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Is the Fiduciary Rule Good for Investors?

I agree with most Democrats and disagree with most Republicans for once.  And I’m not too proud to admit it, either.  But I confess, I don’t have a clue why this should be so, but I assure you that it is so.

What is this incredible issue that finds me on the side of what I generally consider “them” instead of “us?”  The Fiduciary Rule, which requires financial advisors to act in a fiduciary manner when advising clients, has made strange bedfellows out of elected Democrats and me.  Simply put, they are right, and the elected republicans are wrong.  Here’s why:

  • A Fiduciary is someone who shoulders the responsibility of placing a client’s interest ahead of the advisor’s own interest
  • For some of us, this is the most natural process in the world
  • This is the way I would want to be treated
  • So, my biggest question is, “Why has it not been this way forever?”
  • And I do know the answer – there is more money to be made by some advisors when they sell certain products or funds that pay higher commissions than some of their competitors (sometimes even proprietary funds)
  • This is a classic case of a conflict of interest, and every reasonable person should agree that conflicts of interest are undesirable
  • Yet for decades the brokerage industry has been operating in the absence of a Fiduciary responsibility
  • They know very well that they are wrong
  • And they have spent “gigabucks” trying to keep it that way
  • Now, from the strangest source comes a remedy
  • The Obama Administration has longed claimed to support a new Fiduciary standard
  • Now it is out, and there are cries from the right that are leaving me cold
  • I’m calling them out, here and now

Here’s the story.  The primary excuse given by the brokerage industry and their paid elected officials is a heartbreaking claim that the “little guy” will no longer have access to “good financial advice.”  Bunk!  They will no longer have access to “conflicted financial advice.”

But perhaps worse is the support of the Republicans for delaying, watering down, or eliminating the Fiduciary Rule, although so far it only extends to retirement accounts.  They are free to operate “as is” on brokerage or other taxable accounts.  This will, hopefully, be addressed at a later date.

The arguments about unavailable advice constitute a smokescreen.  Let’s look into the real numbers, brought to us by SIFMA (the Securities and Financial Markets Association, of which I am not a member) and Deloitte, a highly-respected consulting company.  The results paint a picture that is hardly “bad for the little guy.”  Consider these items:

  • The 1-year cost to the brokerage industry is $4.7 Billion (with a “B”)
  • The 10-year cost is in the range $10 Billion to $31 Billion
  • 10,000 advisors will face difficulties when faced with the Fiduciary standard
  • The 10-year gains to IRA investors is estimated between $33 Billion and $36 Billion, over 20 years is between $66 Billion and $76 Billion
  • And all this with NO prohibition of any asset classes
  • The annual cost of conflicted advice is estimated at $17 Billion – money going to brokers, rather than IRA owners

As a CFP, a Fiduciary, a NAPFA member, an Investor, a husband and father, and a friend to investors, I have always accepted the Fiduciary standard as the preferred method of doing business.  That why we established Van Wie Financial last year to be a fee-only, fiduciary advisory.  We wouldn’t have it any other way.

I promise you that the airways will be full of gloom and doom, and the focus will be on the “little guy,” and how less-affluent investors will be denied quality advice.  Don’t believe it!  They will be denied conflicts of interest, overpriced, underperforming funds, proprietary products with huge commissions, and other lesser-quality “investments.”  

Good advice is available anywhere, any time, with a fiduciary responsibility attached to the advisor.  For a good referral, listen to our radio show, go to the CFP (Certified Financial Planner) website, or NAPFA, the National Association of Personal Financial Advisors, whose membership is fee-only, fiduciary advisors.

Leave the brokerage houses to their cleanup process.  After all, they created the mess.  My sympathy is lacking.  Demand the best, it doesn’t cost more to go first class.

Use a qualified CFP and call the show – it’s free, and we can help direct you through the planning process.