The headline of a press release issued Saturday by an advisor from Bellevue, Washington was innocent enough: “Local Financial Advisor Paul R. Reid Leads Grassroots Effort on Capitol Hill.”
It's standard practice for financial advisors to issue news releases after meeting with legislators. It’s good public relations; Reid indeed has every right to announce that he met with Congressional legislators as a representative of a professional association. However, the press release exposes a larger issue: the rift between the Financial Services Institute and the Financial Planning Association.
This Website Is For Financial Professionals Only
In addition, it illustrates how the FSI has suddenly ascended to play a prominent role in the independent advisor business, to the detriment of the Financial Planning Association. It’s another signal of the decline of the FPA. It also signals the rising influence of the FSI, broker/dealers, and dually-registered advisors licensed by FINRA and as investment advisor representatives.
The press release said that Reid, CEO of Paul R. Ried Financial Group, LLC on Wednesday, October 5 had travelled to Washington and met with "200 Congressional offices."
“Last October, the Department of Labor (DOL) proposed changes—specifically, a redefinition of the term fiduciary—that, if passed, will take away investor choice and make financial advice too costly for most small-to-moderate investors,” Reid says in the press release. “Due in part to FSI's work, the DOL pulled back its rule in late September, but is still threatening to bring it back in 2012.”
The creation of a fiduciary standard is the major focus of FSI’s government lobbying effort. Reid is one of many advisors enfranchised, emboldened, and empowered by a group that did not even exist a decade ago and that now suddenly has an influential voice in the advisory profession.
"You cannot place a price on the ability to speak directly to a member of Congress and let them know what hard-working Americans are going through every day,” Reid says in the press release. “This is a great opportunity for us to educate them on what Americans' (sic) need in terms of financial advice today and for retirement and how what Congress and the administration is doing affects their lives. For example, we are very concerned about proposed changes to existing rules of the Department of Labor, which would price out main street Americans from access to financial advice on their IRAs.
Added Reid, “If we don't speak up, no one will," in the press release, which says “independent financial advisor members of FSI serve more than 15 million American households.”
The ascendance of the FSI comes at the expense of the Financial Planning Coalition, an unprecedented alliance FPA, NAPFA and the CFP Board of Standards formed three years ago to lobby in one voice for its own version of a standard defining who is an investment fiduciary.
FSI differs sharply from the Financial Planning Coalition on the definition of a fiduciary, and this issue is central to the development of the financial advice profession. It will decide how financial professionals must conduct themselves in dispensing advice and how—and, indeed whether— financial services may be sold using commission products.
The fiduciary standard affects how advisors provide advice to investors in 401(k)s, sponsors of retirement plans, and private investors outside retirement plans.
FPA has the most to lose in the battle with FSI. It competes to represent many of the same advisors as FSI. But FSI and FPA are in direct opposition on this crucial professional issue.
Sources who attended the Financial Planning Association’s annual conference last month have told me that the turnout was disappointing. (I did not attend the event and I have not seen any coverage in the trade press saying the turnout was poor. Please comment on attendance was indeed down.)
Only a few years, no one would have predicted that FSI would be a major factor in the debate arguing on behalf of advisors on the fiduciary standard. FPA was the only membership organization representing advisors. (The history of the split between FPA and FSI is documented in the April and May issues of Financial Advisor.) Yet that’s exactly what has happened. These two groups are now waging an ideological, political and lobbying battle that will help decide the direction in the continuing development of the nascent financial advice profession.
“Last October,” says the press release from FSI’s representative Reid, “the Department of Labor (DOL) proposed changes—specifically, a redefinition of the term fiduciary—that, if passed, will take away investor choice and make financial advice too costly for most small-to-moderate investors. Due in part to FSI's work, the DOL pulled back its rule in late September, but is still threatening to bring it back in 2012.”
That’s the issue at play right now, as the definition of a fiduciary evolves in the months ahead, and it will affect the practice of thousands financial advisors profoundly over the next decade.
Join us for this week's webinar when Don Trone, a founding father of the fiduciary movement in the financial advisory profession, will address issues related to the creaton of a fiduciary standard regulating how investment advice is delivered to consumers.