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RIAs should ask not for whom the DOL-rule sharks swarm ... they swarm for you, too

Advisors who truly aspire to be part of a respected profession need to oppose the furious efforts to revive the commission-broker ethos from the top seat of government

Author Guest Columnist Scott MacKillop February 9, 2017 at 10:39 PM
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Scott MacKillop: The public sees us all as being members of the same club.

RIA Compliance

Jim Heard

Jim Heard

February 9, 2017 — 11:29 PM
I suspect this comment may unleash the fury of those whose intent I understand but whose efforts I fear are misdirected. For the benefit of full disclosure, I am CEO of a $1 billion RIA firm, and I take the fiduciary rule and its purpose seriously. It is one of the main reasons I chose to make the change from the wirehouse world to the fee-only world many years ago. However, the fiduciary rule was a career choice I made. It was not forced upon me. But let me cut to the chase. 1) If fiduciary advisors need a rule, regulation, or designation to separate themselves from other non-fiduciary advisors/brokers, we have a bigger problem than the recent attack on the DOL-rule. If consumers can't tell the difference, then WE are the problem. Beyond that, the regulation that works for us today is likely to be before the one tomorrow that could put us out of business, or controls how we price our services, or, ...well, you know the rest of the story. And 2) there are many ways consumers make bad choices - they buy inferior and dangerous cars, they smoke cigarettes, they eat bad food, they indulge in dangerous behavior. This is the dark side of human behavior in a free society, but this is also how markets work. And who says consumers need a rule to protect them from themselves? The fiduciary delivery model is the only one growing market share today and for the last 15 years. Let the markets work. Consumers understand the difference. I know a few of the investing public would be better off having this rule or something similar. But I also know the vast majority of investors and the fiduciary model will be much better off without it. If you want to save the world from itself, get more clients.
brooke southall

brooke southall

February 10, 2017 — 6:09 AM
Jim, I hear your thoughts and they are logically and historically based. Still, I imagine if you step onto an airliner, into an emergency room, or into a courtroom to defend a crime you didn't commit, it is reassuring to know that regulations are in place that make it a matter of law that those professionals put you first. Having rules in place doesn't mean market forces cease to function and remain the arbiter of success. Rules generally make the market work better and faster. It's fine to talk about the market sorting out iPhones vs. Galaxies but do you want it perfecting itself with your life -- or nest egg -- as the practice dummy? Brooke
Phillip Christenson

Phillip Christenson

February 10, 2017 — 1:41 PM
Jim, aptly put. The reasons you cited are exactly why I am against the DOL rule. Not only that but with all legislation there are unintended consequences and negative externalities, of which cannot be seen without a crystal ball but bear out over time to the detriment to the consumer and the "real" fiduciaries like you who are trying to serve them. For the record, I am also a fee only advisor.
Scott MacKillop

Scott MacKillop

February 10, 2017 — 2:25 PM
I'm normally a free-market guy myself, but in this case the historical record shows that market forces haven't worked. Studies show that most clients don't know the difference between a broker and a fiduciary adviser and they can't tell a bond from a bon-bon. They need guidance, which is why RIAs play such a crucial role. There is no reason why those who purport to offer advice should not be subject to a fiduciary standard. Product-seller can still exist, but should be clearly labeled as such. This is not just for the investor's benefit. As I said, RIAs pay a price for the confusion, and we will all pay a big price down the road when retirees don't have enough money to support themselves because they have been ripped off by conflicted advice. We should all hope they have as much money as possible in their accounts when they hit retirement age.
Phillip Christenson

Phillip Christenson

February 10, 2017 — 2:57 PM
They haven't worked or they haven't worked in the way you expected? Or maybe change is not as timely as you like? Either way a majority of my clients are people who were questioning the "advice" they were receiving from a broker dealer and learned about fee-only/fiduciary from researching, so yes people are learning the difference. If the DOL rule was only about labeling a broker as a "product-seller" I might be able to get behind it but it is much more than that. And I agree that the majority of people need guidance but how far should the law go? And who decides what is best if not the free market? I propose a law to force mandatory annual meetings with pre-selected fiduciary advisors...can you already see the potential for corruption/cronyism. Or maybe a mandatory 12.4% should be taken from our paychecks and wisely invested...oh wait, we already have social security and that is working out just as planned... I enjoyed reading your article and thanks for the discussion.
Scott MacKillop

Scott MacKillop

February 10, 2017 — 5:35 PM
It has nothing to do with my desires or expectations. The Investment Advisers Act of 1940 established the distinction between brokers and advisors before you or I were even born. The Supreme Court read a fiduciary standard into that Act in 1962--55 years ago. The vast majority of people still don't understand the distinction. Most of the investors who are affected by the DOL rule wouldn't be able to meet the minimum account size requirements of most RIAs, but there is no reason that they should not be protected by the same fiduciary standards your clients are protected by. Yes, the rule is a messy blob, but it is that way because the industry would not accept a simple fiduciary standard like the one RIAs have lived with for over 75 years. Let's clean up the mess by simply applying the standard to all people who offer financial advice. Simple, clean, done.
Grant Barger

Grant Barger

February 18, 2017 — 3:06 PM
Love Jim's perspective... The wrong sides are rooting for or against the industry rule. Which makes perfect sense if you've been in this industry for any amount of time. You can't police advisors into becoming stewards... The industry will sweep its own doorstep for the benefit of self preservation... not client or stakeholder concerns. Articles like this are important to report on the facts... Advisors should never rely on industry standards to define their value for them. Jim and Brooke will both have their perspectives played out through different players in the same game. This is one of the reasons financial services is the greatest business in the world... it will fix itself eventually, and digital transparency is speeding the process exponentially. Great article and great comments by all.

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