How Is the Dust Settling Post-June 9?
The DOL fiduciary rule — at least significant parts of it — has now been implemented. The dust has just begun to settle, although it could be stirred up again at any time. But for now, the rule is in place. A recent analysis offers an assessment of where things stand.
In a recent Forbes
post, “New Fiduciary Rule for Financial Advisors Moves the Needle, But in Which Direction?
” the American College’s Jamie Hopkins writes that on June 9, “the financial services world changed forever (maybe).” But the news was not as big as it should have been, he posits, something he says is at least in part because “Americans do not fully understand what it means for a financial advisor to act as a fiduciary as defined by [ERISA].”
So what does it mean? In Hopkins’ view, at its most basic it means that advisors:
- need to act in the client’s best interest;
- must act with the skill, due diligence and knowledge one may expect of someone familiar with an advisor’s responsibilities; and
- avoid conflicts of interest.
It also means that advisors can charge no more than a reasonable fee for services, Hopkins says, but he cautions that consumers should keep in mind “that does not mean that their advice will be cheap.” And, he says regarding the rule, that “the details and compliance requirements are far more complicated and nuanced.”
Of course, the rule has meaning for consumers as well. Hopkins says it includes:
- receiving some correspondence from an advisor or their firm about changes in fees, products, or services;
- the possibility that service providers’ higher compliance costs and liability expenses will be passed on to them.
Hopkins says that the rule may elicit movement away from commission-based fees and compensation, and toward a flat fee-based model. That could take many forms, he argues, including moving from a commission- or transaction-based brokerage account to an asset-under-management-based fee structure. Hopkins thinks that “is not always a good or bad thing” and that whether or not it is “very much depends on the consumer’s specific situation, goals, desires and planning needs.”
Hopkins also argues that the rule could result in some providers expanding their service offerings, but others doing the opposite. Consumers whose providers reduce their services could be severely affected, he says, and “might have to start looking for a new financial advisor in order to find all the services and investment options they desire.”
Time will tell regarding the effects of the rule on consumers, Hopkins says. He contends that ultimately, the rule will be “disruptive to the financial services industry, for better or worse,” and that “while most agree with the principles of having a uniform fiduciary standard of care requirement for financial advisors, many are still hesitant about the ultimate impact of the current rule as written.” Not only that, he adds, “Just because the rule is now in place does not mean that all advisors have the education, process, technology, and services to meet the demands of a fiduciary standard.”
And yet, Hopkins reminds, it all may not be set in stone. “The fiduciary requirement also is not necessarily complete or permanent yet,” he observes.