The lobby group that sued to stop the DOL rule surveyed 1,300 member stockbrokers -- of whom 71% voted for Donald Trump

December 1, 2016 — 8:43 PM UTC by Irwin Stein


Financial advisors -- that's FAs as defined by FSI -- despise Hillary Clinton but they loathe the DOL rule, finds the Financial Services Institute Inc. in its newest study.

A full 86% of stockbrokers want President-Elect Donald Trump to repeal the DOL rule that radically ups the level of care required legally in serving customers, according to the Washington-based lobbyist. 

Only 14% thought that it should stay in place. The DOL rule is DOA -- and that's just the beginning, says RIA champion Brian Hamburger, law school chum of odds-on chief of staff Reince Priebus

FSI represents more than 100 independent financial services firms with more than 160,000 affiliated financial advisors – or more than 60% of all producing registered representatives. See: LPL reconsiders FSI as it drops out of its board, offers own DOL stand and hires own lobbyist

The survey based on the responses of 1,357 FSI members also found that 71% of the respondents voted for Donald Trump. In Alabama, Trump won 62% of the overall vote during the election. Only 19% of the FSI respondents voted for Democratic candidate Hillary Clinton and 10% either voted for a different candidate or didn't respond to the question.

“Advisors overwhelmingly want President-Elect to repeal DOL rule” The headline of the release announcing the study reads: -- a representation that completely ignores the needs of investors, says Knut A. Rostad, president of the Institute for the Fiduciary Standard in McLean, Va.

“The FSI headline is laughable. Sounds defensive. It should be," he says. "Especially when you talk to small investors in Wisconsin, Pennsylvania and Michigan. The results of this poll are about as surprising as “NRA members overwhelmingly want President-Elect to NOT repeal 2nd Amendment.”

Rostad suggests that “the FSI executives need to get out more and survey the small investors.”

Knut Rostad: The results of this poll are about as surprising as “NRA Members Overwhelmingly want President-Elect to NOT Repeal 2nd Amendment.”



But FSI president and CEO Dale Brown says that members views “driven by their clients" need to access their help in securing a dignified retirement.”

Pleas for relief

FSI spokesman Chris Paulitz says that clients with smaller accounts would be the big losers if the fiduciary rule goes into effect.

Last year, FSI members sent 5,000 letters to the White House and had their clients send over 100,000 letters to the Department of Labor pleading for relief from the rule.

This year, the FSI is the plaintiff in one of the five lawsuits that have been filed against the DOL to stop the fiduciary rule from taking effect. “We filed the lawsuit to win, not to make a statement or lambaste the DOL,” Brown said in a Skyped-in speech. See: Jaws drop after Dale Brown Skypes keynote address 

Paulitz also decried the vagueness of the DOL rule which requires firms to act “reasonably” and warned of “untold liability exposure and class action lawsuits."

Twenty-one percent of those responding to the poll expect to leave the business in the next five years. Of those, 12% cite the DOL fiduciary standard as their reason for leaving. See: One security lawyer's unvarnished take on DOL's 34 answers to 34 questions and what unsettles him about them

That said, Paulitz still expects that “all FSI member firms will be in compliance by April when the rules take effect and that their business "will not substantially be hurt.”

Slow-to-no walk

Rostad believes that the firms will do as little as possible to comply with the rules and takes a show-me attitude toward the previously unseen wirehouse showmanship on display. 

“Merrill Lynch is advertising that they support and will follow the spirit of the fiduciary rule putting the interests of the customer first. Twenty to 25 years ago the industry was advertising that they wanted to obtain the clients’ trust. What’s changed?” Rostad asked. “At the end of the day the firms will be judged by what they actually do rather than their advertising.”

LPL Financial will move forward with the planned changes to its commission structure, Casady told the Boston Business Journal last Thursday  after a Greater Boston Chamber of Commerce event. LPL and DOL have not been of one voice on this issue -- though closer when details of their stands are observed. LPL reconsiders FSI as it drops out of its board, offers own DOL stand and hires own lobbyist

“Our changes are all going to stay, because they’re smart business changes and they’re smart compliance changes,” Casady said. “It is about lowering costs for investors, and that makes us more competitive in raising assets, for example, and it helps from the Department of Labor standpoint in terms of what they’re trying to do.”

Casady then walked back some of those pro-DOL rule comments, telling the Boston Business Journal he'd like the agency to cap liability faced by advisers. 

The LPL CEO added that  he'd also like to strip the DOL rule best interest contract in favor of a uniform disclosure document.

Gonna happen

The poll was taken one week after the election. Seventy-one percent of respondents voted for Trump, the Republican candidate. Notwithstanding their votes, only 58% of the respondents thought that 2017 would be a strong year for the U.S. economy and slightly less, 56%, thought 2017 would be a strong year for equities.

FSI has joined a consortium that includes the U.S. Chamber of Commerce to sue the DOL.

“We filed the lawsuit to win, not to make a statement or lambaste the DOL,” Brown said. See: Why SIFMA & Co.'s trip to a friendly North Texas court to upend the DOL rule looks more like its Alamo.

Brown allowed in the speech that until such a legal victory is gained that the FSI “is in a vexing position in that our members will have to spend time, money and resources to comply with a rule that we hope gets vacated.”

No people referenced


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Ron A. Rhoades said:

December 1, 2016 — 9:37 PM UTC

I've heard this argument that small clients can't be served by advisors under a fee-based system so often, yet it is just not true. First, there are many fee-only advisers, as well as robo-advisor platforms, that offer low-monthly-subscription-fee or low-AUM fees or flat fees or hourly fees for advisory services. In fact, after the DOL rule was finalized, a couple of dual registrant firms announced the LOWERING of their minimums, in connection with fee-based accounts, in order to serve small clients. Many, many advisors currently work under a fee-only platform, and many (if not most) of them serve small clients. And most of them are actually trained to provide both financial and investment advice (not just sell products). Consumers should just look for advisors by visiting the web sites of Garrett Planning Network (, XY Planning Network ( and many members of the National Association of Personal Financial Advisors ( and the Alliance of Comprehensive Planners ( [Disclosure: I have served as a consultant to Garrett Planning Network in terms of providing educational content to them, and I am a member of NAPFA.] Second, being sold a product on commission is not "cheaper" - as FSI and SIFMA often like to say. Most brokers go out of their way to ensure that their commissions are not cut via breakpoint discounts, by spreading client funds over several fund families. (I've seen this again, and again, and again). So, let's examine the typical fees paid by clients sold Class A mutual fund shares: 1) 5.75% sales load. What is the impact of this? Assuming a 10% level annual rate of return for a stock fund, the fund must secure a 1.20% greater annualized return for the fund to "break-even" with a no-load fund, over a 5-year time horizon. If the fund were held for 10 years, the greater return required is 0.59%. If the fund were held for 15 years, then the break-even is 0.43%. But, here's the catch - the average stock fund is held for 4 years, and the average bond fund is held for 3 years, according to the ICI. 2) Class A shares also typically possess a 12b-1 "marketing fee" (80% of these collected fees are passed on to brokerage firms, on average). This fee is typically 0.25% a year. 3) Funds sold through the broker-dealer channel typically have fairly high commission structures, due to excessive trading of securities within the fund, using full-service brokers as the chosen brokers for such trades, and payment of soft dollars. While the impact may only be a few basis points, or in excess of 50 basis points (or even much more), the fees add up! Add in bid-ask spreads, which in turn fuel back to the brokerage firms payment for order flow, and even more costs are extracted from investors. 4) The funds sold by broker-dealer firms usually have higher management fees. In turn, these higher management fees often are used, in part, for revenue sharing payments, such as "payment for shelf space." 5) The funds sold by broker-dealer firms are often tax-inefficient. Not enough brokers structure portfolios tax-efficiently, nor do they utilize tax-efficient stock mutual funds. This results in a substantial tax drag on investment returns that often could be avoided, or at least minimized. I would also opine that payment of commissions on mutual funds is counter to Modern Portfolio Theory, in particular a strategic or tactical asset allocation methodology and rebalancing. Unless the fund is a target date fund (or similar fund) (which may have even higher costs, or may not be tax-efficient if the client has accounts with different tax characteristics), then rebalancing of the portfolio should be undertaken. Of course, this leads to more commissions. IN ESSENCE, COMMISSION-BASED MUTUAL FUNDS ARE CONTRARY TO THE SOUND MANAGEMENT OF AN INVESTMENT PORTFOLIO. In essence, the "suitability standard" that governs broker-dealers and their registered representatives (in most instances) imposes no substantial duty of due care upon the firm or its advisers. Not required to possess expertise in investment portfolio design, nor in investment product selection. No fiduciary duty of loyalty. Hence, no duty to truly evaluate and select the BEST mutual funds or other investment securities for the client. In essence, part of a product distribution network, purposely designed to obscure the many, many fees and costs investors are incurring. Additionally, for the 1% (or higher, or much lower) annual AUM fee charged by some fee-only advisors (which FSI and SIFMA tout as "too expensive" for small investors), nearly always substantial additional financial planning services are provided, fiduciary responsibility is assumed, and an ongoing duty to monitor the portfolio exists. It's just not an apples-to-apples comparison, to begin with. In essence, small clients get FAR MORE SERVICE and BETTER ADVICE from fee-only, fiduciary advisers, than they do from the vast majority of stockbrokers (i.e., registered representatives of broker-dealer firms). Lastly, to avoid breakpoint discounts many advisors have turned to the use of variable annuities. Yet, many broker-sold annuities have total annual fees and costs of 3%, 4% or higher. While "guarantees" exist - such as the death benefit guarantee, and possible lifetime withdrawal guarantees - the costs of these guarantees, the restrictions imposed when they are chosen, and the relatively low annuitization rates (upon annuitization, which is necessary to secure various lifetime withdrawal benefit guarantees) - all combine to negate the attractiveness of these guarantees. In essence, such guarantees fail any reasonable cost-benefit analysis, from the perspective of the investor (or the fiduciary advisor of the investor). Economic incentives matter. Remove the incentives to recommend high-cost products that pay the firm or its representatives more, and the client - including the small client - receives much better investment recommendations, for often far less total fees and costs. And the all-so-important financial planning advice is also included, as part of the lower fees paid. One could argue that a client who desires municipal bonds would be better served in a commission-based environment. But that ignores the present reality that municipal bonds require ongoing monitoring of the issuer in most instances. Also, a true fiduciary firm would seek to aggregate bond purchases for its many clients, in order to secure substantially less principal mark-ups. All fiduciary advisors need to push back against FSI and SIFMA's false statements. All fiduciary advisors need to let their U.S. Senators and U.S. Congressmen know that FSI and SIFMA are not trying to stick up for small investors, but rather stick it to them.

Jeffrey McClure said:

December 1, 2016 — 11:40 PM UTC

Ron is right; if a bit long-winded. The FSI is an "industry" organization. The Financial Planning Coalition supports the DOL rule, and that coalition includes the CFP Board and the Financial Planning Association, both of which have a substantial and probably majority membership of broker/dealer licensed representatives. Congress passed and the President signed into law the Pension Protection Act of 2006, mandating that IRAs be brought under ERISA rules. Unless that law is repealed we will eventually have a "DOL Rule" just as we have ERISA rules today covering employer-sponsored retirement plans. Treating an IRA beneficiary in that beneificiary's best interest is not a huge hurdle. Yes, it will mean that the high-commission, high-cost products will no longer be allowed, but isn't that what "financial advisers" have been claiming all along?

Brett Walker said:

December 2, 2016 — 12:49 AM UTC

In Australia a fiduciary obligation was legislated in 2013 that affects ALL financial advisers. At the same time various means of remuneration were deemed "conflicted". Importantly the conflict can be resolved by obtaining express client consent. This represents a common sense solution to some of the obvious problems. The DOL approach looks much more complex than that and I get the impression it will apply in fewer advisory situations. But all that said, it's not impossible to impose a fiduciary duty through the Courts - is it?

Jeffrey McClure said:

December 2, 2016 — 1:19 AM UTC

Brett, because of the existing legal structure built on the Securities Act of 1933, existing law and precedent assumes a caveat emptor relationship between a purveyor of securities and a customer. Both the United Kindom and Austrailia have adopted a new basic legal structure regulating the relationship between those who sell or advise on the purchase of securities and members of the public. In the United States, an "investment adviser" is mandated by law to act as a fiduciary, while a "financial advisor" has a legal role as a caveat emptor sales person, and is only restricted from selling "unsuitable" investment products. I agree with you that the United Kingdom and Austrailia's laws are far more appropriate and have, in effect, created a profession where previously there was only a trade. I wish we had such laws in the United States as they are fair, simple, and provide a clear distinction as to the level of expertise and impartiality a given securities person must have.

Brett Walker said:

December 2, 2016 — 1:24 AM UTC

Jeffrey, thank you for that succinct explanation. Been scratching my head about this for a while.

Stephen Winks said:

December 2, 2016 — 4:34 PM UTC

How can the FSI which supports RIAs be opposed to fiduciary duty? It either supports independent RIAs or it doesn't. The point of differentiation is it supports transactions not advisory services which is the antithesis of fiduciary duty entailing no ongoing responsibility for recommendations as required by statute. SCW

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