Fiduciary Rule Hurts More than it Helps
Much has been written of the industry push back on the fiduciary proposal, but the tone has mistakenly implied that the industry is resisting doing the right thing for retirement investors and trying to protect its revenues.
In fact, the opposite is true. Unlike the DOL’s insistence on a one-size-fits-all service solution to retirement accounts, we believe in allowing investors (not the government) to choose what type of investment relationship and structure is best suited to their needs and goals. We believe in full investor protections, whether under the B-D or RIA structure, and in freedom of choice for investors.
The DOL's rule actually restricts choice. Investment products, services and account structures have expanded dramatically in response to investor demand. Ironically, most firms who service retirement accounts have actually projected that their revenues will increase under the rule because investors who previously paid a commission or sales charge would be paying an annual fee in many cases to hold the same investments they purchased years ago.
It’s hard to argue how this fee might be in the investor’s best interest. We believe that fees are likely to increase for retirement plan accounts and disproportionately so for smaller investors as a result of the rule’s implementation – thus hurting the very constituency it was designed to help.
One other unfortunate and unintended consequence of the rule’s implementation is that it will cast an unnecessarily critical light on existing B-D relationships that only follow a suitability requirement. Both structures have merit, and investors should be able to choose which one is best for their circumstances. Most full-service firms offer both B-D and RIA accounts. We believe in disclosure and choice.
We can all agree that investors are best served by working with a highly trained and professional financial advisor who has access to the best products and services available. We also believe advice and counsel should be available to all investors, not just some. Under the new rule, some smaller investors could be pushed into automated solutions that are less transparent and do not include an advisor.
'A LEGALESE DOCUMENT'
In practice, we expect the BIC exemption will become a legalese document that may potentially scare off certain investors. We see the potential for this exemption to effectively remove the B-D opportunity entirely even when it may be most appropriate for the investor’s goals. It seems naïve to suggest an investor would sign a legal disclosure document that waives rights in order to expand their investment choices.
One of the most important roles of every advisor is helping investors through the emotional roller coaster of market swings and investing decisions. Comprehensive wealth management, financial plans, education planning, debt management, asset allocation, income strategies, are just some of the important activities that benefit clients who work with an advisor. Let’s not make these activities more difficult.
Andrew Crowell is vice chairman of D.A. Davidson’s Individual Investor Group.