NOW Trump is Taking on the DOL Fiduciary Regulation

[nylife11023]

So yeah, unless it's a HARD dollar charge, what I earn is none of the client's business. However, if asked, I will disclose my compensation. No problem. I would prefer not to be REQUIRED to disclose it.

Well, I would tend to agree but I'd like to see some kind of compromise maybe that the advisor would have to provide his comp if formally asked by the client. Just a thought... maybe not a great one.

I think comp is an important metric in order to discern if the advisor is working in my best interest or in his. I'm sure you disagree, which is fine.

Given the huge number of abuses that have taken place there needs to be a way to weed out the many bad apples in the financial services industry and I believe a fiduciary rule will help do that.

The industry has a poor record of self-policing and so it seems to me that a required fiduciary rule is good and proper and that part of the process of establishing standing for any kind of legal dispute should be the required disclosure of compensation received by the advisor.

I do understand that advisors will have to be a lot more 'careful' what they recommend to clients vis a vis what their compensation is. There are a ton of lawyers out there who just can't wait to sue advisors, and they can't (currently) win on 'suitability' grounds.

Thus, perhaps part of that compromise is to require binding arbitration allowing lawyers for each side... which would be a much less expensive and quicker process for both parties in the dispute.

Like it or not, DHK, your comp is part and parcel to the process in any dispute that a client might have. It is not the deciding metric, but it is an important one that an arbitration judge will use in making a determination whether damages should be awarded. (As to whether punitive damages can be awarded, that is still an open question being debated in legal circles and I'm not current on where the issue stands now... and in what states.)

I don't know what form it will take, but most clients will agree that it is better for them for their advisors to be held to a fiduciary standard than the current suitability one and I don't think your sector of the industry will be able to convince Eliz. Warren and others with influence (if not power) otherwise.

What legislator wants to run for reelection on a platform of "I believe it is fine for your advisor to work in his best interests and not yours?" That won't play in even the red-est of red states.

One thing is for sure. There will be some kind of fiduciary rule in the coming years... and E&O insurance will go up. You can count on it.

 

[DHK]

A good thoughtful post. I'm not sure that more regulation is the answer - a political/philosophical debate.

I believe that the root of a lot of these problems is the training behind these agents/advisors. With poor (or practically non-existent) training, agents/advisors cannot see enough people or close enough sales. This means that when they finally get a "live one", they need to maximize their income because they are performing so badly and to make up ground for any commission quotas they have.

Now, I'm sure there are some agents/advisors that are "killing it" and ripping people off, but I bet that's not as big of a problem as the lack of good ethical prospecting and sales training.

I bet Alan Lewis wishes he had made different recommendations to his clients when he encouraged clients to incur surrender charges to buy his bonus annuities. He escaped prosecution, but his life was sure hell for doing it in the first place. (I think California now prohibits the surrender of any annuity while there is a surrender charge now - and I agree with this.)
Second Agent Survives California


In this instance, I believe that the financial institution SHOULD be 'endorsing' the recommendations of the agent/advisor... as a reflection of the training culture in their firm. They should be held jointly accountable for an improper recommendation - and they usually are.

Perhaps it's those who just "jump right in" as an independent and are coached by their IMOs to pursue the highest commission sales possible - almost regardless of the cost/risk because they gain their overrides, while the agent is the one on the hook? That may be far more likely too, if the IMO doesn't have any "skin in the game".

And no, Government shouldn't be in the training business, but they're trying to do "quality control" at the output stage. One would think they'd look at it from the input stage - to avoid the poor practices from entering into the processes in the first place.

I know that most states require Ethics CE as well as perhaps an Annuity CE course. There are now individual product educational requirements that must be met prior to selling a particular product. Regulatory education is not quality education, nor can we call it "training".

I don't know how to solve this, but what's been proposed only works for the prosecuting attorneys.

 

[ktmorgan]

All of this talk of "will they" or "won't they" is totally academic. The DOL Rule is not going anywhere (unfortunately). The Obama admin DOL was incredibly devious when the crafted the "RULE," not "LAW." The rule is already is in the National Archives as of last year. It cannot be set aside by Executive Order. It's in, that's it.

And even if somehow they were open the rule back up again it would have to go through a lengthy, arduous, "comment period" during which all sides would dig in and simply restate all the same arguments they used during the pervious 6 long years it took to finally create this rule. During this time the rule would be active. And all the Producer's, B/D's, IMO/FMO's, Carrier's and Fiduciary's would be using all the new costly procedures and infrastructure they had to put in place to be ready for the rule anyway.

And finally the SEC has already stated they're likely to follow directly along to harmonize and normalize the two differing sets of rules anyway.

It's long been a done deal guys. The time to accept it and get over it and move on was last year.

 

[walthamny]

May be but Trump can ask DOL not to defend this in court. And if the DOL does not show up to argue on any of the cases, it is not clear how judges will rule. And if the Government looses and they don't appeal, then the court ruling stands. Courts can set this rule aside easily. Democrats DOL strategy was based on Clinton getting elected and them selecting a more liberal judge to Supreme Court. I would not be so sure of that strategy anymore.

There is an easy way for Supreme court to rule on this, send it back saying you can't have 2 set of fiduciary standards one under the SEC and one for the retirement accounts. And republicans are going to make sure the future SEC fiduciary rule conflicts as much as possible with the DOL rule. Make it unworkable and have the courts interfere. Democrats should have kept the DOL rule simple and about 3 pages, instead of over 1000. They should have only targeted advisors who charge ridiculous fees, like 350 basis points for a short term bond fund. Or fixed index annuity producers who sell the same annuity with the exact same riders to everyone who comes in regardless of age, suitability or risk profile. Or advisors who sell load funds for 2 years, and then switch companies and sell VA's to all those folks and then switch companies again and have them move into a wrap account. They could have targeted heavy abusers and let the State regulators and SEC/Finra deal with the small fish.

 

[ktmorgan]

I wish it were that easy. But what you describe is not a winning Political position. Repubs would be setting themselves up to be for "Big Finance."

The media would spinning it into the ground as Repubs being against the "Old People," "Retiree's," "The little guy," "Anti-Fiduciary," "Out to get your retirement money." And on and on. It would be blood bath. They would likely lose their majority in the mid-term elections.

Plus, Trump only has so much "Political Capital." He has to prioritize what he's gonna spend it on...as he fritter's it all away over dumb **** like berating and belittling the Australian PM and talk of trade wars.

It just ain't gonna happen. Time to get over it and move on.

IM(not so humble)O

May be but Trump can ask DOL not to defend this in court. And if the DOL does not show up to argue on any of the cases, it is not clear how judges will rule. And if the Government looses and they don't appeal, then the court ruling stands. Courts can set this rule aside easily. Democrats DOL strategy was based on Clinton getting elected and them selecting a more liberal judge to Supreme Court. I would not be so sure of that strategy anymore.

There is an easy way for Supreme court to rule on this, send it back saying you can't have 2 set of fiduciary standards one under the SEC and one for the retirement accounts. And republicans are going to make sure the future SEC fiduciary rule conflicts as much as possible with the DOL rule. Make it unworkable and have the courts interfere. Democrats should have kept the DOL rule simple and about 3 pages, instead of over 1000. They should have only targeted advisors who charge ridiculous fees, like 350 basis points for a short term bond fund. Or fixed index annuity producers who sell the same annuity with the exact same riders to everyone who comes in regardless of age, suitability or risk profile. Or advisors who sell load funds for 2 years, and then switch companies and sell VA's to all those folks and then switch companies again and have them move into a wrap account. They could have targeted heavy abusers and let the State regulators and SEC/Finra deal with the small fish.