Eugene Grygo, Chief Content Editor, FTF News
Among the many executive orders being launched by the Trump Team is a major time-out for the so-called “Fiduciary Rule” that was slated to take effect via the Department of Labor (DOL) on April 10. The executive order from earlier this month will put enactment on hold for three months, and will require DOL officials to conduct an impact analysis of the rule.
Most industry observers foresee the Trump administration’s actions as effectively the first step toward killing the rule. Others say that it may return in a different form.
If the rule had gone into effect in April, it would have elevated “all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status,” according to Investopedia. “While the new rules are likely to have at least some impact on all financial advisors, it is expected that those who work on commission, such as brokers and insurance agents, will be impacted the most.”
To cut through the 1,023 pages of bureaucratic legalese, the pending rule would in theory require firms to put their clients’ interests ahead of their own. However, financial advisors would feel the impact of their new “fiduciary” status in their bottom lines via lost commissions and more money budgeted for additional compliance, according to Investopedia and others.
In fact, Smarsh, a vendor of cloud-based archiving, put forth in its predictions (that FTF News quoted) that the Fiduciary Rule would have caused some securities firms to face “sweeping preparations” to comply with the new law. “Advisors will be required, among other things, to reveal any potential conflicts of interest to clients, and state all fees and commissions clearly in dollar form to clients. Previously, only advisors who charged a fee for service on retirement plans were considered fiduciaries,” say Smarsh officials, who add that the rule will lead to “an increased level of scrutiny on fees and advisor compensation.”
Not surprisingly, financial advisors hate the rule and want it gone yesterday. They may get their way in this battle with regulators.
Taking a slightly differing point of view is Anton Honikman, the CEO of MyVest, maker of the Strategic Portfolio System (SPS), a platform for financial advisors.
“As a wealth management enterprise technology platform, MyVest does not have specific answers to questions about the DOL rule that speculate on the future direction of the rule,” Honikman tells FTF News. “But we do have an opinion on its impact, so far, regardless of what happens to the rule in the future,” he says.
“We think that the wealth management industry is already in the middle of a massive shift from a product-centric to a client-centric approach, and the DOL Fiduciary Rule has already accelerated that trend,” Honikman says. “By client-centric we mean advice and portfolios that start with the investor and not an investment product. This is advice that is holistic covering the entire household’s wealth and goals, rebalanced in a tax optimized way, personalized to each investor’s situation, and delivered digitally.”
Honikman argues that whether or not the rule is ultimately implemented, it has already had an impact over the past two years such as:
- The market share for fee-based assets increased from 30 percent in 2010 to 38 percent in 2015, according to information from market research firm Aite Group;
- And major financial services firms are shifting their formerly commission-based individual retirement accounts (IRAs) to fee-based accounts, and some large firms are simplifying and lowering fees.
So, even though the Fiduciary Rule may die after its three-month limbo, as Honikman says, it may already have done some good.
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