DOL Fiduciary Rule Failure #446-The Market Works

Sometimes, when I think I know best, I realize that it’s just the market that actually knows best how to deliver the most services to the most people.

Here’s a ‘problem’ that the market had solved that the DOL Fiduciary Rule is attacking (at least, those who are supporting it are using it as an excuse to do so).

For some reason that I haven’t been able to figure out yet, financial advisors love to talk about the ways they charge their clients: fee-only, fee-based, hourly, retainer, etc. And they really like to talk about how much better their method is than others.

Many go too far and pretend like their billing method is superior – for everyone apparently! (everyone that meets their minimums, that is… – and stand on a pedestal to talk down to the rest of the market on how they are charging.

I started my firm with the goal of servicing all (my approach is, of course, better than most!). I’ve tried to work with those looking for ongoing management, as well as occasional advice. Unfortunately, the threat of a ‘fiduciary rule’ has made me reconsider the services I can offer. The unnecessary costs to ‘check’ off a crazy list of items that completely ignores my value to a client – that they also agree with, because they hire me – is absurd, and I’ll talk more about it later.

Mostly, advisor groups talk about commissions. Why would you pay a commission? You pay commissions to used car salespersons! How dare an advisor charge a commission! They should be paid a very high and ongoing fee!

Within the text of the DOL’s Fiduciary Rule, it is a ‘conflict’ for advisors to force clients into a management service if what they wanted was just occasional advice.

Occasional review… what sort of compensation method may make sense for someone that may need a review service, but not an ongoing service.

Hourly, for sure would work. Most hourly advisors want to do a lot of work though for what may be a little project, and most that I know would not help a client just rollover an IRA (and, if they are a fiduciary and working on a rollover they have a ton of ‘work’ that they’re told they have to do under this law! I have a colleague that just joked that it may be 16 hours of billable time!).

So, charging for a lot of hours for a simple answer for a client isn’t the right thing, but, is there another method that may be appropriate?… say, for someone that preferred to work in the investment industry a little more than many hourly planners… what way could someone be paid occasionally…

A commission!

See? The market works! That person who needs help for a relatively small rollover IRA, who doesn’t have any great large company US stock funds in their 401(k) may just need a single fund, and they perhaps want an advisor to help them implement, and to be available for their help in the future if they need it.

A commission for a one-time service, as opposed to ongoing management of a small account. Huh. It seems this rule that so many have used as a way to attack commission-based advisors don’t serve these clients.

Note: The one place the market doesn’t work is in areas where there are exemptions, because exemptions are the government telling one area it can take advantage of others. So, the industry groups that are not today commenting on the DOL’s proposed exemption to Equity Indexed Annuity (EIA) providers are really ignoring one of the worst offenders of conflicted advice. Commissions from EIA sales are very high, and it’s not because they require a lot of financial planning or other work on the part of the salesperson. No, the market works, because if EIAs didn’t pay the high commissions, they clearly would not be able to attract enough advisors with greed to sell their terrible products.

But, I guess the thinking it that we can look the other way. As long as we regulate the true fiduciaries more, and put unnecessary and unreasonable costs on them, and the guys that sell a few small mutual fund accounts.

As the new administration has been saying the Fiduciary Rule was a solution looking for a problem, but financial advisors have been doing that for a long-time when it comes to telling other advisors how they can charge and what they should think.

Lesson for this article… the market works. More to come, I’m thinking I can continue this pace of two economic lessons around the DOL’s rule until the government deals with it.


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