If not for President Donald Trump's 60-day delay, the Labor Department's fiduciary rule for retirement accounts would have taken effect on Monday, April 10, in the first of a two-step adoption process. Betterment, the largest independent robo-advisor and a supporter of the fiduciary rule, marked the day with a roundtable of fiduciary rule advocates, who discussed not only the arguments in favor of the rule and against any watered-down version but what could happen next.
Why the Fiduciary Rule Should be Adopted as Is
Advocates of the fiduciary rule focus on the primary goal for financial advisors to act in the best interest of their clients when advising on retirement accounts and disclose any conflicts of interest that the advisors may have. But there are other reasons the rule in its current form could benefit financial advisors as well investors, according to Monday's roundtable.
It's inevitable. Betterment CEO Jon Stein said no matter what happens after the delay ends on June 9, the fiduciary standard will eventually be adopted in the "very long term … Passage is inevitable."
The sky won't fall and fiduciaries will benefit. Maureen Thompson, head of policy at the Certified Financial Planner Board of Standards, said the criticisms against the fiduciary rule now are the same ones she heard when the CFB Board, in 2008, required all CFP-certified advisors to operate under a fiduciary standard. Despite industry fears, CFP certifications actually grew by 40% and broker-dealers, insurance brokers and RIAs operating under the CFP fiduciary rule "found that they can not only work under it but also thrive under a rule similar to the DOL rule," said Thompson.
Fiduciary advisors could lose access to new, innovative products if the rule isn't adopted. Thompson said she's heard from fiduciary advisors concerns about losing access to new products that are being developed if there is no fiduciary requirement.
Micah Hauptman, financial services counsel at the Consumer Federation of America, noted that many fund families who developed T shares charging less than half the load of a typical front end-loaded fund (a 2.5% maximum vs. 5.75%) have now stalled those rollouts.
"Industry opponents to the DOL rule have constantly raised the question of lack of access to products and services," said Hauptman. "There's a lack of access to that product today and that has a direct repercussion on retirement investors."
Stein noted that there's a "misconception that people are getting great advice today" when the reality is that many are being sold "bad products."
Retirement accounts are where the action is. Industry opponents have also argued that a unified best interest standard that affects both taxable accounts regulated by the Securities and Exchange Commission and retirement accounts regulated by the Labor Department would serve investors better than a rule solely from Labor. But Hauptman noted that "retirement accounts are where the action is for middle-income savers" because savers try to max out their contributions to retirement accounts before contributing to taxable accounts (and many don't even max out).
"We really need protection in retirement accounts first," said Hauptman, adding that the SEC hasn't made any progress on a fiduciary rule in about 25 years and its authority is limited to securities and doesn't include fixed indexed or equity indexed annuities, which are regulated as insurance.
