Evensky: Fee-Only Advisors Face Annuity Dilemma

Don’t confuse fee-based RIAs with fee-only RIAs if you want to talk fiduciary regulations with Harold Evensky and expect to get away with it.

Evensky, chairman of Evensky, Katz and Foldes Financial, a fee-only wealth management firm with about $1.5 billion in assets under management, is credited with being one of the first to pioneer the fee-only advisory movement in the early 1990s, when his practice made the jump from a commission-based model of compensation to a fee-based, fiduciary model.

Now in his 70s, he continues to lead the firm he co-founded and serves as an adjunct professor at Texas Tech University, where he teaches a graduate course in wealth management.

He is as faithful to the fee-only model as he has ever been and is an outspoken advocate of the Department of Labor and its proposed fiduciary rule.

The primary objection to the rule from its opponents—that it would move the brokerage industry to a fee-only compensation model and therefore price low and middle-market retirement savers out of the financial services market—is “unbelievably nonsensical” to Evensky.

“None of those objections hold much substance,” he said. “The brokerage and insurance industries say they want a fiduciary standard, but they are attempting to redefine what a fiduciary is.”

Which is unnecessary at best, and disingenuous at worst, in Evensky’s mind.

“The concept of a fiduciary is simple and it is well-established in the law. It boils down to managing the best interests of your clients. We don’t need a new ‘uniform fiduciary standard’ as the brokerage industry calls. We need to enforce what already exists,” he said.

And that’s what the DOL’s rule does, he thinks.

Those who say the consequence of the rule will be an industrywide shift to fee-only models think differently, of course.

Secular analysis from ratings agencies has said the DOL rule, as proposed, could significantly impact existing distribution channels for annuities, products sold on commission by insurance agents and broker-dealers.

Non-secular advocates of the insurance products clearly find that prospect troubling.

In 2014, $80 billion worth of fixed-annuity products were sold, about half through IRA accounts, according to data from LIMRA, cited by Kim O’Brien, CEO of Americans for Annuity Protection, in an interview with BenefitsPro, a sister site to ThinkAdvisor.

Presuming a best interest standard advanced by the DOL would force commission models to extinction, 401(k) assets’ access to annuitized products could be severely restricted, fears O’Brien and other annuity advocates.

To a growing number of academics and regulators who see annuities as a vital hedge to longevity risk in retirement, that potential outcome would not be in retirement investors’ best interest.

Evensky can be counted as part of an emerging chorus that sees immediate and deferred annuities as not only useful, but necessary tools to retirement strategy going forward.

He did not always think so. As a fee-only fiduciary, Evensky once was as outspokenly critical of annuities as he is now a proponent of them.

“In the next ten years, annuities are going to emerge as vitally important vehicles for retirement planning,” predicts Evensky.