- 1,953
What about the Do Not Call regulation or all the hoops to sell Medicare advantage plans? At some point will those regulations get another look?
NOW Trump is Taking on the DOL Fiduciary Regulation
- Thread starter scagnt83
- Start date
- 11,266
Maybe! Trump said he wants to reduce regulations by 75%... but I'm not going to hold my breath on it though - particularly with DNC.
- Thread starter
- #13
- 10,313
- 248
Forget regulation and enforcement for a minute. Let me ask this. Is a law stating that ALL advisors must act and work in the best interest of their clients a bad law?
Most investors would say no. It is a good law.
The financial industry needs to be careful about how and what they oppose because opposition to the fiduciary standard could come out looking like "It's OK for me to work in my best interests and screw you the client!"
(Of course we don't know any insurance agent, annuity salesperson, or securities broker who would ever screw their client, right? :-) )
And let me ask one more question. If a client put a paper in front of you saying that you will work ONLY in his or her best interest (i.e. fiduciary), would you sign it? Would you be allowed to sign it... would your BD or carrier allow you to sign it?
So before you yell and cheer about the 'downfall' of the DOL fiduciary standard it is important to understand how this is going to 'play' in the media and with your larger clients who care about these kinds of things.
My bias is that I don't care how you folks get paid... commission, AUM, salary, etc. If you can't agree to work in the best interest of the client and not yourself, you should not be in this industry.
The suitability standard has been tried... and clients are continually getting screwed and there is nothing they can do about it. It is easy to prove (in court) "suitability." It is time that advisors are held to a higher standard.
Most investors would say no. It is a good law.
The financial industry needs to be careful about how and what they oppose because opposition to the fiduciary standard could come out looking like "It's OK for me to work in my best interests and screw you the client!"
(Of course we don't know any insurance agent, annuity salesperson, or securities broker who would ever screw their client, right? :-) )
And let me ask one more question. If a client put a paper in front of you saying that you will work ONLY in his or her best interest (i.e. fiduciary), would you sign it? Would you be allowed to sign it... would your BD or carrier allow you to sign it?
So before you yell and cheer about the 'downfall' of the DOL fiduciary standard it is important to understand how this is going to 'play' in the media and with your larger clients who care about these kinds of things.
My bias is that I don't care how you folks get paid... commission, AUM, salary, etc. If you can't agree to work in the best interest of the client and not yourself, you should not be in this industry.
The suitability standard has been tried... and clients are continually getting screwed and there is nothing they can do about it. It is easy to prove (in court) "suitability." It is time that advisors are held to a higher standard.
- Thread starter
- #15
- 10,313
If that was all the law was, then no, it is not a bad thing at all. I think there are some very good elements to the Regulations that I am in complete support of.
But this is not a "moral ground" that advisors just refuse to stand on. There are tens of thousands of advisors who act as Fiduciaries for their clients.
This is a specific type of distribution and expense model within the financial industry.... one that is prohibitive for investors with small amounts of money....
The intent of the law is noble. The unintended consequences are the problem.
Basically, the DOL is forcing IRA owners to only use a "Fee Based Planner". Updated versions now allow for commission based products to be sold under the BICE clause. So the hit to smaller investors will not be as bad.
Fiduciaries usually require large sums of money to take you on as a client (or a $1k min fee on top of normal investment expenses). How is that good for the little guy??
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Plenty of people get ripped off by Fiduciaries. Maddoff was a Fiduciary.
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"Best interest" is a very subjective thing within investments and financial planning. "Best" depends on your situation/goals/opinion.
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Most advisors would have no problem saying they are acting in the best interest of the client. Their issue is being forced into a completely different business model that is not a good fit for many of their clients.
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An agreement with a Fiduciary also includes an Arbitration Clause.... what do you think about that?? Now my IRA clients cant sue me.... is that good for mom and pop investors? I personally do not think it is.
- 11,266
No, and let me tell you why: *I* dictate and guide the conversation and advice, not the client. What you're describing is a "power move" and I won't be manipulated in such a way by a client that might have the gumption to even try this.
Now, that being said, I DO work in the best interest of my client: full disclosures, finding the optimal product mix for a given budget or integrating the product into the overall strategy... everything, but I also have my own interests in mind too. I will not work for free - otherwise I will charge a consultation fee. There ain't no such thing as a free lunch.
I am different, unique, highly trained, and specialized. There are plenty of other agents, agencies, and companies out there that "hock" annuities and just sell them as a stand alone product saying "Isn't this great? Sign here." THOSE are the agents and registered reps that may need to find things that are the best "in line" with client interest rather than asking "is this not unsuitable?" - which is really the suitability definition.
If I can't prove by my actions and processes that I have the client's best interest at heart, I won't deserve or earn their business.
- Thread starter
- #17
- 10,313
You care to the extent that it affects your bank account. Depending on how much in assets you have to invest, the % you pay could be drastically different with one model vs. the other. That is the root of the issue. Forcing a more expensive business model on middle america "for their own good".
I agree that an advisor should be willing to work in the best interest of their client. But I do not agree with regulations that force retirement savers into a more expensive business model. Give me the paper I will sign it... it doesnt take 1000 pages in new regulations to draft a "best interest" agreement...
- 11,266
Judged by whose expertise? Every advisor, agent, registered rep, whoever all bring a different perspective and unique skills to the job.
Financial planning and insurance/investment sales is NOT like accounting with generally accepted practices. There is NO "one size fits all" - despite the training practices of certain companies or financial entertainers.
Even the CFP board teaches you the principles but does NOT teach you how to build "the correct plan". Every agent/advisor brings their own expertise and perspective.
The flaw is thinking that there is a "standard" for "best interest" when that's based on the knowledge, skills, and expertise that the advisor/agent brings to the client relationship.
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I know it. Here's my explanation:
1) I have invested thousands of dollars for well over 10 years to learn how to do what I do. I have my certifications and attended many industry conferences to know how to do what I do to deliver great results for my clients.
2) Just because you have a 'legal' title of 'fiduciary' does not mean that you DO put your client's interests first. Bernie Madoff was a fiduciary... and we know how that all turned out. They're still trying to reimburse clients almost a decade later. That's the difference between an RIA ripping you off and a FINRA (B/D) firm ripping you off. It's far easier to be made whole by a FINRA firm (B/D) than an RIA.
3) My biggest problems with the DOL ruling were two-fold:
- 1) was the BICE requiring a financial institution to sign off on the recommendation. This is prohibitive for the independent agent because we were agents for the insurance companies directly and any marketing company was just that - a marketing company, not an institution. It would've destroyed the way I work with clients.
- 2) I would prefer not to disclose my commissions only because if the product fits and does what it does, commissions are immaterial. However, I have no problem disclosing my earnings and any hard/soft costs to my recommendations and comparing them to other ways of retirement investing.
Yeah, that's long-winded, but I'd have no problem talking about it with anyone.
- 248
I never understood the reluctance that some (minority of) agents and brokers have about disclosing what they make on a given financial product or basket of products to clients who want to know.
We pretty much know what real estate agents make when they list or sell your home.
We pretty much know what the doctor was paid for the office visit via the EOBs from the the carrier or Medicare.
We have a good idea of what our hairdresser makes when he/she does a wash, cut, and color.
We have a good idea of how much our lawyer makes for doing a contract or a divorce.
On the whole there is a lot of existing transparency on income in most personal service sectors.
I think that most large and/or sophisticated investors believe that if their advisors won't disclose what they make on the business the client brings (if asked,) that there is something that is being hidden from them.
I have my own portfolio and mange one for an elderly family member. Both advisors have never had an issue with disclosing their commissions, fee-splits, and AUM splits when asked.
I believe that the vast majority of financial service advisors are the same. I also believe that the vast majority of advisors already consider themselves fiduciaries if not de jure then de facto.
I'm confident that a fair and reasonable fiduciary rule or legislation can be adopted that will 'work' for both advisor and client.
The previous rule was flawed and was not in the best interest of the advisor OR the client and it is a good thing that it is being re-investigated. Perhaps we can get it 'right' this time around.
But one thing I'm certain of. There WILL be a new fiduciary standard. The old suitability model is going away and won't be coming back again.
- 11,266
No I don't. I know how much commission I pay (hard cost), but I don't know how much of it is paid to the real estate agent.
No I don't. You can find out how much was paid to the establishment, but you don't know how much of that the doctor actually gets.
No I don't. I know how much I pay (hard cost), but aside from a tip, I don't know how much the hairdresser gets to keep out of the total cost.
No I don't. I know how much the firm is charging (hard cost), but I don't know how much the lawyer gets out of it.
No there isn't, and it doesn't matter - as I just pointed out.
Investments have HARD dollar charges (COSTS) against them. These are itemized fees that MUST be disclosed via ADV Part 2 OR via prospectus for mutual funds or variable annuities.
In this, we are agreed.
However, if I'm selling a fixed indexed annuity that has no hard dollar charges (sales charge or ongoing fees) - aside from perhaps a lifetime income benefit rider charge... and surrender charges... how much I earn on that product is immaterial.
Do you know how much your banker makes when they open a CD? No. Do you care? Not really. Why not? Because it's FIXED - fixed interest, fixed term, principal protected, and no hard fees. Now, if you surrender the CD, you generally forfeit any interest earned and you may have a separate small fee penalty. However, whether the banker makes $20 or $200,000... doesn't matter, as long as the terms are met by the financial institution.
If I'm opening a fixed indexed annuity for a blue collar guy rolling over $100,000... and he's earning about $75,000 per year... and I disclose that I'm going to earn a $5,000 commission (or more) for the sale of this product... wouldn't you expect him to question my compensation? I would, because in comparison to what he's earning, I'm earning a FORTUNE!
Yes, I can compare to real estate agents and their commission compensation. Yes, I can compare to the hard fees charged by AUM over a 10-year period being about 20% (2% per year for 10 years)... but he's still going to wonder, and I wouldn't blame him.
Did you ever study the Glen Neasham case? While that verdict was eventually overturned, one of the things that stood out was the compensation for selling the annuity... and that was disclosed to the JURY. And the jury believed that the product was sold PRIMARILY for the compensation that the agent would gain.
So yeah, unless it's a HARD dollar charge, what I earn is none of the client's business. However, if asked, I will disclose my compensation. No problem. I would prefer not to be REQUIRED to disclose it.
