Forced Fiduciary Standards is Socialism!

[padthaiforlunch]

If I were liscensed to sell securities, I'd be annoyed too. But I'd bet that the majority of investors operate under the presumption that their advisor is making recommendations based upon the client's best interest. Even if they don't know the word fiduciary, it's what they think they have. Especially if their advisor is sitting at a desk in a bank.

Also, I don't see how conventional investment wisdom and current practices would take precedent over client risk preference. CW has a way of changing. And fiduciary duties don't override suitability, they enhance it.

Can you expect proposed new rules to increase paperwork and reduce pay? Absolutely. The goal of the rules is to let clients keep more of their money.

Where I see this hurting most is in the BD's. No longer will they be able to push the consumer into the mutual fund that pays the highest comp or rebate when another fund that meets the same investment strategy has smaller fees.

 

[njh_lfg]

That is the point. These regulations are going to hurt the middle class, exactly who they are intended to protect.

The beauty of this business is you get to choose who you work with. If you choose to work with median to lower income households then you are not making a wise business decision, unless you have huge volume.

Bottom line is that now people who SELL investments are will be held accountable when they are not informing clients of their options, as they should be. They will never take away the commissions but now those who collect commissions will have to validate their recommendations and actually learn how the market works rather than regurgitating wholesales pitches.

 

[VolAgent]

The beauty of this business is you get to choose who you work with. If you choose to work with median to lower income households then you are not making a wise business decision, unless you have huge volume.

Bottom line is that now people who SELL investments are will be held accountable when they are not informing clients of their options, as they should be. They will never take away the commissions but now those who collect commissions will have to validate their recommendations and actually learn how the market works rather than regurgitating wholesales pitches.

Trust me, I CHOOSE not to sell securities. Too much work for too little compensation.

But the government has no business imposing further regulations that will only hurt the people they intended to protect. Most of the problems they want to address could easily be solved by actually holding people accountable to the suitability standard.

 

[scagnt83]

Right. I may be confusing this issue with hidden 401(k) fees that are not disclosed. There is a fair amount of abuse in that market. Enough to get the regulators poking around.

I dont know about outright abuse... more ineptness than abuse.

I recently took a 401k account from a PEO. The PEO had the total asset fee (not including fund expenses) at 3.5%!!

Now that is outright abuse! I brought them down to under 1%, and am still paid very well for the work I did/do for it.
They were getting ripped off, plain and simple.

The Summary Plan Document lists the asset fee on it. The problem in this case (and many others) the SPD was never given to the sponsor or to the participants (as required by ERISA) so they had no way of knowing.


But all a person has to do is call and ask what their fees are, most just dont care or dont worry about it.
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I hope you realize asset based fees can be deducted from IRA accounts. .

Keep reading after your quote. I said that was an option.

But who wants a 1% fee coming out of a fixed product???
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Besides this, every single client of mine regardless of what type of advise they need (insurance, investment, estate planning, education funding) pays a fee to sit down and tell us their problem. If they are not willing to write a check then they are not fully "invested" in working with an advisor.

If thats your business model, then great.
But thats a business model that only works for around 20% of the market (the top 20% obviously).

What about the 80%. I didnt post about this just out of selfish reasons. This would severely hurt the financial service that middle america receives.


Most people wont pay a fee unless you are doing comprehensive planning for them.
And even for that, many who can afford to and need to, wont.


You look at the fee as a client qualifier. I can qualify a client without making them pay more than they should.
They will pay the same for LI or an Annuity, whether I take commissions or not.
And if the commissions are enough to compensate me, then why overcharge just to gauge seriousness?


I am not against charging fees. But true comprehensive fee based planning is overkill for most.
And forcing IRA owners into that compensation model will hurt many of them.

Most IRA owners are looking for a transaction based advise, relative to their situation.
Sure this might take a little time, but its not like they need NaviPlan!!
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The beauty of this business is you get to choose who you work with. If you choose to work with median to lower income households then you are not making a wise business decision, unless you have huge volume.

So what do you consider middle income?
Or better yet, what is the minimum asset amount you will work with?


There are lots of "middle income" retirees/preretirees who are looking for a spot to park & grow $100k.
Maybe its all of their assets, maybe its not. If its all they have, they are not my preferred type of client, but I still wont turn my nose up at them. (although this is not what I prospect for)

But even taking half their assets and placing it in a 5y IA or VA, I can make $3k. Well worth the time and energy. And the advice/planning needed certainly doesnt warrant a fee.
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Bottom line is that now people who SELL investments are will be held accountable when they are not informing clients of their options, as they should be. They will never take away the commissions but now those who collect commissions will have to validate their recommendations and actually learn how the market works rather than regurgitating wholesales pitches.

I admit that far too many brokers are not educated as they should be. And many push whatever their upline tells them too.

But how about just some forced full disclosure. Let FINRA publish averages of fees & commissions for the type of product it is, and make brokers show the average right next to their fee. Then they can justify it if its higher.

And how about enforcing suitability standards before cramming more regulations down our throats. Nothing works if it isnt enforced!
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If they are not willing to write a check then they are not fully "invested" in working with an advisor.
.

Your exactly right! And thats exactly the problem! Most are not willing. And the DOL wants to force them to.
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Enough to get the regulators poking around.

More than poking around!
New regulations have been enacted requiring a detailed fee disclosure to be mailed to all sponsors and participants..... even though they are already required to send the SPD that lists the total asset fee in it.... so basically the only thing they changed was that now they have to break it down in a detailed format instead of being just the total amount..... change we can believe in!

 

[njh_lfg]

I will talk to anyone who is willing to pay my fee and assist in their planning ($150/hr, avg 6-10hrs per plan). Whether or not I choose to accept their assets is another issue. I do not have a true minimum asset level rather a minimum annual AUM fee of $1000; everything under $1m @ 2%, $1-5m 1.5%, and above at 1.25%

I consider middle income single under $100k, joint under $160k (I know the true incomes for middle income are $50-60k). More important is disposable income for future planning. The earlier you catch them the better, before they adjust their lifestyle to their new income levels.

 

[VolAgent]

I will talk to anyone who is willing to pay my fee and assist in their planning ($150/hr, avg 6-10hrs per plan). Whether or not I choose to accept their assets is another issue. I do not have a true minimum asset level rather a minimum annual AUM fee of $1000; everything under $1m @ 2%, $1-5m 1.5%, and above at 1.25%

I consider middle income single under $100k, joint under $160k (I know the true incomes for middle income are $50-60k). More important is disposable income for future planning. The earlier you catch them the better, before they adjust their lifestyle to their new income levels.

So most of America can go jump in a lake? Before the regulators got too involved years ago, you could actually serve middle America, do a decent job and make a living. Now, 90% of the brokers/advisors/etc. are chasing after 20% of the market. That is not the recipe for long term success.

 

[njh_lfg]

So most of America can go jump in a lake? Before the regulators got too involved years ago, you could actually serve middle America, do a decent job and make a living. Now, 90% of the brokers/advisors/etc. are chasing after 20% of the market. That is not the recipe for long term success.

The size of your clients income coorelates to your income. I would rather bring on half as many clients and make double. Again, the beauty of the financial business is you get to choose who you want to work with especially once you gain a good reputation in your community.

When consumers begin to realize they will get better results paying a fee they will no longer have to hope their advisor is not abusing their trust making money off of transactions. Fiduciary trumps suitability every time. I can prove that with nearly every client I have that had a previous advisor who was essentially a salesman.

Jump ship now and go fee based to improve your practice and income rather than waiting for regulatory action.

**I use insurance and annuities that pay a commission but due to the fiduciary standard I disclose these commissions to clients and they enjoy the transparency. Nothing wrong with making 4-8% on an annuity but clients need to see and realize that I get compensated if the product fits in their plan. I would make more money putting assets into a wrap account in the long term but sometimes insurance or an annuity is the best option and its our duty as a trusted advisor to prove that.

 

[VolAgent]

Again, no dog in this fight. I gave up my securities license and have no desire to get it back. I just hate to see how regulations further punish those it is meant to protect.

Also, remember that your view is skewed. You aren't going to see the accounts where people used a commission salesperson where they were happy and well taken are of. They aren't going to come in and pay you a fee, they are happy as is.

 

[dgoldenz]

1.25-2% a year? Yikes...I won't say anything else. Interesting thread though...

 

[Franz Kafka]

IMO you would do the middle class a service by steering them away from securities. If you check the history of mutual funds, you would know that they were never meant for the middle class. Once they became available for the general public, that's when they began to lose money in earnest. The whole securities market is a CASINO (with fixed wheels) and no one should play with the money they can't afford to lose. The middle class was in a much better shape when everyone had a pension inside a group fixed annuity.