By Aaron Klein, CEO at Riskalyze
The Wall Street Journal reports that President Trump will issue an executive memorandum directing the Labor Department to delay and effectively kill the DOL Fiduciary Rule. What one executive branch can implement, another executive branch can take away?—?and such will go this piece of President Obama’s legacy.
Most of the industry friends and colleagues in my Twitter feed are bemoaning these actions by President Trump. I’ll skip that and instead try to find the silver lining by asking a question: why did it take 1,000 pages to solve this problem? It’s because we were trying to have it both ways?—?effectively create a fiduciary standard, but create a million exceptions to try to fit the not-fiduciaries circles into the fiduciary square.
Here’s the core principle we should actually care about: investors have a right to know if the financial professional who is recommending a solution is either a fiduciary acting in their best interests, or is a salesperson who sells financial products. We believe it’s difficult to achieve our mission of turning people into “fearless investors” any other way.
And that was the problem the DOL rule was intended to solve, before it ballooned into a 1,000 page complexity with many more pages of “FAQs” to attempt to provide clarity.
So here’s an idea. Instead of setting the industry up to fail with ill-defined “reasonable compensation” standards, class action lawsuits from trial lawyers and complicated BICE contracts, I’d propose the Trump administration pass a one-page rule.
If you are a fiduciary who is duty bound to act in the best interests of your clients, you have no conflicts in the advice you give, and you will earn level fees regardless of the choices you make or that your clients make, you are free to call yourself a financial advisor.
If you are a salesperson who owes no such duty to clients, or will earn variable compensation based on which product is selected, you can’t call yourself an advisor or adviser. You can call yourself a salesperson, a representative, or a financial consultant. But you can’t hold yourself out as an advisor to that investor?—?it’s false advertising.
Both of these financial professionals have a one-page agreement in large type that reads like this and is signed by both parties.
There are two kinds of financial professionals?—?advisors who act in your best interests and charge a fee to you, and salespeople who sell financial products (much like other products are sold) and will earn fees or commissions based on what they sell you.
If you choose an advisor, it’s the advisor’s responsibility to act in your best interests, fully understand your needs and recommend the right solution with zero conflict of interest.
If you choose a financial consultant, it’s your responsibility to compare different choices and fee structures and buy the product that fits you, just like when you buy a car, a house or a new TV.
I am an advisor, not a financial consultant. So it’s my responsibility to act in your best interests, and I pledge to do so.
I am a financial consultant, not an advisor. So it’s your responsibility to choose the best product that fits you, and I’m here to educate you on your choices and answer your questions honestly.
Could a one-page rule deliver to American investors the “best interests economy” they richly deserve? I think we should give it a try.