In recent weeks, both the SEC and DOL succumbed to pressure to delay the release of proposed fiduciary standards. There are two prevailing arguments being made by those who are seeking the delays: (1) that a fiduciary standard will increase the cost of providing investment advice, making it more difficult for smaller investors to access competent advice; and, (2) it will reduce choice, limit the availability of certain products and services.
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NAIFA, in a recent press release
, essentially reiterated the cost argument.
My response: NAIFA is right. A fiduciary standard will result in higher costs and that's a fact.
The decision-making framework of a fiduciary standard, including the ongoing duty to periodically monitor the client's investment strategy, requires more of an advisor's time than a traditional engagement subject to a suitability standard. I'm not going to assign a quantitative judgment to my answer, but simply acknowledge that "time is money."
The SEC does not need an extensive study to come to this same conclusion, and we can concede this point without serious degradation to the fiduciary movement.
Since the Dodd-Frank study was released a year ago, I have taken the position that we should not attempt to paint every broker with the fiduciary brush. Nor should we require every client to pay for fiduciary services when they may not need it.
If all a client wants is to trade a couple shares of stock or ladder a bond portfolio, the engagement should not have to be subjected to a fiduciary standard, unless a client so directs.
There is a simple solution: require a fiduciary standard any time a client is provided, or requests, "comprehensive and continuous investment advice.”
On the DOL side, I have a different response (the NIAFA press release didn't mention the DOL initiatives).
I do believe that all retirement assets should be subject to a fiduciary standard of care, whether those assets are in qualified plan, public plan, 403b, or IRA. The mismanagement of retirement assets and the inability of the average worker to retire in dignity (concept credited to Brooks Hamilton), will have a significant negative impact on society and the fiscal health of the nation.
There is no reason why computer-based models or QDIAs couldn't be used to manage smaller accounts. Such solutions are even more cost effective than the services of an advisor, plus the computer-based models and QDIAs can easily be subjected to fiduciary audits.