There's concern in the bank channel that the pending fiduciary proposal was based, in large part, on misgivings over advisor pay. And the way those misgivings play out could be a major detriment, ironically, to the small-time investors that the rule was initially trying to protect.

As the fiduciary proposal creeps closer to becoming a rule, I was reminded of related topics that surfaced in our recent Leadership Forum as well as the annual BISA conference.

First, the pay issue. Several participants in our Industry Leadership Forum, which Bank Investment Consultant produced with Stathis Partners, voiced the concern that the government was taking the simplistic approach that it's unseemly for advisors to make "too much" when they're overseeing other people's money. The Department of Labor doesn't care so much about the financial products being offered by advisors, this idea goes, as much as the overall pay that advisors make. To be fair, the government could be concerned about products but using a proxy -- advisor pay -- that can be easily gauged to estimate whether appropriate products are being recommended. Still a cause for concern, to be sure, and I know it's about more than just products, but I think it could be a case of good intentions prompting what some call a misguided result.

But is the result misguided? Consider the following:

The Department of Labor doesn't have the work force in the field to enforce this rule, which is another issue discussed at our Leadership Forum. This will leave a big hole in the system all too eagerly filled by plaintiff's attorneys to enforce. More lawsuits, possibly class-action, are in the offing.

Fast forward to the BISA conference. In one of the closing sessions, attorney Kent Mason, partner at law firm Davis & Harman, said that that with the possibility of class-action lawsuits, some of the banks he talks to are asking why they should even be in this business. He notes that the common responses to these worries are along the lines of "business is endlessly creative, they'll figure something out" or "they won't walk away from a $17 trillion market."

True, to a large extent. But there's bad news for small investors, he says. The vast majority of the 401(k) market (about 96%) is in accounts over $25,000, he says. And that other 4%? Those are the accounts that banks will indeed turn away if the costs get onerously high.

"Why deal with an account that's that small," he says, echoing the banks' concerns. "The liability is too much."

Mason notes that banks and broker-dealers are not objecting to the notion of acting in the best interest of the clients. Rather, the objections stem from the idea that the new rule will prohibit them from giving any advice that could possibly result in a commission, strictly limiting even a casual conversation about a mutual fund or ETF being a good addition to a portfolio.

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