The Obama-era rule would require that advisors for retirement investors serve as fiduciaries. As part of the rule, advisors would have to avoid conflicts of interest and clearly disclose to clients when conflicts can’t be avoided.
The rule was scheduled to go into effect on April 10, but Trump has extended the deadline to June 9 to allow the Department of Labor to review if the standard could “adversely affect the ability of Americans to gain access to retirement information and financial advice.”
The controversial rule was opposed by some broker-dealers who claimed it would be expensive to implement and make providing advice to investors with smaller accounts cost prohibitive. Supporters of the rule, however, maintained that it could save investors money by eliminating incentives for advisors to recommend products based on sales commissions rather than what is in the best interest of clients.
Even if the rule is eventually scrapped or even just scaled back, it’s likely that many firms will use the fiduciary standard. Many firms have made substantial investments to create fiduciary programs and, in some instances, they have aggressively advertised the new services.
Both Morgan Stanley and Merrill Lynch, for example, have announced they will compensate 401(k) advisors with level fees, Barron’s reports. The fee structure does away with commissions and finder’s fees that advisors can receive for recommending record keepers.
Merrill Lynch and automated investment platform provider Betterment, for their part, are among firms that have aggressively advertised that they will embrace a fiduciary standard.
At the same time, Ameriprise has reportedly spent tens of millions of dollars and allocated at least 500 people to oversee compliance as part of its fiduciary push.
When considering the substantial commitment that those firms have made and the media coverage of how they are creating fiduciary programs, it’s highly unlikely that they would do an about face even if the rule is scrubbed.
Pressure from within the industry may also motivate firms to comply with a fiduciary standard, regardless of the status of the DOL rule, reports Financial Planning.
Indeed, the Institute for the Fiduciary Standard, which touts Vanguard founder Jack Bogle as a board member, is actively encouraging advisors to comply with 12 guidelines for professional conduct.
Competition is also likely to prompt firms to maintain their fiduciary programs. The Advisor Group, for example, has cut fees and has developed in bundle all-in cost structure. As part of the change, it has lowered its account minimum to as low as $5,500.
The firm maintains that the reduced fees may hurt profits in the short term, but over the long term, the change will help advisors capture additional assets while helping the firm recruit additional advisors.
The publicity over the ongoing debate on the proposed rule, furthermore, has resulted in more investors learning about standards that fiduciaries must follow. At least by some accounts, that could pressure advisors to adopt the standard.
William Prewitt, who is the founder of Charleston Financial Advisors, maintains that for the first time 35 years, he has had individuals ask him if he is a fiduciary.