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Report of a possible delay in DOL's fee disclosure rule sparks apprehension among advisors and industry observers

Advisors say they can't comply with the rule until they know what's in it but one delay could lead to another

Author Lisa Shidler January 5, 2012 at 3:57 PM
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Terrence Morgan: It wouldn't surprise me if people are stalling and hoping that Phyllis Borzi is fired.

401(k) Stories

Stephen Winks

Stephen Winks

January 5, 2012 — 8:39 PM


The DOL’s transparency and disclosure requirements to include acknowledgement of fiduciary status (to be extended to those even serving the IRA mass market) is (a) the first time the brokerage industry has had to acknowledge the general fiduciary status of the broker as it applies to retirement assets, (b) the first time brokers have ongoing accountablility for their recommendations after a transaction is consumated and© the first time a broad range of very specific ongoing fiduciary duties are delineated and required by objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters.

The brokerage industry (FINRA, SIFMA, FSI, etc) for over 70 years has maintained that brokers do not render advice, they just make consumers aware of their investment alternatives. It is up to the consumer to determine investment merit regardless how little knowledge and experience the consumer may have. This 70 year strategy has completly absolved the broke from having any fiduciary responsibility for their recommendations but also means the role of the broker is simply a clerical trade execution function which has now become a commodity which can be obtained for free. In this context, most would agree that brokers actually do render advice. The DOL is just now making it clear to industry self regulatory organizations (FINRA, SIFMA) that brokers have a fiduciary responsibility to act in the client’s best interest when it comes to retiremebnt assets.

Though in recent years brokers have called themselves advisers, they have here-to-fore assumed none of the responsibility. By not acknowledging or supporting advice, the brokerage industry today finds itself not remotely close to declare the fiduciary status of its brokers. Nor has the industry established the necessary enabling resources required for the broker to be adept the in rendering expert individualized personal advice required in fulfilling their ongoing fiduciary obligations to act in the consumer’s (401 (k) plan sponsor and/or plan participant’s ) best interest.

Importantly the DOL is the precursor of the general broker population being held to the fiduciary standard of care under Dodd-Frank governing advice to individuals.

The industry’s lack of preparation is self defeating and worse suggests a total disregard for the professional standing of the broker and the best interest of the investing public which regulators like the DOL are charged to protect. Much of the loss of trust and confidence of the investing public in the brokerage industry is ascribed to brokers not being accountable for their recommendations and brokers not being held to a high fiduciary standard requiring fidelity to the best interest of the investing public.

RIAs who are prepared to acknowledge fiduciary status and can demonstrate expert status in acting in the consumer’s best interest, are about to see an exponential increase in the utilization of their services and assets under advisement.

The brokerage industry may not understand the untenable ethical position it is putting its brokers in by not allowing brokers to acknowledge their fidiciary status. But the industry does understand the loss of market share associated with a permanently inferior competitive market position counter to the consumer’s best interest.

Necessity is the mother of invention. Let the RIAs clean the clock of brokers for a year or so and it becomes in the enlightened best interest of the brokerage industry to enthusiastically advocate and support the fiduciary standing of the broker.

When the brokerage industry discovers it is in their enlightened best interest to support the fiduciary stand of the broker, we will finally see large scale institutrional support for fiduciary standing which makes advice safe, scalable, easy to execute and manage.

The industry is being reordered around addressing and managing investment and administratice values for each individual client rather than selling investment products in a series of disjointed, unrelated transactions where it is not possible to add value. The choice is clear to the consumer. Advisors act in the best interest of the consumer, brokers act in the best interest of the broker/dealer as it is a violation of the internal compliance protocol of every broker/dealer for brokers to even acknowledge they render advice or to say they owe an ongoing fiduciary duty of care and loyalty to their clients after a recommendation is executed.

When will the brokerage industry discover it is working against its own self interest by not acting in the best interest of the consumer and the advisor?




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June 26, 2014 — 11:24 AM

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Mentioned in this article:

SageView Advisory Group, LLC
401k Plan Consultant, Advisory Firm
Top Executive: Randy Long

BrightScope, Inc.
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