Consumers ‘Crave Trust,’ Concerned DOL Fiduciary Rule Won’t Provide It

Participants also said limiting incentives may ultimately hurt investors if there are cases where the professional can't make a mutually beneficial recommendation for fear of violating the conflict of interest rule.

"The default is going to be to not risk it" when it comes to determining whether a mutually beneficial arrangement is actually a conflict of interest, Varas said. "It's like ice on a river. The East River froze solid four times in the last century. So you might be able to get to Brooklyn from Manhattan walking on the ice, but do you want to try?" Finally, less competition is bad for consumers; if the rule results in fewer professionals willing and able to serve investors, they're no better off than before the rule.

"What this ruling does is it takes one model and picks it for the poster child" for delivering financial advice, Varas said. "The only thing that works to solve consumer needs is more competition."

Interestingly, this last concern, that competition was valuable and the rule would limit it, was not shared by younger participants, Varas said. In one focus group in San Francisco, a younger participant said he felt fewer companies in the industry allowed individuals to be more independent in their planning.

"The older people were gently trying to correct them and say, 'More competition is better. If Morningstar, United Capital, Pershing and Cerulli all say that competition is going to be reduced, that can't be a good thing for you,'" Varas said.

Ultimately, Hearts & Wallets found "regulation or not, there is no substitute for an engaged consumer," Varas said. "It remains to be seen how this plays out. On the surface, who could disagree with this? It's terrible that there have been advisors who have made recommendations with their pocketbooks in mind, and shame on them. They should go out of business. I think what consumers are questioning is who's the right force to make that happen. Is it a one-size-fits-all ruling from the government or is it empowered consumers making choices?"

— Read DOL Seems to Soften Fiduciary Rule Without Selling Out Investors on ThinkAdvisor.