With the ink still wet on the Labor Department’s fiduciary regulation, NAPA Net readers were still of a mixed mindset on the impact and how it would change the way they do business.
Perhaps not surprisingly considering the relative newness, length, and complexity of the regulation, fewer than one in eight (11%) of this week’s respondents said they had read it (them?), though roughly 3 out of 10 had read some of it and just over a fifth had read a “little” of it. A clear plurality (41%) said that they had read none of it – but had been reading the summaries. As one reader noted, “I have read sections and am waiting for a good law firm to do a summary :).” Another had summaries “…just printed out to read in full before the NAPA conference call.”
What’s the Impact?
Perhaps as a consequence (and for the newness, length, and complexity noted above), a plurality (42%) of this week’s respondents said it was “too soon to tell” about the impact of the new fiduciary regulation. That said, roughly a quarter (24%) acknowledged it was “better than the 2015 proposal,” and one in five (19%) said “we can work with it.” On the other hand, 7% thought it was going to keep a lot of people from getting the advice they need/want, and the rest simply “weren’t sure yet.” Or, as one reader noted, “Until we actually start following it, I can't say I'm actually sure how it's going to work.”
Reader comments were definitely mixed on the subject: “Like all regulations it simply adds another piece of paper for an investor to sign before doing business,” noted one. “B/Ds will spend a lot of money doing more trainings and figuring out how to deal but ultimately nothing will change.”
Another commented, “It will take a while to digest it. It is overly long and the preambles are repetitive and contain a lot of self-serving exposition on why the rule was needed,” while another observed that the final version was “somewhat watered down, e.g., allowing variable annuities, etc.”
“The DOL missed its opportunity to make life easier for plan sponsors and better protect retirement savers by watering down the original proposal, agreed another, who was “…pretty confident brokers will continue to engage in self-dealing ‘conflict-of-interest’ transactions while now being able to call themselves ‘fiduciaries.’”
“Still waiting to find the 'gotcha,'” noted another. “There will be something in the BICE that will cause trouble. There is just so much to read and interpret.”
One reader explained that, “Being on the NAPA GAC I most likely have a different take. The work that all the folks at NAPA did was awesome. This is a good change for the industry.”
Litigation Legacy?
Readers were also of mixed opinions as to what impact, if any, litigation might have on the regulation. Just under one in five (18.5%) thought it would have an impact, while 26% thought it would “probably” have an impact.
However, an almost identical 27%, while acknowledging the inevitability of litigation, nonetheless said it wasn’t likely to be successful. That said, a plurality of this week’s responses, some 30%, were “not sure.”
“Government regulations are hard to overturn,” noted one, though another reader opined that “Anyone challenging the best interest concept should be barred from advice.”
Changing Time?
The anticipated change in regard to how they would do business was varied, but largely the sense was that it will be business as usual. Readers who thought it would have “some, but not very much” impact (32%) were nearly evenly matched with the 31% who thought it was “not likely” to cause much change. Moreover, 15% said it would not change anything with regard to how they did business. On the other hand, just about one in five (19%) said the regulation would have a big impact on how they did business – and just under 5% said it would have a really big impact. “Anytime a massive regulation is published it will have unintended and unanticipated consequences,” noted one reader.
“As an RIA, we are already held to this standard,” noted one reader who said that they thought it would “…actually help the RIA community maintain their competitive advantage.”
“Fortunately, I am part of a large BD/Advisory firm group that has the resources to comply, observed another survey respondent, “but small firms may not survive.”
“Now everyone can claim to be a ‘fiduciary,’” noted another, who felt that the regulation “…muddies the water for consumers to distinguish real, full-time fiduciaries.”
“I do worry that if we tell someone they won't have to pay current taxes if they take their distribution as a rollover, that suddenly that's advice and now we're fiduciaries,” observed another.
Other Comments
While the responses to this week’s reader poll were decidedly mixed, the comments about the fiduciary regulation were largely positive. Here’s a sampling:
“Back in the late 90s, I was in a meeting with DOL about converting our collective funds, that had no internal fees, to mutual funds. We had a great conversation about conflicted investment advice and fees. They were adamant that advice should not be conflicted. I asked them how the commission based industry could avoid this issue. Their answer was (and I quote), ‘That's not us. That's enforcement.’ I was a retail broker for 6 years, so I’ve worked on both sides.”
“A great start. As we build out our education plans for participants, we feel we have a better stand on what we do.”
“I wish the SEC would apply a similar standard to non-retirement accounts.”
“While some claim that they don’t need this, it looks unseemly that the industry is fighting the idea of putting standards in place. I think the final regulations took into effect a number of comments to make them more workable. But I have seen many advisors who only look after their own interest, pushing the highest commission products with no fee/commission disclosure.”
There were, of course, concerns: “Since we have numerous laws on the books to deal with the ‘do-bads’ of our business, this was too much heavy-handed overreach, too politically motivated, and does nothing to promote the huge benefits that consumer education could achieve; the time any money would have been better spent on this instead of trying to kill an entire industry.”
And some skeptical perspectives: “Litigation, and not the rules, is what changes behavior in a dramatic way.”
Or, as one reader cautioned, “At this point I’m still waiting for more guidance.”
Thanks to everyone who participated in this week’s NAPA Net reader poll!
Got a question you’d like to run by our readers? Looking for a sense of the industry? Post it in the comments section below, or email me at [email protected].
Note: You can get – and keep – up to speed on the Labor Department’s fiduciary regulation via resources archived on our special “Game Changer” page.
By the way, while we made no attempt to correlate responses with fiduciary status in this week’s reader poll, 37% of this week’s respondents indicated that they were currently an ERISA fiduciary on all accounts, 22% were, but not on all accounts, and 15% were, but not on most accounts. The rest (about 26%) were not ERISA fiduciaries at present.
