With the announcement of a new rule Wednesday, U.S. financial advisers now will be
required to put their clients’ best interests before their own profits.
This law, known as the fiduciary rule or fiduciary standard, was announced by the
U.S. Department of Labor (DOL) after a yearlong research period. That included more
than 3,000 responses from members of the financial community, including Harold Evensky,
a certified financial planner, professor in Texas Tech University’s Department of Personal Financial Planning and chairman of Evensky & Katz/Foldes Financial Wealth Management in Miami. He has
been in the financial planning industry for decades prior to his service on the Committee
for the Fiduciary Standard.
Prior to this rule, brokers were not required to put their clients’ financial interests
first, which allowed these advisers to recommend that clients buy financial products
which may have been expensive and not in the clients’ best interest. According to
an April 6 release from the White House, these conflicts of interest cost Americans $17 billion a year. The DOL estimated
these changes will save affected investors tens of thousands of dollars in retirement
Evensky is available to discuss these changes, which he sees as positive for the industry
and its clients. During his decades-long career, Evensky has been chairman of the
CFP Board of Governors and the International CFP Council and TIAA-CREF Institute Investment
Advisory Board, in addition to writing several books and publications. In 2015 he
was named to Investment Advisor’s 35 for 35 list along with the likes of Ben Bernanke,
Warren Buffett, and his wife, Deena Katz, also a PFP professor at Texas Tech who was
one of the first financial advisers to have a fee-only business.
Harold Evensky, personal financial planning professor, (806) 392-2525 (cell) or firstname.lastname@example.org
Talking points and quotes
- With more than 1,000 pages there is a lot to absorb; however, I believe the DOL has
done a Solomon-like job of streamlining, simplifying and clarifying the rule.”
- “The actions of the Department of Labor will absolutely make the system more fair.”
- The rule could have been much stronger. However, the federal government had to work
within the political constraints of the day, as highlighted by Securities and Exchange
Commissioner Michael Piwowar who opines that the rule “…seems to ignore the chorus
of voices that questioned whether it will restrict middle-class families’ and minority
communities’ access to professional financial advice by making retirement advice unaffordable,”
or Georgia Sen. Johnny Isakson saying, “For families across the country, this rule
is essentially the Obamacare for retirement planning, and I will do everything I can
to overturn this rule.”
- The argument that small investors will lose access to advice is balderdash, Evensky
said. First, brokers don’t provide advice. If they did, they would have to do so as
investment advisers and would already be held to a fiduciary standard. Second, there
is a large universe of fiduciary advisers who are ready, willing and able to provide
substantive advice. Third, traditional commission-based platforms will quickly find
a way to continue to operate under the new rule, as has already been seen.
- Although few investors and few investment professionals understand the difference
between rule-based regulation and principles-based regulation, the DOL does. As it
noted, “Rather than create a highly prescriptive set of transaction-specific exemptions,
the department instead is publishing exemptions that flexibly accommodate a wide range
of current types of compensation practices, while minimizing the harmful impact of
conflicts of interest on the quality of advice.”
- Rather than a checklist of rules, firms are provided significant latitude subject
to the principle that the firms and their advisers act as fiduciaries.
- Under the current suitability standard, if there is a dispute, the ultimate responsibility
for proving the claim rests on the client. Under a fiduciary standard the responsibility
shifts to the adviser. This is a distinction not lost on compliance departments. As
a consequence the enforcement of fiduciary standards will not be a result of detailed
rules and micromanaging regulators but rather the actions of firm compliance departments
and ultimately the results of arbitrations and court rulings.
- Investors can avoid this by having their adviser sign the Committee for the Fiduciary
Standard’s fiduciary oath, which commits him or her to putting the client’s best interests
first; acting with prudence; not misleading the clients; avoiding conflicts of interest;
and fully disclosing and fairly managing any unavoidable conflicts.
- It’s still a lumpy playing field. While IRAs may be subject to fiduciary standards,
the old “suitability” standard with all of the potential conflicts of interest will
still hold true for non-IRA accounts.
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The Department of Personal Financial Planning in the College of Human Sciences educates students on the need to focus financial knowledge on families and the achievement
of their goals.
Undergraduate and graduate degree programs in personal financial planning are registered
by the CFP Board. Students graduating from a CFP Board-Registered Program are eligible to sit for
the CFP® Certification Examination.
Sponsored by Charles Schwab Foundation, the first-of-its-kind program features curriculum
from college students, professors and independent financial advisers.