New Fiduciary Law and Changing Advice Part Two

By Gary Silverman, CFP®

Last week, I discussed how the Department of Labor (DOL) ruled that investment firms need to operate under a Fiduciary standard, “sort of.” Why the ambiguity? Well, it’s “sort of” because not all of your investments are covered under this rule…only those related to retirement like your 401(k) and IRAs. The other “sort of” is political. A lot of people have tried and are continuing to try and eliminate the rule.

You see, while almost every consumer group out there is behind this new rule, the Republicans are flatly against it. This is one of the reasons the SEC has had difficulty coming up with a similar standard.  Only a Presidential veto stands in the way of their most recent attempt.

Republicans insist that their objection to this is purely consumer driven. They portent that the rule will keep small investors from getting any financial advice. They may be right about this. Both Great Britain and Australia passed rules that are similar to the DOL ruling. In England they did see financial advisors leaving the business which one would assume means there is less advice being given. And let’s face it, if you have too many clients the ones you’d probably get rid of are the less profitable ones.

As you know I disagree strongly with this viewpoint as I’ve been operating under Fiduciary standards for over 20 years and trust me, many of my clients are not rich. I’ve been able to make a good living, supporting my family, my employees, and my charitable interests. I’m not getting rich, but I’m not complaining either. But mine might be a special case which is why I turn your attention to Australia. They also changed their rules a while back and instead of financial professionals changing careers and folks with smaller accounts getting the boot, a whole lotta nothing happened. That’s right, the industry seems to be doing just fine and so are the clients.

I maintain that if I can make a living serving normal folks, the big boys on Wall Street can figure it out as well. What they’ll have a hard time doing is figuring out how to do it and make the same amount of money. Investment products might have to actually make sense for the investor as well as the sales person. Heck, if we had played this investment game this way 10 years ago, maybe we wouldn’t have had the financial crisis.

Personally, I think it is possible that the reason this ruling is so opposed by the Republicans in Congress is that the large brokerage and insurance companies are opposed to it. And before we think that Hillary Clinton is the only politician who accepts money from Wall Street firms, you might want to look at where a lot of their donations go to. Maybe I’m just too cynical.

Assuming it still is the law, all financial professionals will have to start abiding by it starting April 2017 and the last part of the regulations are to be fully implemented by the start of 2018.