Forced Fiduciary Standards is Socialism!

[scagnt83]

Not sure how many around here keep up, but there is a big ongoing battle about enacting fiduciary standards. Both FINRA & the SEC are working on their own definition of fiduciary standard, and the DOL is too.

There are proposals for B/Ds and brokers acting under them to be held to the fiduciary standard as opposed to suitability.

The DOL is currently trying to enact regulations (which are being held up by congress thankfully) that would require IRAs to be incorporated in the fiduciary standard.
Of course the details arent finalized or clear yet, but requiring brokers of IRA investments to act in a fiduciary capacity would be a major game changer in the way annuity agents and retirement planners do business.


Also, if actually enforced; it could be a major game changer for clients in the eyes of some existing fiduciaries.
A fiduciary must always do whats in the best interest of the client. Take this example from a semi related article that I was reading:

"....In fact, some fiduciaries assume they need to measure the risk-aversion of a beneficiary before selecting investment option. In reality, risk-aversion doesn’t matter to the fiduciary. Let’s say you’re the trustee of an IRA for a 25-year who’s extremely risk-averse. Should you abide by the beneficiary’s risk aversion? No. As a trustee, you have to do what’s best for the beneficiary, and for an 25 year-old, that means placing his IRA in equities, which, while displaying greater short term volatility, tend to yield higher returns over the long term.

But wait! Isn’t the client always right? Maybe, but, as a fiduciary, in this case, the client isn’t the 25 year-old of today, but the 59 ½ year-old of tomorrow. Whew! Who knew this whole fiduciary thing involved time travel!...."


If forced asset allocation isnt socialism, I dont know what is!!

 

[Cornelius]

From what I've read on the subject this is why people with series 6 and 63 may be going to the 65..

 

[scagnt83]

From what I've read on the subject this is why people with series 6 and 63 may be going to the 65..

Yep, pretty much. But the problem is that as a fiduciary you cant take commission, which means you are fee based only. So under the proposal, you wont be able to take commissions off of IRA assets, only fees.

How many IRA owners are willing to pay an out of pocket fee for investment advice, as opposed to paying transaction fees (commissions) that come from their assets, or better yet is already built into the contractual guarantees & returns?

Probably not many imo.

This would mean that when grandma goes to get a CD or a FA for her IRA, the person selling it to her (or in this case "advising her to add this to her portfolio") has to act in a fiduciary capacity.

Of course banks will set up some type of standardized system to "fulfill" this requirement; and of course it will be half cocked compared to what they will require indy brokers to comply with. But they still have to be compensated by means that do not/can not influence product advisement.

The banks can still profit if they charge a $40 fee to take out a CD, hell, they sell CDs to gain the assets on the books more than for any interest arbitrage.

But us brokers cant survive on $50 fees.... or $100..... barely on $1000!!


Current definitions allow a fiduciary to take a set "asset fee" on a percentage basis. But the proposed revised definition is a work in progress at the moment.
And will clients be happy having a 1%(ish) fee deducted from their FA or CD?


Congress actually was right for once. They told that crazy loon of a female who is the head of the DOL that the changes are misguided and not thought through at all!

 

[VolAgent]

From what I've read on the subject this is why people with series 6 and 63 may be going to the 65..

Don't worry, FINRA and the SEC have their sights set on the 65 next.

 

[padthaiforlunch]

My limited understanding is part of the fiduciary push is because of excess fees in IRA and 401(k) accounts.

How many IRA owners are willing to pay an out of pocket fee for investment advice, as opposed to paying transaction fees (commissions) that come from their assets, or better yet is already built into the contractual guarantees & returns?

 

[Norwayguy]

My limited understanding is part of the fiduciary push is because of excess fees in IRA and 401(k) accounts.

Haven't you ever heard the term "Unintended Consequences" It is a common issue whenever bueracrats get involved.

 

[VolAgent]

My limited understanding is part of the fiduciary push is because of excess fees in IRA and 401(k) accounts.

You're always going to pay through the nose if you want someone to help you with your $50/mo IRA.

 

[padthaiforlunch]

Right. I may be confusing this issue with hidden 401(k) fees that are not disclosed. There is a fair amount of abuse in that market. Enough to get the regulators poking around.

 

[njh_lfg]

How many IRA owners are willing to pay an out of pocket fee for investment advice, as opposed to paying transaction fees (commissions) that come from their assets,

But us brokers cant survive on $50 fees.... or $100..... barely on $1000!!

I hope you realize asset based fees can be deducted from IRA accounts. Besides this, every single client of mine regardless of what type of advise they need (insurance, investment, estate planning, education funding) pays a fee to sit down and tell us their problem. If they are not willing to write a check then they are not fully "invested" in working with an advisor.

Try to look into the future and how this change can help your practice rather than the negatives. However, if you are working with individuals with average to lower incomes or little to no assets accumulated then yes this change will hurt you dearly if you cannot collect commissions.

 

[VolAgent]

I hope you realize asset based fees can be deducted from IRA accounts. Besides this, every single client of mine regardless of what type of advise they need (insurance, investment, estate planning, education funding) pays a fee to sit down and tell us their problem. If they are not willing to write a check then they are not fully "invested" in working with an advisor.

Try to look into the future and how this change can help your practice rather than the negatives. However, if you are working with individuals with average to lower incomes or little to no assets accumulated then yes this change will hurt you dearly if you cannot collect commissions.

That is the point. These regulations are going to hurt the middle class, exactly who they are intended to protect.