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I spoke with the White House on the Presidential Memorandum on the Fiduciary Duty Rule. Here’s what I said...


President Trump signed a Presidential Memorandum on February 3rd asking the Department of Labor to reconsider the Fiduciary Duty Rule in its current state. I was one of two advisors invited to speak with the White House Office of Management and Budget regarding the Presidential Memorandum on the Fiduciary Duty Rule.

The U.S. Department of Labor finalized the fiduciary rule in question in fall 2016 with a targeted implementation date of April 10th, 2017. In essence, the Fiduciary Duty Rule is designed to ensure financial advisors act in the best interests of their clients.

Here are the thoughts I provided to the White House on the Fiduciary Duty Rule:

Per the Presidential Memorandum on the Fiduciary Duty Rule, the priorities of the Administration are:

  1. Empower Americans to make their own financial decisions,
  2. Facilitate their ability to save for retirement,
  3. And, build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college

Those are worthy priorities. Those are my priorities. They are the priorities of the majority of the financial services industry.

Unfortunately, the current standard of conflicted advice is preventing and inhibiting those priorities.

We believe the fiduciary rule, or a best interest standard for financial advice, insures the advice Americans actually receive fulfills the priorities of the Administration.

It has been a long journey to get to April 10, 2017:

  • Seven years of analysis both within the government and the private sector;
  • Thousands of comment letters and equally tens of thousands of pages from extremely diverse constituencies inside and outside of the financial industry;
  • Multiple committee hearings all to examine whether the rule will disrupt financial firms’ ability to deliver advice to all segments of the marketplace, or whether it will reduce American’s access to advise, limit their retirement savings options, or increase the cost of those options or advice.

Those seven years of analyses make clear those fears about potential limitation of advice or choice are unfounded.  My personal experience is they are unfounded.

This is not the first time during my career that proposed regulatory changes have been portrayed as the death knell of the financial services industry. Yet, each time the industry has adapted, changed, and developed new ways to accommodate regulatory requirements, service our clients, and rise to new levels of profitability. We have the most innovative and creative financial industry in the world and we are doing them a disservice when we believe they cannot profitably deliver services to all segments of society under this rule.

From June of 2016 until now, they have demonstrated this innovation. They invested significant resources, capital, and talent in preparing for this change. Consequently, firms have been quick to roll out new offerings and platforms that comply with the proposed rule. This innovation has led to products that decreases what Americans actually pay. The greatest disruption to the industry would be to scrap the rule after so much investment has already been made.

I don’t believe the rule will limit the access to financial products. As I have stated, the rule is actually increasing the access investors will have to new financial products. Nor do I believe that firms will be negatively affected leading to disruptions in the retirement industry.  I also don’t believe it will limit American’s access to advice.

Many investors are currently paying commissions and believe they are receiving advice when they are really receiving a cleverly disguised sales pitch. The implementation of this rule would result in that regardless of who your advisor is, regardless of who your advisor works for, regardless of how you chose to pay for services, commissions, or fees, you as an investor would know that you are receiving advice that is in your best interest.

When I entered the industry in 1996, I was called a stockbroker. I was only registered as a representative of a broker/dealer. My job was to solicit and broker the purchase and sale of financial instruments, primarily common stocks. Any advice we gave to clients was considered “incidental” to the transaction. This was the reason we didn’t need to register as investment advisors and operate under a fiduciary standard.

Fast forward to today and we still have people operating under this standard. Advice is no longer incidental; the advice is the transaction. The advent of the Internet enabled any American to purchase virtually any financial instrument, a mutual fund, a stock, or an annuity online

Americans are no longer coming to financial professionals to execute transactions they are incapable of executing themselves. They come because they want to know what they should be doing with their life savings, their retirement savings, and their children’s education savings. Americans should be confident the advice they receive should have a minimum amount of care and be in their best interest.

No one who has been in the industry for any length of time hasn’t seen stuff that causes them to raise their eyebrows. Who hasn’t seen a new client bring in a statement from their previous firm stuffed with investments that were recommended primarily for the commissions they paid the recommending advisor. Often, even highly ethical and great financial advisors are put in extremely difficult positions where they are required to sell minimum amounts of the financial products manufactured by their firms. When faced with the choice of jeopardizing their livelihood or succumbing to pressure from management to recommend products, that while they may be suitable, are not in the client’s best interest, many or potentially even most advisors reasonably choose to protect their livelihood.

With the adoption of the rule, these advisors would be freed of these pressures.  Firms would be required to reduce or eliminate incentives to make recommendations that aren’t in customer’s best interests allowing advisors to embrace the requirement to act in their customer’s best interest.