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U.S. Chamber of Commerce – “Fiduciary Duty: Assessing the Real World Impact”

Key Topics & Takeaways

  • Limited Product Choice: In both the studies presented and first-hard accounts from advisors, panelists agreed that customers are already experiencing limited product choices due to the fiduciary rule’s partial implementation.
  • Higher Fees: Panelists discussed higher fees charged to investors in order to mitigate higher compliance costs and the expense of greater litigation risks.
  • Legislative Solutions: Rep. Ann Wagner (R-Mo.) highlighted her draft legislation, which would repeal the Department of Labor’s (DOL’s) rule and establish a best interest standard under the jurisdiction of the Securities Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

Speakers

Welcoming Remarks

Randy Johnson, Senior Vice President, Labor, Immigration & Employee Benefits, U.S. Chamber of Commerce

In his welcoming remarks, Johnson commended the Department of Labor (DOL) for going forward with a proposed delay of the January 2018 fiduciary rule implementation date, as it will give the Department time to review the data on the rule’s impacts. Johnson highlighted some of the impacts firms are reporting, including a shift to fee-based accounts, fewer investment choices, and small savers having difficulty accessing the advice they need.

Congressional Keynote

The Honorable Phil Roe, M.D. (R-Tenn.), U.S. House of Representatives

Roe began his keynote by discussing his experience as an employer, working to provide retirement plans to the employees of his medical practice, which he credits for his unique perspective when addressing the fiduciary rule in Congress. Roe stated that a number of advisors will not be able to take the legal risk of small-balance clients, and that the rule “punished everyone for the sins of a few bad actors.” Roe highlighted two proposed legislative solutions, H.R. 2823, the Affordable Advice for Savers Act, and the legislative draft that has been introduced by Rep. Ann Wagner (R-Mo.).

Panel 1: The Fiduciary Rule: What the Real World Data Tells Us So Far

Brian O’Shea, Senior Director, Center for Capital Markets Competitiveness (CCMC), Moderator

O’Shea opened the first panel stating that it has been almost seven years since the fiduciary rule “first entered our lexicon,” and it has been a “needlessly complex and confusing” journey since. O’Shea said that since partial implementation has begun, previously theoretical assumptions can now be tested. O’Shea highlighted the Chamber of Commerce’s survey of their member firms, in which 100 percent of respondents believed that investors will suffer due to the rule, with 13 million customers losing access to advice and 6 million likely to pay higher fees.

Jason Berkowitz, Vice President & Counsel, Regulatory Affairs, Insured Retirement Institute

According to a random sampling of members in a study the Insured Retirement Institute conducted, Berkowitz stated that half of insurers have reported distribution partners have eliminated products, and 38 percent of Main Street insurance agents will stop offering certain products. He continued that members have experienced an 18 percent drop in annuity sales despite a rising stock market, and report that fee-based annuities will result in higher fees. Berkowitz stated that the insurance space is a consumer-driven industry, and regulations are limiting the ability of the industry to respond and adapt to consumer need. Berkowitz emphasized that implementation should not be misconstrued as agreement with the rule, and that firms are complying because it is the law, though many concerns remain.

Lisa Bleier, Managing Director & Associate General Counsel, Securities Industry and Financial Markets Association (SIFMA)

Bleier discussed SIFMA’s study, which included a cross-section of firms that sought both qualitative and quantitative data on the changes they would need to make to comply with the fiduciary rule and the changes that have already begun. Bleier highlighted that each firm that responded to the survey had a slightly different approach to complying with the rule, resulting in a myriad of impacts, which is evidence that there is a significant amount of confusion about the rule. The best example of this confusion, Bleier noted, is surrounding the grandfathering provision, where firms have taken a variety of approaches. Bleier also stated that 95 percent of surveyed firms have made changes to their product offerings in the process of complying with the rule.

Paul Henry, Co-Director, LIMRA LOMA Secure Retirement Institute

Henry reviewed the results of a study focused on the constituencies impacted by the fiduciary rule, and compared the results of the United Kingdom’s switch to a fee-based system. The UK outcome, the study found, which included significantly diminished access to advice and an impact on the middle market, would likely be followed by more than half of impacted advisors in the U.S. Henry noted that research shows long-term outcomes are far better for investors who work with an advisor, who can help ensure investors do not outlive their income, making investors feel more secure in their financial plans.

Dan Levine, Practice Leader, Location Strategies & Economic Development, Oxford Economics

From Oxford Economics’ survey of firms, Levine discussed three main themes that emerged: 1) estimates of full implementation costs are three times higher than DOL estimates; 2) the study negated about 90 percent of the estimated benefits of the rule; and 3) firms are eliminating entire product families, as well as experiencing a significant loss in diversified products due to cost and litigation risk.

Brock McCleary, President, Harper Polling

McCleary discussed the findings of their survey showing there is broad awareness among advisers about the fiduciary and pending changes. He explained that when asked whether these changes were helping or hurting their clients, half stated it was restricting how they serve clients, and over 60 percent responded that it has changed the way they work in some way. McCleary stated firms are reporting more paperwork, higher compliance costs, and fewer product offerings, and large firms are most likely to report higher fees.

Panel 2: The Fiduciary Rule: Advisor Perspectives

The Honorable Bradford Campbell, Partner, Drinker Biddle & Reath LLP & Former Assistant Secretary of Labor for Employee Benefits, Moderator

Campbell introduced the panel and noted that as the rule is being implemented, there is movement from theory and politicization to what is happening to investors. Campbell stated that while the rule is almost seven years old, there are now real-world examples from advisors about the effects of the rule on their clients and relationships.

Joe Cope, CFP, Founder & Chief Executive Officer, Cope Connelly

Cope discussed the valuable relationship between an advisor and client, noting that a large majority of his clients are millennials with small accounts but large growth potential. Cope stated that to say no to a young person asking for help with their financial planning can “fracture a relationship beyond repair,” and that the pressure of regulation is pushing advisors away from helping those who need it.

Jamie Cox, Managing Partner, Harris Financial Group

Cox explained that his client base is primarily blue-collar workers with little financial experience, and the rule is limiting their product choices. Cox noted a mutual fund platform that is restricted to only 20 fund companies, designed to create a level fee across funds. Cox noted that “you cannot legislate good behavior,” and suggested that the best path forward would be regulation that gives clear guidelines and incentivizes good behavior.

Dean Harman, CFP, Financial Advisor, Harman Wealth Management

Harman addressed how his staff has needed extra hours to do the additional paperwork and plan research due to the rule. Harman reported that smaller accounts are facing limited product choices, and there may be a need to raise the minimum account sizes. Harman noted that the larger the client, the more sophisticated asset management work you can do, and the rule limits these options.

Deborah Koller, AAMS, Registered Principal, Koller Financial Services, LLC

Koller stated that her clients range from a newborn baby to a 96-year-old, with a wide range of needs. Koller discussed the value of a good reputation, noting that her first client is still with her, and that many new clients are the result of referrals, based on trust. Koller stated that the financial advisor business is all about relationships, and good advisors always work in the best interest of their clients without a fiduciary standard.

Congressional Keynote

The Honorable Ann Wagner (R-Mo.), U.S. House of Representatives

In her keynote address, Wagner stated that protecting investors is “vital work,” and that advisors helping people plan for the future already have their customers’ best interests at heart. Wagner said that the fiduciary rule should not be a partisan issue, because if it is not handled properly, it will only serve to exacerbate America’s savings crisis, highlighting that 62 percent of Americans do not have any emergency savings and many more have not adequately saved for retirement.

Wagner called the rule “misguided,” stating it will restrict access and choice, as well as increase costs for investors. Wagner outlined three potential paths forward, including: 1) the DOL and SEC starting from scratch on a new rule; 2) a court ruling; and 3) legislation. Wagner discussed her draft proposal, which she plans to introduce by the end of September, which repeals the rule, restricts the DOL from regulating the broker-dealer space, and establishes a best interest standard to be under the jurisdiction of the SEC and FINRA. Wagner reiterated her dedication to the low- and middle-income investors who would be significantly impacted, and her view that it is her duty and obligation in Congress to protect the most vulnerable.

For more information on this event, please click here.