Why Fiduciary Advisors Will Profit Without a Fiduciary Rule

Talk about a silver lining. If or when the U.S. Department of Labor’s new fiduciary rule gets smothered in its cradle by the incoming Trump administration — as many expect it will be — responsible financial advisors may still end up on top.

So says Bob Veres, a leading proponent of fee-only financial advice for the past 30 years. Veres, whose website provides educational and other resources to fellow financial-planning professionals, believes somewhat counterintuitively that killing the April 2016 DOL rule that makes financial advisors fiduciaries — that is, providing advice that’s in the clients’ best interest — will give fiduciary advisors a competitive and marketing advantage.

Fiduciary advisors include certified financial planners, wealth managers and other fee-only, buyside advisors — everyone, that is, whose business model is based on dispensing advice rather than selling products. Veres, who has just published a new book, The New Profession, is at the forefront of a movement to make fee-only advisory a full-on profession with standards, a body of knowledge and educational credentials.

To be sure, Veres stresses, consumers would be better off if the fiduciary rule survived, a stance most fee-only advisors support. None are calling for its demise. Repealing it would hurt consumers, Veres says, since the “rule created protection for one of the most opaque corners of the market where consumers are the least sophisticated.”

But in light of a likely repeal, independent advisors who have long lived by a fiduciary standard believe they stand to gain. The reason: In pushing through the fiduciary rule, the DOL blurred the line separating sales and commission-based advisors. “It was such a big point of differentiation,” says Veres, that there was even some dissent in the wealth-management world during the debate over its passage.

“Fiduciary advocates have always known that their efforts would lead to a tougher climate, competitively,” agrees Ron Rhoades, an assistant finance professor and director of the financial-planning program at Western Kentucky University. “Not just in loss of distinctiveness, but also because more advisors would become fiduciaries.”

“The DOL rule in a sense makes life harder for current fiduciaries. It’s harder to distinguish yourself,” adds Rhoades.

Rhoades, a self-described fiduciary advocate, has for years seen clients who were seeking a second opinion after losing money to a sell-side broker. Many had no idea they were paying fees for financial products they purchased, much less how high those fees were. Rhoades would explain that brokers were protected by a Securities and Exchange Commission rule from the 1930s that allowed “suitable” investment sales rather than those that were in the client’s best interests. In the 1970s, the SEC allowed the suitability standard for mutual funds. “Consumers are being financially raped by sales people who are masquerading as financial advisors,” says Rhoades.

Despite their fervor for helping consumers receive financial services that are in their best interest, both Veres and Rhoades agree that without the rule, and with the added publicity that will attend its dismantling, consumers will have a better chance of distinguishing for themselves between fiduciary and non-fiduciary advice. And that’s just good for business.