There is a lot of commotion around the notion that President-elect Donald J. Trump will do away with this fiduciary nonsense. While that is indeed possible, I like to think that some of the other items that vie for his attention will win out— like nukes in North Korea.
But let’s say he gets a few minutes in between national security meetings and eeks out a treatise on shutting down the fiduciary regulations coming our way in 2017. Will we really see firms that don’t want to be fiduciaries openly declare that “now that we don’t have to be held accountable, we are not going to?” The RIA community would have a field day with this. The firms that understand math will also have a good time winning business from these guys. You see, accountability matters. There is no “win-win” for you to argue that going back to the way things were is better for clients.
So let’s agree, at least for the immediate future, that we’re all fiduciaries and that is the law of the land. The grand intention of this was to hold advisors accountable to their customers— so that protections were in place surrounding the decisions that effect their future selves. Again, cool idea. But….
The DOL overshot the target. Two unintended consequences happened here. First, by making everyone a fiduciary, the population of advisors that could potentially speak with plan participants just suffered massive attrition. Many don’t have the basic licensing. Many don’t have firms that will back their ‘casual’ retirement plan sales. But the reality is that people want to talk to people. Taking away advisors that could be the difference between action and non-action for a plan participant is a critical flaw in this new rule. People respond to a person in front of them; they can (and do) delete an email.
The second consequence of this rule is that the DOL just unintentionally guaranteed that no advisors will meet with participants going forward. Why would they? Advisors are smart and know the risk— and they know how to avoid it. Managed Accounts and Target-Date fund have quickly filled this void and become the surrogate advisor, in this ‘best of all possible worlds’.
Where do we go from here? Forward, folks. As fiduciaries. Let’s own it and focus our energy on the right things— just think where we’d be today if the best minds in the industry focused on how to make things better, instead of how to fight these new regulations?