Weston Kissee: The fiduciary delay will help during the tax-season hustle.
Ken Homan believes the rule eventually will take effect.
Days before it was set to take effect, the U.S. Department of Labor postponed implementation of the fiduciary rule at the behest of President Donald Trump.
Originally scheduled to go live April 10, Trump issued a memorandum to acting Labor Secretary Ed Hugler on Feb. 3 that directed the DOL to “prepare an updated economic and legal analysis concerning the likely impact” considering three things: harm to investors, disruptions in retirement savings, and increases in prices or additional litigation.
In its April 4 response, the DOL pushed any action two months to June 9 and opened a public comment period.
“One of the priorities of my administration is to empower Americans to make their own financial decisions,” Trump said in the memo. “The final rule … may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my administration.”
As written, the Obama-era regulation would give new protections to investors working with financial advisers, requiring advisers to act as fiduciaries, meaning advisers work solely in the best interest of the client at all times, charge no more than reasonable compensation for their services and refrain from making misleading statements.
“I don’t think it was a matter of Trump’s opinion on the law; (the delay) was more based on adding restrictions to business,” said Ken Homan, a senior vice president at Central Trust Co., which already operated under the fiduciary standard. “There’s no change for us, but this is a big evolution for the industry.”
An evolution some advisers say wasn’t well thought out and could potentially hurt smaller companies.
“There were some issues with it, and it was trying to be forced through by the previous administration. It’s good to take a step back and look at it,” said Tony Manasseri, a financial adviser with Thrivent Financial and vice president of the National Association of Insurance and Financial Advisors’ Springfield chapter.
The postponement also comes at a critical time for many advisers – tax season. At Edward Jones Investments, adviser Weston Kissee said the firm supports the spirit of the rule, but it’s thankful for the delay.
What’s the fiduciary difference? If not operating as a fiduciary, other advisers are held to the suitability standard. Rather than legally having to place his or her interests below that of the client, the suitability standard only details the adviser has to reasonably believe any recommendations made are suitable for clients. A key distinction in terms of loyalty is also important. A broker’s duty is to the broker-dealer, not necessarily the client served.
Like many firms, Thrivent Financial was not officially acting under the fiduciary standard but began making preparations for the change. Manasseri said the firm would go forward as if there is no delay.
“We are a Christian company, so we have always acted in the best interest of our clients,” he said. “Now, there is just more paperwork involved.”
Manasseri couldn’t pinpoint what Thrivent invested to make the changes, but he said it’s lost dozens of man hours to training, including a 12-hour in-person session and multiple online courses.
“All of that adds up. Anytime we aren’t in front of a client, we aren’t making money,” he said. “Take that movie, ‘Wolf of Wall Street,’ for example; we have the same licenses. Bad people will still do bad things, and there is no training for that.”
Currently, financial advisers work on different pay models: fee-only, which charges for services by the hour or at a fixed percentage of overall assets, or commission-based, which charges clients a flat fee for the advice delivered. In the latter, aka a fee-based model, advisers receive payment based on the financial packages sold. Different investment plans provide advisers varying commission levels.
At commission-based Edward Jones, Kissee said it’s business as usual.
“We were ready to comply, but glad to have the extra time to sort things out,” he said, declining to pinpoint any expenses or training the company went through in preparation.
According to its website, St. Louis-based Edward Jones is one of the largest investment firms in the country, serving more than 7 million clients through 15,000 advisers across 12,000 offices in all 50 states.
In addition to company expenses, the DOL analysis found every day of delay could mean more conflicted advice for consumers, leading to up-front losses that multiply over time. The department estimates the delay could cost investors $147 million in the first year and $890 million over 10 years.
While uncertainty may loom regarding final implementation, most advisers agree the law eventually will take effect.
“We believe the ball started rolling downhill in the best interest of the people and it won’t stop,” Kissee said.
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