It’s inevitable, from working over twenty years in an industry like mine, you tend to get a little cynical. The ink is hardly dry on the new “fiduciary” standard promulgated by the Department of Labor so it’s hard to know exactly what’s in it, how it will affect consumers, or how it will hold up under a new administration. Based on what I have read so far, I am not expecting things to change very much. This watered-down final version is probably the best anyone can hope for, whether you are an independent fiduciary advisor like me, a large financial services company, conservative, or liberal. If real change happens in the financial services industry, it will be in spite of the regulatory and political efforts, not because of them.
The good news is more and more career financial advisors, like me, are breaking away from insurance companies and financial services firms to become commission-free fee-only investment advisers. Why? Because the firms we worked for have completely lost touch with what our clients want and how to ethically provide investment solutions. Due to growing competition from small, independent RIA firms like mine, companies like Wells Fargo, Ameriprise, and MetLife will either change their business practices, merge with a company that does, or exit the space altogether. It’s inevitable, and it’s capitalism at its best; whereby a better way of serving the client eventually prevails.
Conservative politicians, in their efforts to protect capitalism, actually got in the way of progress on this one. The Old Guard of my industry, represented by Wall Street banks and stodgy 100 year-old life insurance companies, understandably threw the weight of an estimated 17 billion dollars of annual sales revenue against the DOL’s efforts to curb predatory practices. If our politicians were actually listening to and observing their constituents instead of dining with industry lobbyists, they would better understand the creative destruction that is shaping the financial services industry in a new and better way. Protecting the Old Guard only delays the inevitable, and hinders the progress of newer, more nimble firms seeking to serve clients better and more ethically.
Liberal politicians and bureaucrats, in their efforts to protect consumers, proved they are unable to do so. It’s been over five years now since Dodd-Frank directed the SEC (primary regulating body for the financial services industry) to promulgate a uniform fiduciary standard for all advisors. In the meantime, the DOL understandably lost patience and went ahead with this, their own fiduciary standard, for Retirement Plans and IRA’s that fall under their jurisdiction. After running into a buzz saw of backlash from the financial services industry and conservatives, their final regs appear to only dance around the perimeter. Instead of a uniform standard, it’s looks like we have one more, as of yet undefined standard, that will confuse consumers even further. As a special bonus, it comes with more paperwork, of course.
Bottom line: real protection for financial consumers will not be coming out of DC anytime soon. Fortunately, as more and more advisors break away to become fee-only fiduciary advisors, more consumers will find themselves clear of large firms and their self-interest conflicts. Technology continues to drive greater efficiency so that commission-free investing solutions are now readily available to average, working-class Americans, regardless of their account balance. After a long battle between the powerful financial services industry and President Obama’s administration, it appears to be business as usual again on Wall Street. However; real change that benefits all investors is happening across the country as more and more advisors break away from traditional channels to become fee-only fiduciary advisors.
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