Fiduciary: major change but no benefit, says expert
We recently sat down with career consultant Rick Rummage, one of our long-time contributors, to talk about the fiduciary rule. He told us what he’s hearing from advisers and shared his insights on the impact the rule will have on their career paths.
Here are some excerpts of that conversation.
Bank Investment Consultant: What are you hearing from advisers about the fiduciary rule?
Rick Rummage: The vast majority of advisers aren’t happy with this ruling, although 10% to 20% seem to feel it is the clients’ best interest and seem to think it’s a good idea. But most advisers are definitely concerned about it, and they’re really concerned about the changes their firms are going to make.
BIC: The ones who aren’t happy, why aren’t they happy with it?
RR: Well, who likes change? It’s a big change and they’ll have to spend a lot of time on this and reshuffle the products they have clients in, some are going to have to go into financial planning mode, which some haven’t done before. It’s just a big colossal change and most don’t see the point in it… Most advisers don’t like regulations, so adding more rules on top of all the other regulations already out there is just frustrating for them.
BIC: Do they at least recognize that the other side, the consumer groups, have an argument?
RR: The way they view it, you’re taking more choice away from the consumer. Once this is fully implemented, clients will have less choice. Most advisers are honest and do the right thing for their clients. This is just one more way that big brother is watching and saying, ‘We know better than you what your clients should have and how they should pay. They see it as the government trying to protect consumers from themselves.
We have more asking about wirehouse, but once they find out that there are banks that are more prepared than theirs, they become interested in those banks.
BIC: Has the sentiment changed at all since day one?
RR: On day-one, there was a fear of the unknown. But as their firms have had more conference calls and more meetings, there’s not as much fear, but there’s more frustration over having to change everything.
BIC: What’s the Trump factor been like? Have you seen more uncertainty or murkiness?
RR: I’ve seen more hope.
BIC: About what?
RR: Both advisers and companies are hopeful the rule will be watered down or just go away.
BIC: If it is abolished at the 11th hour, will it really help the advisers, presuming the firms are ready to go?
RR: I think every firm secretly knows they can do better, and even though 95% of advisers do the right thing for the clients, the other 5% can get [the firms] into legal trouble. So some firms, I’m not sure how many, look at this as being something that will force the advisers to do the right things for clients.
BIC: Who will be impacted the most?
RR: It will have the biggest impact on banks. The banks haven’t given their advisers the financial planning tools as the wirehouses. This will force banks to get more in line with where those traditional firms have been.
BIC: Will some banks just leave the industry if they view wealth management as a sideline to their bread-and-butter business of loans and deposits, and now there’s just one more complication?
RR: No, but I think we’ll see more banks go to a salary-plus-bonus model [for advisers]. You’ve already seen some of that….but the problem with that is that it will reduce revenue because there’s no incentive for advisers to go the extra mile and stay at the office and work a little harder.
BIC: If the rule happens as planned, do lower-tier advisers have a future?
RR: They certainly have less of a future than they did in the past. The days of product-pushing are gone. Over the past decade or so, most product-pushing advisers have dropped off, or slowly modified what they’re doing.
BIC: How has this affected adviser mobility?
RR: Any time there is a big a change and uncertainty, advisers want to look around and have a plan-B, so there’s been a flurry of activity, but nothing drastic… even in 2008, 2009, there was total chaos in the industry and almost every adviser was looking, but only as small percentage ended up moving. We were three or four times as busy then, but only 10% more profitable.
BIC: This time, the ones who are looking, won’t they have the same issues wherever they land?
RR: The ones who are looking are looking for a firm that is prepared for the DoL ruling. That’s a big deal for most of them.
BIC: Are more bank advisers looking at a wirehouse, thinking it would be safer to have a bigger home?
RR: We have more asking about wirehouses, but not many more are following through on it. Once they find out that there are banks that are much more prepared than theirs, they become interested in those banks.
I think every firm secretly knows they can do better, and even though 95% of advisers do the right thing for the clients, the other 5% can get [the firms] into legal trouble.
BIC: Are any more of them looking at going independent, on the idea that if they have to meet these new requirements, they’d rather be an entrepreneur?
RR: Yes, there’s probably at least a 30% pick-up in interest on the independent space, which you didn’t see in years past.
BIC: What do you expect over the next year or so?
I think the rule will be changed and watered down significantly, and just not something that will be regulated like it would have been under the previous administration. It just won’t be that big of an issue.
BIC: Will that cause a consumer and investor outcry?
RR: No, I don’t think the average investor even knows about this ruling. I think if you called 100 high-net-worth investors, you’ve be hard-pressed to find five who even knows about it, let alone what it means.
BIC: Any parting thoughts?
RR: Well, I’ve always said that you need the government to protect people from other people, but when they protect people from themselves, that’s when it’s overreach and a big problem. I mean, If you have an IRA and you’re happy buying individual securities and taking your adviser’s advice on what to do and not have financial planning done, you should be able to do that.…Plus, you already have more lawyers persuading investors to go after advisers, and more advisers who have some sort of complaints that aren’t warranted or justified. I’m not saying that some aren’t warranted, many are, but the biggest percentage isn’t and it can wreck the adviser’s life. And the one who benefits is the attorney. Because the firm loses, the adviser loses, and even the client goes thru a lot of frustration and usually the reward is not that great.