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November 23, 2015 at 12:29 PM
Ron Rhoades tells it like it is. He did so in no uncertain terms in an interview I just completed with him.
For example, recognizing both the limits of Best Interest Contract Exemption and the usefulness of a palatable transition to a pure fiduciary standard, he suggests the DOL add a sunset provision to BICE to give brokers enough time to evolve to the ideal.
Also, he’s not afraid to both expose the weakness of robo-advisors yet explain how they might exist in the future.
Of all his reasoned comments, none struck me more than this: “…major brokerage firms [that] don’t adopt fiduciary business models… are likely to implode at some time in the future.”
Why would Rhoades believe this?
Well, for one thing, he’s got his finger on the pulse of the industry.
He’s not only a well-known commentator, but he’s a practitioner with both a deep legal and academic background.
For those portfolio managers out there, if you wanted to describe the perfect stock analyst for the financial services industry, that would be Rhoades.
As he explains in the interview, he’s seen a substantial migration of advisor teams from traditional broker-dealer firms that cannot accommodate a pure fiduciary (i.e., no conflict-of-interest) platform towards what he calls “major ‘roll-up’ firms.”
He believes this will only accelerate if the DOL implements its new fiduciary rule.
But what if the DOL’s efforts never come to fruition? Does that leave the broker-dealer advisor model off the executioner’s block?
Rhoades doesn’t believe so, and neither do I.
What’s clear to me is this: The fiduciary standard is on the right side of history. That doesn’t mean it will win.
It just means, without the influence of the DOL (and a quick affirming follow-up by the SEC), the battle will become extracted.
The focal point here is “trust.” As Don Throne and others have pointed out, “fiduciary” doesn’t automatically mean “trust” and “non-fiduciary” doesn’t necessarily mean “lack of trust.”
