It's time for a reset on the fiduciary rule
The fiduciary rule's future is uncertain, as opponents and advocates of the regulation anticipate that President Trump may delay or overturn it. Sen. Elizabeth Warren (D-Mass.) joined the fray by issuing a letter to more than 30 financial services firms, asking their leaders how they'll respond to any changes to the rule that she has supported.
In a letter to the senator, John Taft, retired CEO of RBC Wealth Management-U.S., suggests Warren consider a different approach.
Dear Sen. Warren:
Last week you wrote to leaders in the financial services industry asking them to stand with you to oppose steps the Trump Administration is expected to take to delay the Department of Labor’s fiduciary rule.
In your letter you expressed concern for “the investment advisers and financial institutions who have already spent time and money implementing this new rule”.
Let’s be clear: While many leaders of the wealth management industry agree that the time has come for a fiduciary standard, few would pass up the opportunity to replace the Labor Department's approach with a better one.
You accurately point to the retirement savings crisis we face in America. You also note, correctly, that providers of investment solutions have been changing, and in some cases reducing, pricing in anticipation of the rule.
Yet you fail to appreciate that the cost of manufacturing investment solutions — be they stocks, bonds, mutual funds, ETFs, annuities, managed accounts — is only a small piece of the overall puzzle. No matter how much you reduce those costs, they are dwarfed by the value financial advisers add for their clients when it comes to saving for retirement or other needs.
Reducing costs with one hand while making it harder for individuals to get advice with the other ultimately does more harm than good. Which is exactly what the fiduciary rule was going to do.
Here’s what you should be asking financial services leaders to support: A fresh start.
Why don’t you suggest that President Trump use a delay in the effective date of the Labor Department's rule to bring all the players in the fiduciary standard debate to the policy table — wealth managers, regulators, the Trump Administration? Maybe form a Bipartisan Commission on the Fiduciary Standard. Begin again with the widely-accepted premise that there should be a universal fiduciary standard of care for investment professionals who provide advice to individual investors.
But this time, do it the right way.
Will Chief District Judge Barbara Lynn be the first to rule against the regulation? Opponents of a case in Texas federal court have high hopes.
With a deep résumé representing Wall Street firms, Jay Clayton is seen as a business-friendly choice not expected to push major new regulations or ramp up RIA exams.
Empower the SEC to take the lead in writing the rule, instead of the Labor Department. The SEC actually knows and understands how financial markets work. The commission already has the authority of the Dodd-Frank Act to implement a fiduciary standard that applies to all client accounts — not just retirement accounts.
Let the SEC work with the principle securities regulator, FINRA, so that the new fiduciary standard doesn’t conflict with existing regulations (which the Labor Department's rule does).
Write the new rule so that it preserves client access to the products and services they enjoy today and preserves their ability to choose what kind of adviser they want to work with.
Write it so that individual savers can continue to choose how they pay for advice — either with fees, or commissions, or a combination of the two.
And most importantly, write it so that the risks of providing retirement advice aren’t so great that wealth management firms are forced to de-market whole segments of the population that need help the most — small savers.
Senator Warren, my colleagues in the financial services industry support a delay in the implementation of the Labor Department's fiduciary rule. They support taking time to evaluate whether there isn’t a better way than the department's flawed rule to accomplish what we all want — to simplify the regulatory environment, improve investor protection, restore investor trust and confidence, and most importantly, preserve choice and access to retirement solutions and advice for the American people.