Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a flurry of news about the DoL fiduciary rule, including a letter from Senator Elizabeth Warren asking major financial institutions that have already been working to comply with the rule if they’re now willing to support it (since they’re already almost done implementing the necessary compliance processes), a major report from the Consumer Federation of American finding that 25 of the leading financial services firms are holding out to consumers that they provide advice as an “essential service” even as they contend to regulators and the courts that they are merely in the business of selling products, and a review of the latest set of fiduciary rule FAQs released by the Department of Labor (which cleared a major concern about using fee-offset revenue-sharing arrangements in 401(k) plans).
From there, we have a few more articles delving deeper into the fiduciary rule as its applicability date looms, including: an analysis by Ron Rhoades of why ultimately most Financial Institutions will probably eschew the BICE rules and just become level fee fiduciaries using fee-based advisory accounts instead; criticism that the DoL still hasn’t sufficiently defined its “due diligence” expectations of how advisors should analyze the investments they’re recommending; and a look from Cliff Asness of AQR at some of the potential “unintended consequences” of the DoL fiduciary rule (such as whether, in the long run, consumers will end up trusting financial advisors too much, let their guard down, and ultimately allow even more harm to be caused down the road).
There are also a couple of practice management articles this week, from a review of the record-breaking pace of mergers and acquisitions amongst RIAs last year (though the total number of deals is still miniscule relative to the total number of advisory firms), to a look at how 1/3rd of the major RIAs last year actually saw a decrease in AUM as retirement withdrawals and even client deaths of their baby-boomer-centric clientele are beginning to take a toll, and a discussion of the blocking point amongst advisory firm owners that will cause most of them to fail to achieve their own long-term vision for their business.
We wrap up with three interesting articles: the first is a discussion of whether investment managers, from mutual funds to even RIAs, should consider adopting “fulcrum fees” in lieu of the traditional AUM fee, as a way to better align the interests of the manager and the client; the second is a look at the research on why ethical people end up making unethical choices, and the recognition that it’s creating a toxic employee culture that is the most common driver of employees making “bad” decisions; and the last is an interesting discussion from Bob Veres that even as advisors who work at broker-dealers complain that the media is maligning them as salesperson (when they’re really trying to give advice and act in their clients’ best interests), it’s actually the broker-dealer companies themselves, and their lobbying organizations, who are stating to the regulators and the courts that their “advisors” are really just mere salespeople and not advisors (and thus contend they shouldn’t be held to a fiduciary duty)… which means if you’re at a broker-dealer and want to be recognized as an advisor, you’ll have to start by convincing your own company to truly recognize you as such!
Enjoy the “light” reading!