When it comes to the fiduciary standard that investment advisors have lived by for 77 years, neither proposed delays and industry lawsuits nor infighting across regulatory lines should be allowed to weaken any future iteration of advisor rules, TD Ameritrade Institutional Managing Director Skip Schweiss told Financial Advisor magazine.

Schweiss, who works with 5,700 investment advisor firms as the head of Advisor Advocacy and Industry Affairs at the industry giant, discussed the future direction of regulation and the fiduciary debate as the TD Ameritrade’s 4th Annual Advocacy Leadership Summit was about to get underway in Washington, D.C.  

He's been a long-time proponent of a strong, industry-wide fiduciary standard.

FA: It’s a little like making odds in Vegas at this point, but what do you think is going to happen to the Department of Labor’s fiduciary rule, now that the agency has asked for a delay?

Schweiss: One of the things I like to clarify for people is the DOL rule went into effect June 9. The foundation of the rule—you must give advice that is in the best interest of investors—is still there. Some of the disclosures and contracts and warranties got pushed back with the OMB delay, which will probably get approved. It feels like what the DOL is trying to do is put a standard in place while putting some of the more onerous compliance components of the rule on hold perhaps to allow the SEC (Securities and Exchange Commission) to step in and apply the rule to all investment accounts to have more consistent regulation for all practitioners.

FA: What end result are you hoping for? In a perfect world, should there be a rule that goes beyond the DOL’s limited reach with regard to retirement rollover accounts to apply to both brokers and advisors?

Schweiss: We hope so. It is difficult for Finra (Financial Industry Regulatory Authority) service providers to have different sets of standards as they move between retirement and taxable accounts. Consumer advocates would also like to see to see this fiduciary standard extended. Our hope would be that there would be a good investor protection standard at the end of the day.

FA: What would your ideal fiduciary rule do?

Schweiss: It really is tricky as the folks at the SEC have been telling us for years. The [DOL’s] ERISA standard does not allow for commissions to be paid to advisors for providing advice. The DOL certainly didn’t want to ban commissions, but they’re banned by ERISA, so they had to create an exemption from the rule. So if the SEC did something they’d have to cross over some of this as well. That’s where this gets tricky.

FA: Do you worry about some of the most vulnerable investors out there if regulators fail to create an industry-wide fiduciary duty that puts investor interests first? It seems particularly important as billions of dollars in ERISA protected 401(k) and defined contribution begin to flow to retirees for the first time?

Schweiss: Absolutely a lot of us believe that the most vulnerable investors out there are in retirement plans and have very low levels of investing sophistication. Their only experience in investing in their retirement plans where there are plan fiduciaries and some really good ERISA guardrails to protect their assets. But if they do a rollover they’ll be exposed to IRA land, where the protections aren’t nearly that strong. So they are vulnerable to the investment advice they get. There are a lot of critical decisions for new retirees. Protecting this type of investor is exactly what the DOL is trying to accomplish with this rule. Where they’re having problems is with the enforcement mechanism. But their intent is right and we are hoping they have a chance to get the full regulation out there.

FA: How does TD Ameritrade underscore the importance of fiduciary standards to the firms it works with, especially with advisors who may be working with more vulnerable investors, like the unsophisticated and the elderly?

Schweiss: What is nice is that advisors are fiduciaries already, so they live under these rules. We do a lot of work to help them understand all the rules and the ERISA and DOL regulations, if they choose to get involved with retirement assets. We offer webinars, white papers, we make attorneys and compliance folks available. We do lots and lots of seminars around the country about how they can improve their business. Ultimately, it’s up to advisors how they practice, but we can give them a lot of guidance.

FA: Who is being hardest hit by the DOL fiduciary rule?

Schweiss: It is brokers and insurance advisors who are much more impacted by the DOL rule than RIAs are. It’s brokers and insurance advisors who are much more likely to deal with variable compensation and commissions, so they have to live under the rule’s exemption, which is tough. The biggest area that investment advisors have to adjust to is they have to make sure advice for rollovers is in the best interest of the investors and evaluate it from a product, service and cost perspective before they make the recommendation.

FA: The brokerage and annuities industry argue, both in lawsuits and letters to regulators, that the fiduciary rule is forcing brokers to drop investors with smaller account sizes or move them into fee-based accounts, which they say are costlier. Are you seeing any of this?

Schweiss: The trend we’re seeing for sure is that more brokers are moving toward a fee-based model. I think it’s a good thing. We are big supporters of the fiduciary advisor model and advisors sitting on same side of table as investors and not recommending one product over another because of payouts. We don’t think brokerage model should go away but we are pleased at what we are seeing.

Beyond that, we have the same evidence you have: the headlines, the comment letters. You are hearing big publicly traded brokers talk about moving clients to fees and boosting profits. You can make better investment recommendations if you know about a client’s family, goals, fears and what they’ve trying to accomplish.

FA: You have been coming to Washington, D.C., on behalf of TD Ameritrade and advisors for a long time. Is it getting harder to get lawmakers and regulators’ attention? Do you worry that they may paint all financial services practitioners with the same broad brush?

Schweiss: I think it’s tougher now. Lawmakers are looking at tax reform, foreign policy with North Korea, China and Russia, immigration. It can be difficult to go in and talk about fiduciary standards and the attention the topic deserves. We are often better off speaking with staff who specialize in financial and economic issues. We have better conversations with these folks sometimes than their bosses. I started getting involved in 2010, about the time that Dodd-Frank passed. We all thought the dust would settle and rules would get made in a year or two, but seven years later Dodd-Frank hasn’t even been implemented yet. And we are all learning a lot about. We are certainly all getting to see how legislation and regulation gets made.

There is a sense that everyone in financial services gets painted with a broad brush. It is sometimes difficult.

FA: What is the most important thing you are going to tell advisors today about the future of regulation for your industry?

Schweiss: I want to ask if they think we should be advocating for a uniform standard for brokers and advisors and we wonder if they think it should be as stringent as the 40s act [The Investment Adviser Act of 1940]. We certainly don’t want standards lowered. We want standards as strong as they can be. We like the 40s Act. It’s done its job.