A Debate on DOL Fiduciary Rule with Tom Hegna and Knut Rostad

[DHK]

This was a vigorous debate - almost like a Presidential debate!

https://www.brighttalk.com/webcast/7381/274439

In my opinion, Knut somehow believes that more regulation will make bad advisors into good advisors, or at least uninformed consumers into informed consumers through more disclosure. His biases against insurance products was quite clear as he believes they are mostly sold inappropriately - that no one would buy them if they "really knew" how they worked.

Every advisor has their own skills and perspective that they bring into the client relationship. But WHO would be "enforcing" such a nebulous standard? This ruling just doesn't work well for those who want to bring THEIR expertise to the client relationship.

 

[nylife11023]

I have not watched the debate... it requires registration which I don't feel is prudent to do.

I think we've all heard both sides before.

The financial industry is not simply against this DOL fiduciary standard but against ANY standard that would require you to work in the best interest of your client.

I know most advisors are against being regulated to do the right thing, but it seems to me that if advisors are already working to the common definition of a fiduciary standard, why are they so opposed to it?

Perhaps there is another agenda here, one more in common with the industry and less in common with their clients?

If there was no apparent need for a fiduciary standard, why is one being considered?

Take the liberal/conservative political argument out of it for a minute. Are you telling us that there are zero abuses made by people in your sector of the industry? Or are you telling us abuses are few and far between? Or are you telling us that such a standard simply won't work?

I don't know if advisors believe that such a standard is not needed or if they are against it because they don't want to have to do their business underneath such a standard. I think one of them is true.

I would not do business with you if you refused to sign a statement saying you were working in MY best interest instead of your own. Why would I want you as an advisor if there is the distinct probability or even a slight possibility that the advice you give me will benefit you more than me?


The advisor community counters by saying that that never happens? Really?

I think the investing public deserves to have at least a modicum of protection from the members of your sector that you seem to be defending.

If advisors are against a fiduciary standard, what does it mean that they are for?

What I hear you saying is that we should stay the course and let every advisor behave to their OWN standard of honesty and integrity?

OK. How has that been working so far?

 

[DHK]

All of your questions would be answered in the DOL debate... that you feel 'would not be prudent' to register for because you'd have to provide an email address.

Which tells me everything I need to know. You are not open to new ideas, which means an inherent bias towards what you THINK you know.

What kind of advisor wouldn't seek out new ideas? One that is closed-minded and looking after their own "best interest" for themselves and their business model.


What it DID come down to, was that brokerages and insurance companies are against DOL regulation because they want to preserve their business model... but they should be open to using a fiduciary PROCESS for planning for their clients.

But you won't know that until you listen to it.

 

[nylife11023]

All of your questions would be answered in the DOL debate... that you feel 'would not be prudent' to register for because you'd have to provide an email address.

Given the compliance standards my company works under, registration is not prudent. You don't understand because you are independent and don't answer to any higher authority.

Which tells me everything I need to know. You are not open to new ideas, which means an inherent bias towards what you THINK you know.

Are these facts or are these simply your opinions? You are welcome to your own opinions, but not your own facts. If I have a bias it is in my own favor... i.e. to not employ an advisor who works in his own interest and not mine. You would have me work with an advisor who is working in his or her own interest. I refuse to do that. I don't quite understand why you would.

Since you suppose I've told you everything you need to know, allow me to employ the same argument... that you are an advisor who has no ethical inhibitions for working in your own best interest and not that of the client. Is that a fair hypothesis? I don't know, but it seems to be as fair as the hypothesis you assumed about me.

What kind of advisor wouldn't seek out new ideas? One that is closed-minded and looking after their own "best interest" for themselves and their business model.

OK. I will use your same premise. What advisor would not be in favor of a fiduciary standard? One that believes that it is ethically permissible to advise clients on investments that are in the advisor's best interest and not that of the client.

What it DID come down to, was that brokerages and insurance companies are against DOL regulation because they want to preserve their business model...

By "model" I assume you mean one that is non-client centric?

but they should be open to using a fiduciary PROCESS for planning for their clients.

It does not look like that is going to happen. Perhaps that is a good reason to seek advice of RIAs who are required to work under a fiduciary standard

But you won't know that until you listen to it.

Now I don't have to listen.

 

[VolAgent]

Given the compliance standards my company works under, registration is not prudent. You don't understand because you are independent and don't answer to any higher authority.


....
Now I don't have to listen.

Wow, didn't know you didn't have a personal email as well... Talk about lock down.

Let's assume for a minute that annuity sales are at least if not more rife with abuse than any other professional service.

Please name one profession where a fiduciary standard has eliminated fraud and abuse.

It hasn't stopped in the legal world, medical world or RIA world. I believe accountants are also fiduciaries? I'm pretty sure there are still abuses there as well.

You cannot legislate ethics. Now, I really don't have much of a dog in this hunt, I really don't do annuities. But it is a farce to believe that imposing a fiduciary standard is suddenly going to fix everything.

Also, I seem to recall you live on the M&A side of Wall Street? People in glass houses shouldn't throw stones.

 

[nylife11023]

Wow, didn't know you didn't have a personal email as well... Talk about lock down.

Of course I have a personal email... but I don't put it out there in public. I suppose I could have used a mailinator email or one from some other similar service to register, but it wasn't that important to me to find one.

As for lockdown, yes there is a price to pay for the position I'm in. I get paid very well and don't mind the limitations imposed .... Wall Street Bonuses: Bankers Make 5 Times Average Worker | Fortune.com

The [financial] sector plays a huge part in New York City’s economy. Although the industry accounts for less than 5% of all private sector jobs in the city, it’s responsible for more than 20% of all private sector wages. The average salary for the industry, including bonuses, was $388,000 as of 2015, compared to $74,000 for the rest of the private sector in the same region.​

The "lock down" is not all that different from many high-tech companies... or the military for that matter. You know the rules coming in, and if you don't like them, then obviously it is not the job for you.

Please name one profession where a fiduciary standard has eliminated fraud and abuse.

We have laws against theft, murder, speeding, etc. So you are advocating that we abandon all law?

It hasn't stopped in the legal world, medical world or RIA world. I believe accountants are also fiduciaries? I'm pretty sure there are still abuses there as well.

A fiduciary law would give clients standing in court to sue to recover (if possible.) Currently there is no standing to do that. As for lawyers and doctors, as well as insurance agents... such standings exist. Do you think the 90 year old man can sue DHK if he puts the client in a twenty year annuity? Not going to happen. Look at the case against the guy in California a couple of years ago. After a lot of legal wrangling, he basically won (on appeal, as I remember.)

Did anyone go to jail or get sued in the Wells Fargo fraud?

You cannot legislate ethics.

Sure you can... and we do. You never heard of public accommodation laws? If I create laws that make the punishment onerous for you to be unethical, do you believe that you will think twice or three times before you act in an unethical manner? I think so. Obviously not in EVERY case, but probably in most.

But it is a farce to believe that imposing a fiduciary standard is suddenly going to fix everything.

It won't fix everything, but it will fix some things... perhaps get rid of some of the bad apples in the advisory sector. Is there something wrong that that?

Also, I seem to recall you live on the M&A side of Wall Street? People in glass houses shouldn't throw stones.

I understand your POV, but you have forgotten that almost everything we do gets vetted by the justice dept. as well as the state attorney generals.

Did Anthem merge with Cigna?

Did Comcast merge with Time Warner?

Did AT&T merge with T-Mobile?

Every M&A gets vetted by hoards of lawyers and CPAs on each side and if it passes those smell tests it then goes up to the anti-trust lawyers.

Who is protecting individual investors from unscrupulous financial advisors? Anyone?

Should that protection exist?

I say yes it should. Obviously you say no it should not.

We will simply have to agree to disagree and wait to see which side prevails. I hope it is mine... but my guess is that it will be yours. There is way too much money, power, and influence on your side vs. the so-called 'libertatds' that those in this forum rant and rail against.

Interesting discussion... let's keep it civil and non-personal.

 

[DHK]

We have laws against theft, murder, speeding, etc. So you are advocating that we abandon all law?

Not even in the same universe.

A fiduciary law would give clients standing in court to sue to recover (if possible.) Currently there is no standing to do that. As for lawyers and doctors, as well as insurance agents... such standings exist. Do you think the 90 year old man can sue DHK if he puts the client in a twenty year annuity? Not going to happen. Look at the case against the guy in California a couple of years ago. After a lot of legal wrangling, he basically won (on appeal, as I remember.)

Oh, we want to bring up Neasham?

http://www.insurance-forums.net/for...rrested-convicted-selling-annuity-t37529.html

Did anyone go to jail or get sued in the Wells Fargo fraud?

Let's see, the CEO resigned (John Stumpf). That's about all I remember. However, I was a Wells Fargo bank manager from 2001-2004. There was serious pressure on team members to sell bank products, but only to do so properly. However this scandal came about, was long after I left.

Sure you can... and we do. You never heard of public accommodation laws? If I create laws that make the punishment onerous for you to be unethical, do you believe that you will think twice or three times before you act in an unethical manner? I think so. Obviously not in EVERY case, but probably in most.

What STANDARD will be used? Whose interpretation of the standard?

Besides, anybody who is INTENT on doing harm... will do so anyway. It's only the compliant advisors who are trying to do well for their clients that will be truly hurt by this.

Remember: There are inappropriate claims and complaints made all the time. "The customer is NOT always right."

It won't fix everything, but it will fix some things... perhaps get rid of some of the bad apples in the advisory sector. Is there something wrong that that?

Nothing wrong with a few bad apples leaving.

Who is protecting individual investors from unscrupulous financial advisors? Anyone?

Should that protection exist?

I say yes it should. Obviously you say no it should not.

We already have FINRA. Of course, FINRA cannot arrest people unlike the SEC and state departments of insurance. FINRA can only bar people from being securities registered again.

We will simply have to agree to disagree and wait to see which side prevails. I hope it is mine... but my guess is that it will be yours. There is way too much money, power, and influence on your side vs. the so-called 'libertatds' that those in this forum rant and rail against.

Interesting discussion... let's keep it civil and non-personal.

When I heard the debate (which really DID sound like a presidential debate because of the 'personal attacks' made against insurance/annuity agents)... Tom Hegna was defending the small town advisor (not unlike an Edward Jones broker) who works a small town/county and has been there for 30 years or so. You can't be in the profession for that long and do wrong by people.

Yet Knut was making the point that "insurance agents" weren't 'real advisors' anyway and that Tom was advocating for the "in-home insurance advisor" of decades past.


For the record, I PERSONALLY am not against being held to a higher standard. I already AM held to a higher standard, even if it's just implied, because of how I hold myself out to the public.

https://www.youtube.com/user/AndrewStoltmann/videos

I can just see THAT guy update all his videos to reflect a "Fiduciary Violation". Remember that because of the risk of lawsuit that it will force MOST brokers/advisors to steer away from personal advice to small accounts. Why? Because the risk of complaint is the SAME whether it's a $1,000 account or a 7-figure account. Why take on the risk?

The problem is the word 'fiduciary' and the other problem is the word 'suitable'. Suitable means that it fits the lowest standard of appropriate for a client. Fiduciary means that the recommendation fits the 'highest standard' - however it is defined, but it is a "best recommendation".

I'd prefer a 'professional' approach with a prudent recommendation based on a professional process, not just "pitching" an investment or annuity or whatever. If the advisor has NO PROCESS... then they are just pitching based on suitability. If there's a PROCESS... then there is a higher likelihood that the recommendation fits the overall financial situation.

I agree that advisors should never 'pitch without process'. Not anymore. Having a quality process is better for the advisor and the client - almost regardless of what is recommended.

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Btw, I think the registration process is set up where it would reject a gmail, yahoo, or hotmail type of account. I think it originally rejected me when I went to register for it for the live broadcast, but my email worked for the recording.

 

[nylife11023]

Well, DHK and I are not going to convince each other... and I will grant that he is much closer to the situation than I am.

He asks "What standard?"

I don't know but I'd like to see one. I would think they he and his industry colleagues could come up with something that would work for both the advisors and the regulators.

What bothers me the most is I don't think the advisory community wants to even try to come up with some kind of a fiduciary standard.

The advisory community seems to be quite happy with the current suitability standard... which actually allows advisors to screw clients with impunity.

I understand that DHK wants to get down into the minutia of how do you DEFINE what is in the best interest of the client. But I bet he knows what is NOT in the best interest of the client! So maybe we should start with a list of negative "thou shalt nots."

Whether advisors agree or not, bottom line the rest of the financial industry knows there is a problem. Ignoring it won't make it go away. Many people believe that the advisory 'game' is not played on a level field. Many feel that clients are screwed by bad apples in the advisory community. And I think that DHK would actually agree with the above.

So how does the advisory community fix that?

I don't know as I'm not part and parcel to that community. But this much I do know... it would be advantageous for the community to come up with a workable fiduciary standard than to have one imposed on them by federal or state regulators.

Is that possible? From reading posts here I tend to think that trying to get advisors to agree on anything is like herding cats!

 

[VolAgent]

Nylife, you are completely mistaken.

You cannot legislate ethics. You cannot make someone be ethical. You can punish them for being unethical and some you can force into ethical behavior only because their fear the consequences. It still doesn't make a person ethical, it just means they fear the punishment more than the gain of being unethical.

You also seem to take this as being opposed to standards for RIAs, I don't think anyone is opposed to standards. The question is, which is the correct standard?

One thing I do agree DHK about, because we have already seen it in the larger investment world, this is going to hurt the people it was intended to help. There is no point in taking on smaller clients as the reward is simply not worth the risk taken. They will be abandoned to their own devices or to robo advisors, if they will do it.

Of course, I also question just how much value RIAs really deliver, but that is a completely different subject.

 

[walthamny]

I like the definition given by a judge what is a fiduciary. In the business world, it is accepted practice to have different prices for the same product at different service levels. if you buy a diamond ring at Tiffany, it will cost more than what it would cost at Walmart. Everyone knows this and yes the service level is much different. Now the fraud or the unethical part is that when you charge Tiffany prices but you deliver a Walmart product, that is fraud.

So applying this, most of the discussion about fee versus commission in this debate is non sense. In some ways, the DOL rule will stop putting all IRA money in an indexed annuity salespeople. Thats good in most cases. However, it will also hurt the small investors in so many ways. Overall, our industry was a mess before this regulation. Just one more regulation.

I watched the presentation for 10 minutes, Tom Henga had a much much better opening.