As the details of the U.S. Department of Labor’s final version of its fiduciary rule were leaked on Tuesday and Wednesday, many fiduciary advisors felt optimistic, even vindicated after a long debate between competing revenue models, but others questioned how the law would impact investors and advisors on the front lines of retirement planning.
Specifically, they worry about the law of unintended consequences.
“It’s great that additional legislation is coming out,” says Tony D’Amico, CEO of the Fidato Group, a Strongsville, Ohio-based RIA. “I hope it produces its intended result, since previous legislation has come out and defined different advisors and their level of care but has largely been ignored and unenforced. I hope that this leads to disclosures and required practices that make a difference for retirement investors.”
Brian Menickella, managing partner at the Beacon Group of Companies, a King of Prussia, Pa.-based comprehensive wealth management company, says the changes were long overdue.
“Broker-dealers haven’t been advertising that they don’t necessarily act in their clients’ best interest for the past 70 years, so they’re probably happy that the rule isn’t getting the fanfare that common sense dictates it should,” says Menickella. “The investment public is going to be surprised when they’re told that their advisor hasn’t had to act in their best interest.”
Menickella says that Beacon’s advisors, like other RIAs, have been advertising and extolling the virtues of the fiduciary standard for years as part of their pitch to clients.
Janney Montgomery Scott, a Philadelphia-based comprehensive wealth management firm and subsidiary of Penn Mutual, acknowledged that its business was likely to change after it campaigned against the rule.
“For our clients, we have prepared for a variety of likely outcomes and will begin to review the rule in detail,” the company said in a written statement. “It’s important to remember that this is a regulatory change to which we must adhere. It is not a fundamental change to our ongoing commitment to clients and our focus on putting our clients’ needs first.”
Preston McSwain, managing partner of Fiduciary Wealth Partners, a Boston-based RIA, says that the finalized rule validates the arguments of fiduciaries and should put the debate over competing revenue models to rest.
“For too long the industry has protested too much about putting the interest of clients first,” McSwain says. “It is about time that business models are structured based on the value that clients place on advice, versus being structured based on how much value and/or profit is generated from products sold to clients. Over my 25-plus years in the industry, I have seen many different ways relationships are structured and products are priced and pitched. I understand what drives profits and incentivizes sales behavior inside investment firms, and it’s long overdue for this to all be more transparent to investors.”