Has anybody been following the DOL fiduciary rule debate?

hoffse · May 2016

It's been quiet around here.

Has anybody been following the Department of Labor's fiduciary rule debate? The final rule just came down, and it's pretty interesting. In a nutshell, it's going to impose a fiduciary duty on anybody giving investment/product advice for retirement accounts. Those advisers will have to act in their clients' best interests once the rule is fully implement. You would think that's already the standard, but that's not the case among all advisers. A registered investment agent is held to a fiduciary standard, but general financial brokers are only held to a suitability standard - so they can offer products that are "suitable" for a client, but not necessarily in the client's best interest.

Shifting toward fiduciary-only is pretty interesting IMO. People who don't like it say it's going to eliminate access to financial planners for low and middle income individuals, because most people don't have a large enough portfolio to be actively managed. People who do like it say that the biggest impact will be on company plans - which do have enough collective assets to access a planner - and anything related to financial advice should be held to a fiduciary standard anyway.

I think it's going to be REALLY interesting to see how this regulates financial personalities. I've read a few articles arguing that Suze Orman, Dave Ramsey, etc. will be held to the same fiduciary standards with respect to retirement products, because they get a kickback for their investment advice/products just like any other broker.

What do you think?

brij2006 · May 2016

I don't know enough about it to say anything in that regard. However, I do know that Dave Ramsey doesn't get any compensation for retirement products, because his company does not offer investment products. He does say what he would recommend to use to invest in, but you go through a separate broker to help you plan and guide you into the types of investments best suited.

We use one of his Endorsed Local Providers for our retirement investing. He pays Dave Ramsey a small annual fee to get referrals from him. In turn, he has to not push horrible financial products (whole life insurance, annuities unless with immense wealth, single stocks, etc).

I personally don't think Dave Ramsey's retirement advise is bad or not in the clients' best interest. Our investments have done immensely better now that we invest the way he teaches, than they did when we used a different financial adviser.

Although I do know that it's highly debateable.

smerka · May 2016

I wonder if Dave Ramsey will have to stop endorsing his advertisers or will that be different. I don't listen to him religiously, but he doesn't actually recommend specific funds usually, just types of funds (mid-caps, growth and income, etc). He doesn't say buy Vanguard's such and such fund. Bob Brinker who does a different radio show actually does that. But overall I think it is a good thing.

hoffse · May 2016

But see, I think just endorsing a product when rendering individual retirement advice - whether you directly sell that product or not - is enough to bring you in under the rule. You just have to be compensated in some way for rendering advice. DR and Suze are both paid by their stations, advertisers, etc. And they get referral fees from people & products they endorse. They also sell their own retirement planning workshop type products online. I think any one of those things is probably enough to trigger it.

I think it's going to be interesting to see if their shows change because of it,

Of course there are many honest brokers who perform in their clients' best interest, but they have never been required by law to do so. I remember first learning about this right out of law school, and I was pretty taken aback by it. I owe a fiduciary duty to my clients, but my broker might not owe a fiduciary duty to me? It just didn't compute, given that many MANY people rely on their financial planners/advisers to just handle their money for them.

To be clear, registered investment advisers have always been held to a fiduciary standard. But not all financial planners/brokers are RIA's.

LillibetteV · May 2016

"People who don't like it say it's going to eliminate access to financial planners for low and middle income individuals, because most people don't have a large enough portfolio to be actively managed."

Aren't lower and middle income individuals the people the new rule is meant to protect? Many poor people are that way because they trust advisers that aren't fiduciaries and the clients aren't knowledgeable enough to know the difference.

hoffse · May 2016

smerka said:

I wonder if Dave Ramsey will have to stop endorsing his advertisers or will that be different. I don't listen to him religiously, but he doesn't actually recommend specific funds usually, just types of funds (mid-caps, growth and income, etc). He doesn't say buy Vanguard's such and such fund. Bob Brinker who does a different radio show actually does that. But overall I think it is a good thing.

Yeah, I'm not sure how specific you have to be. But a couple articles I read said that it's going to get triggered any time a show host talks to a caller who wants to discuss retirement. Suddenly the host is rendering individualized advice to that caller about retirement, and the host is being compensated for it. Now they owe a fiduciary duty to that caller.

Actually naming funds seems like a sure thing to me. But it sounds like any individualized advice could theoretically count. Granted, I've only read articles about it, so who really knows. The actual rule is over 1,000 pages long, so I can't say I've read the source document

I really wonder about the financial planning kits you can buy from them. Is pre-programmed advice that you can buy individualized enough to count?

Anyway I think it's generally a good move too. The broker/planner world sure doesn't like it though. I think the biggest issue is the rule is so dang long it's going take awhile to know everything that's embedded in it and what the exceptions are.

Xstatic3333 · May 2016

This is very interesting! I think it could be a positive change overall. I see so many friends and family led into very expensive actively-managed funds by financial advisors and it really makes me feel for them. I think some advisors will still be willing to serve typical retirement investors on an hourly basis, as some do now.

As for DR, even those his strategies aren't the ones that I follow, I think he'd be pretty safe under this rule. He's simply advocating for a particular investment strategy that one could argue is in the investors' best interest. Yes, he endorses some companies like Xander, but I don't think any of them is anything you can't make a good faith argument for. I've heard much more questionable stuff from Suze Orman. Don't pay off your credit card debt until you have a 6-month e-fund? Really? Hard for me to believe that's unbiased advice.

It will be interesting to see how this law deals with different strategies. I don't see a financial advisor, but I have my Roth IRA in a portfolio of low-cost index funds because I believe that's a good strategy for my goals, and it's one I feel comfortable with. An advisor could tell me that I'd do better in actively managed funds, and wouldn't necessarily be wrong. Another could recommend a target date fund. Who's to say which is really in my best interest? Some of these things are tough to regulate. Also, could this law effectively put the whole life industry out of business? I don't personally think that's in much of anyone's best interest, unless they had an existing policy when they became uninsurable. There's so much grey area here.

hoffse · May 2016

LillibetteV said:

"People who don't like it say it's going to eliminate access to financial planners for low and middle income individuals, because most people don't have a large enough portfolio to be actively managed."

Aren't lower and middle income individuals the people the new rule is meant to protect? Many poor people are that way because they trust advisers that aren't fiduciaries and the clients aren't knowledgeable enough to know the difference.

I think what the opponents are pointing out is that under the current setup, most RIA's manage portfolios of a certain size. They either charge per hour or they charge based on a fixed percentage of the assets they are managing.

The argument is people who are lower income don't have the resources to pay per hour, nor do they have a big enough portfolio to be managed based on a fixed percentage.

With brokers, you may not be paying them at all - they get commissions from the companies whose products they are selling. So lower income people can always go to brokers and get something by way of financial advice, even if it's not as good as what an RIA would do.

But I generally agree with you - a lot of people have lost a lot of money because of shoddy products.

My hope is that when brokers suddenly have to meet fiduciary standards, low-fee financial planning will become more of a thing. Or maybe there will be group asset management to make the pool large enough.

LillibetteV · May 2016

Xstatic3333 said:

I've heard much more questionable stuff from Suze Orman. Don't pay off your credit card debt until you have a 6-month e-fund? Really? Hard for me to believe that's unbiased advice.

Agreed - when I first started out on my own 10 years ago I LOVED her show (I'd watch it Saturday nights while babysitting once the kids were in bed because I didn't pay for cable). Her "can I afford it?" segment is still how I evaluate large spending decisions. It makes me sad that a lot of her stuff in the past several years doesn't seem to be as good advice.

hoffse · May 2016

Yeah, Suze has definitely gone down hill in recent years.

Not going to lie though, the "Can I Afford It?" section has always been a personal favorite.

People want to buy all sorts of crazy stuff. I remember one time this women wanted to buy a $20,000 engagement ring for herself because the one her FI had bought her wasn't big enough.

Altogether now: "DENIED!!!"

EDIT: But seriously, I'm not a huge fan of any financial personality. The problem is they have to build a system that can be digested and followed by thousands of people, and then it becomes a one-size-fits-all approach to answering every financial question for every person. Most of the time the best advice is, "It depends." But I guess you can't really produce shows based on that advice.

All that being said, I do still like Clark Howard. His show is less about financial planning and more about finding a good deal though.

smerka · May 2016

I think most research shows that the Vanguard model (investing regularly, using low fee funds, etc) works just as well, if not better than actively managed funds and you wind up with more money because of the lower fees. I think a more important law would be that your advisor has to show you the fees you are paying instead of hiding them in your statement under earnings.

brij2006 · May 2016

LillibetteV said:

Xstatic3333 said:

I've heard much more questionable stuff from Suze Orman. Don't pay off your credit card debt until you have a 6-month e-fund? Really? Hard for me to believe that's unbiased advice.

Agreed - when I first started out on my own 10 years ago I LOVED her show (I'd watch it Saturday nights while babysitting once the kids were in bed because I didn't pay for cable). Her "can I afford it?" segment is still how I evaluate large spending decisions. It makes me sad that a lot of her stuff in the past several years doesn't seem to be as good advice.

I learned quite a bit from her, the same way. Watching the show while babysitting on weekend nights while in college. Yet I could never get fully behind what she was advocating for. There are still bits and pieces of her logic that I keep in the back of my mind, but DR's seemed to make more sense to me.

LillibetteV · May 2016

that's the one thing I DO like about how many advisers are out there - different strategies work for different people! if you can't stick with the way one person suggests try a different method!

Xstatic3333 · May 2016

LillibetteV said:

that's the one thing I DO like about how many advisers are out there - different strategies work for different people! if you can't stick with the way one person suggests try a different method!

I totally agree! I think there are lots of strategies that lead to financial success, what matters is picking one that you understand, believe in, and will stick to.

jtmh2012 · May 2016

I actually didn't realize this hadn't passed yet. My financial advisor has been talking about it for awhile now and while nothing has really changed about what we've been doing, I do know there's been some additional paperwork involved here or there that I'm sure probably proves something.

As for actively managed versus not. I have part of our retirement in a normal roth ira with standard mutual funds. I also have part of it in what I'll call a pseudo managed money account. Both accounts seem to do about the same. The managed money account so far has made enough money to cover the fees they charge to manage it and still provide a gain. However, due to the nature of the market that could change at anytime.

short+sassy · May 2016

I'm curious how this will be enforced because there are a myriad of variables in any one person's finances and strategy. You could present the exact same scenario to ten different advisors and probably come out with ten different answers that they all (legitimately) think is best for your situation.

I have a good friend who is one of the compliance officers for a large investment firm. I'll have to bring this subject up with her!

Has anybody been following the DOL fiduciary rule debate?

Re: Has anybody been following the DOL fiduciary rule debate?

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