropriate investments for the benefit of their own bottom lines," Harris wrote.