As a fee-only investment firm, we strongly support the new efforts to move the industry toward a fiduciary standard. True Measure thinks everyone should already be acting as a fiduciary. We shouldn’t need government to tell us to uphold our fiduciary duty– it’s just the obvious and right thing to do. To show our support for a fiduciary standard we decided to search for common arguments against the current rule and attempt to debunk them. Here we go:
1. “Obama’s plan to steal your IRA”
First of all, this sounds like a conspiracy theory. Secondly, it would be confiscation of your assets, which most likely would never happen unless you’re a criminal. Obviously the retirement plan market is going to change as it has continued to change for over 40 years. IRA companies will still be able to talk to potential investors, companies will still be able to recommend specific investments, you will still receive advice, and people will still contribute to IRAs. Under the new ruling, the Department of Labor has adopted many exemptions including the Best Interest Contract Exemption. The BICE requires all the details around the purchase be included, providing full disclosure and transparency. This sounds obvious in many ways but since the surfacing of this rule, many investors were surprised to know that this wasn’t implemented sooner.
2. “The rule restricts the ability of investors to get the basic information they need to make informed investment choices.”
Investors will still be able to receive basic information they need. It is true that many will move to so-called robo-advisors. (Robos provide valuable education and services to investors.) This just means the industry will have to adjust and adapt to the new rules. Brokers have the option to serve people as a fee-only advisor, especially after consumers have outgrown their dependency on financial technology and will need behavioral counseling.
3. “The “best-interest contract exemption” issued with the fiduciary proposal contains a host of unrealistic conditions, including a signed written-contract requirement, waiver provisions that promote class-action lawsuits, and non-implementable and over-burdensome point-of-sale requirements.”
The BICE is a full disclosure contract under the fiduciary rule. A consumer has a right to know what’s in the food they consume, shouldn’t they also have a right to know what exactly they’re paying for their investments and advice? The fact that the industry is reeling about having to disclose all of this is a strong indication that regulation may be necessary to inform retirement investors.
4. “Democrats, Republicans, and members of the financial services industry who are opposed to the fiduciary rule contend that it will be too restrictive and inhibit advisors from providing quality financial counsel.”
This is an interesting argument. Particularly the statement “inhibit advisors from providing quality financial counsel.” The fact that some advisors receive commissions for their financial counsel sounds more inhibiting than a fiduciary or a best interest contract. “Quality financial counsel” should not include conflicts of interest.
There are many more arguments and groups of people on both sides of this new fiduciary rule. This regulation has created fear within the industry for those who mostly earn a living on commissions. There profession shouldn’t end with the new ruling. Advisors who earn commissions should start to learn how to transition sooner than later.
Remember, it’s not the strongest nor the smartest that survive, but the most adaptable that persevere.