If an expanded set of fiduciary rules becomes a reality, will the recommendations of those currently under the suitability standard of care change noticeably as they adjust the way they provide advice to put the best interests of clients above their own?
Many people think so, while many advisors maintain they’ve been putting the client’s best interest first all along, even under the suitability standard.
If an expanded set of fiduciary rules becomes a reality, will advisors abandon their middle-income clients in favor of affluent clients who can afford to pay the fees for their advice?
Some factions think that will be an unintended consequence that will limit the access to financial planning for those without significant portfolios. Others believe that’s an “Orwellian” argument ignoring innovations in technology that already are changing the industry with low-cost advice options.
The fiduciary standard issue stepped into the spotlight recently when President Obama said during a speech to AARP leadership on Feb. 23 that he has given the Department of Labor (DOL) the go-ahead to redraft its rule to amend the definition of “fiduciary” under the Employee Retirement Income Security Act (ERISA).
In his remarks to AARP, the President called for tougher standards on brokers who manage retirement savings accounts, including requiring brokers who sell stocks, bonds, annuities and other investment products to disclose to their clients any fees or other payments they receive for recommending certain investments.
While this is no doubt a complex issue that extends far beyond insurance professionals earning commissions for selling life insurance or annuities, arguments in favor and against are commonly being boiled down to some relatively simple concepts with an ethics angle.
The primary argument being made by President Obama, consumer advocate groups and some industry organizations in favor of an enhanced fiduciary standard is that consumers are entitled to unbiased information, and that commission-based compensation structures generate inherent conflicts of interest for advisors.