RETIREMENT
advance a standard of conduct for brokerdealers who recommend securities transactions outside of 401 ( k ) plans .
The latest round of proposed changes was published in October 2023 , with an open comment period that closed in January . A final version was approved by the Office of Management and Budget in early March , and it ’ s expected to be released by Biden in the spring .
“ Investors overwhelmingly want and expect all financial professionals to provide them with financial advice in their best interests ,” says Leo Rydzewski , general counsel for the Washington , D . C . - based CFP Board , an industry group for certified financial planners that supports the new regulations . But that ’ s not always the case right now , he says . “ A strengthened standard [ of ] trust and confidence is necessary and appropriate .”
Would It Confuse Clients ?
Other experts , however , aren ’ t so sure the new rule will accomplish its stated goals . “ The DOL rule is well intentioned , but it may not have the effect it desires ,” says Jason Branning , founder of Branning Wealth Management , a fee-only advisory firm in Jackson , Miss .
To him , one problem is that the proposal makes no distinction between committed , full-time fiduciaries , such as fee-only advisors , and stockbrokers or insurance agents who provide transactionoriented advice but not necessarily other financial-planning guidance .
“ This posture will likely confuse consumers ,” he says , “ and will require hybrid brokers to define which hat — broker or fiduciary — they are wearing when a piece of advice is rendered .”
Brian McNamara , associate general counsel at Edelman Financial Engines in Boston , says his firm already acts as a fiduciary , putting clients ’ interests first . “ We ’ ve been able to do this over time based on our independence and the application of our underlying business model ,” he says . “ We do not foresee any relevant impact to [ our ] business .”
Howard Bard , vice president and principal deputy general counsel at the American Council of Life Insurers in Washington , D . C ., says that existing regulations are more than sufficient . The proposed rule “ completely ignores the best-interest and conflict-of-interest standards already imposed and enforced by the SEC and state regulators ,” he says .
“ Investors overwhelmingly want and expect all financial professionals to provide them with financial advice in their best interests .”
— Leo Rydzewski General Counsel , CFP Board
What ’ s more , he adds , the proposal would “ impose a fiduciary barrier ” by forcing low- and middle-income retirement savers who seek advice to go to feeonly advisors instead of to less expensive brokers and sales reps . Thus , it could cut off access to many types of annuities , for example , that would guarantee retirement income , Bard contends .
A Boon For No-Load Annuities
Some say the new fiduciary rule could boost sales of no-load , zero-commission annuities , which they argue are inherently free of conflicts of interest and cheaper anyway .
“ Having zero commissions eliminates conflicts of interest as pertains to product selection ,” says David Lau , founder and CEO of DPL Financial Partners in Louisville , Ky ., which specializes in low-cost annuities .
Broadly speaking , annuities come in two flavors that have differing degrees of oversight . Fixed annuities are considered insurance products and are primarily regulated by state insurance commissioners . Variable annuities , which invest in mutual-fund-like subaccounts , are overseen by state insurance commissioners and fall under the jurisdiction of the SEC , just like market securities .
The new rule would make both types of annuities fall within the same fiduciary guidelines , Lau says , adding , “ This is a good thing for consumers .”
Far-Reaching Implications To be sure , many advisors already advocate solid fiduciary policies , not giving clients inappropriate or self-serving guidance . Nevertheless , the new standard could have far-reaching implications , industry experts say .
“ All financial professionals who work with retirement savers are potentially impacted by this rule ,” says Jason Berkowitz , chief legal and regulatory affairs officer at the Insured Retirement Institute in Washington , D . C .
For some advisors , though , that ’ s good news because , they say , the current standards are simply not sufficient .
“ Requiring financial professionals to act as fiduciaries can only positively impact the financial advisory business ,” says Dan Forbes of Forbes Financial Planning in East Greenwich , R . I . “ There have been too many cases of financial malfeasance over the years , and investment products continue to get more and more complex . The financial advisory business is mature enough to have a uniform set of standards where all advisors commit to avoiding conflicts of interest .”
Moreover , he says , financial planning is moving away from a transaction business to a relationship business . “ While the history of financial services is based in sales , the future of the industry is financial planning ,” says Charles Weeks Jr ., founding partner of Barrister , an investment advisory practice in Philadelphia . “ That must include strict rules of conduct .”
He acknowledges , however , that even the new rule won ’ t fix all the problems . “ You can ’ t simply legislate good behavior , morals and professionalism ,” he says . “ We also need the players in the industry themselves to step up .”
Andrew Evans , CEO of Rossby Financial in Melbourne , Fla ., puts it this way : “ At one point barbers and surgeons were the same person . That split had to happen , and we as an industry are at that kind of evolutionary moment now .”
50 | FINANCIAL ADVISOR MAGAZINE | MAY 2024 WWW . FA-MAG . COM