Dick Lampen, chair of the Financial Services Institute’s board of directors, set the tone for FSI’s OneVoice conference Monday by saying “I have to compliment the new administration” for its willingness to revisit the Department of Labor’s fiduciary rule. While lauding the rule’s intent — “we share the same goals” as DOL — the president and CEO of Ladenburg Thalmann said of the rule: “The mechanics don’t work,” and that FSI will “work to vacate this destructive rule.”
The president and CEO of FSI, Dale Brown, followed Lampen’s lead at the opening session of the conference in San Francisco by disclosing that “over the last few months, we’ve had multiple conversations with the Trump transition team.” Brown characterized the memo sent Friday by White House Chief of Staff Reince Priebus to freeze any new or pending regulations as the “first step to delay the rule,” though he was quick to say the freeze was not specifically directed at the DOL rule (freezing regulations to allow a review of them is standard practice for a new administration).
But Brown said that there was “not enough certainty” that the rule would be delayed or repealed for independent broker-dealers to “slow down your compliance efforts.” He proclaimed to the audience of independent broker-dealer executives that “we’re committed to adopting the fiduciary rule for all financial advisors, but this is the wrong rule.”
In a media briefing early Tuesday, Brown and other staff members of FSI addressed the DOL rule in the context of the group’s growth and advocacy successes on both the federal and state levels.
First, Brown disclosed that “once we were clear as to the election’s results,” FSI reached out to Trump transition team members. In what he characterized as a number of significant meetings with Trump officials — it wasn’t the case of having “one conversation in an elevator” with a lower-level staffer, he said — the FSI received a clear message.
“They understand the critical importance of this issue,” Brown said of the Trump team, and of the DOL fiduciary rule’s “critical impact on access to advice” and preserving “client choice,” particularly for “Main Street investors.”
Brown said that FSI has been “pursuing parallel tracks” regarding the rule: advocacy, including the IBD group’s decision to challenge the DOL fiduciary rule in court, and to be a “critical resource to our members as they prepare to comply” with the rule. FSI’s suite of tools to help comply with the rule, Brown reported, has shown “extremely high subscription” levels.
In response to a reporter’s question on what, exactly, FSI was advocating, Brown said that the “critical first step” would be that the administration “must delay the April 10 deadline” to allow it to “come up with a workable alternative.” The Securities and Exchange Commission, Brown said, is the proper agency to “create a uniform fiduciary standard.” As for the SEC itself, which will be gaining a new chair under the Trump administration, “we think Capitol Hill will give the SEC more direction,” Brown predicted.
In addition, Brown said the FSI’s joint lawsuit against the rule “is still pending; we’re expecting a decision any day. Victory there would be the most efficient way” to vacate the rule. If the rule is “not delayed, the loser,” Brown said, “will be Main Street America.”
As for the group’s accomplishments in 2016, Brown said FSI had experienced “significant membership growth” to 40,000 individual members, added 17 firms as members and an additional three firm members so far in January. “This is not accidental growth, but intentional,” Brown said, since 2016 was the first in a five-year strategic plan for the group. The membership growth, he said, represented a “‘huge vote of confidence” in FSI and reflected “the impact we have” in advocating for members.
Lampen concurred, calling FSI “the voice, the public face of our industry.” FSI, he said, deals with issues “affecting the financial services industry as a whole,” and said the DOL fiduciary area is one where FSI has assumed a leadership role. Lampen said that despite FSI’s member firms having diverse business models, “the common element is we support all independent financial advisors,” serving mass affluent Americans who fly ”below the radar of the regional and wirehouse firms.” Lampen argued in the press conference that “no responsible person opposes the goals” of the DOL fiduciary rule, but with “50% of all IRA accounts holding less than $50,000, you can’t service them on a fee basis. It’s not in their best interest to be charged an assets-under-management fee rather than buying a target date fund with a one-time commission.” The DOL rule “limits access to financial advice,” but the other major issue with the rule from his perspective — and the FSI’s — is that attractive-sounding principles like requiring advisors to operate in “the best interest of their clients” are ill defined, and that “the private bar will determine what ‘reasonable compensation’ is.”
Vice Chair Dean Harman, who will become next year the second financial advisor to chair the FSI Board, sais that “since we opposed the DOL rule,” which Harmon himself argued against in congressional testimony, “it’s important to shape a workable uniform fiduciary standard.”
Harman said that in his Houston-based practice, “95% of my business is fees, but I have many clients who have small accounts.” Should the DOL rule be implemented as currently written, those “lower account” clients are “the ones we’ll have to walk away from.” Losing professional advice on retirement accounts would be particularly damaging to those clients, Harman said, since it would make it more likely that those investors might abandon their optimal strategies without an advisor to help them understand market cycles. “Investors will abandon a (good) strategy every 12 to 18 to 36 months,” said Harman, “if that strategy happens not to be in favor.”
General counsel David Bellaire said that like Brown, he is suffering from DOL fiduciary rule fatigue, pointing out that “this is the seventh year we’ve been working on the issue.” He said that FSI’s opposition to the rule has been “effective at every stage” of the rule’s process,” and said that as the group’s membership grows, “we have more firepower.”
Among FSI’s accomplishments in 2016, Bellaire listed its work with the Financial Industry Regulatory Authority on the arbitration process, its efforts to “encourage cities and states” not to enact state-run retirement plans and retain the “benefits of ERISA for workers…we derailed 13 state plans,” its encouragement of financial literacy and building protections against elderly financial abuse.
As a final comment on politics and advocacy, Bellaire suggested that FSI may well be focusing its efforts on approaching the Democratic senators hailing from states where Donald Trump won who are up for re-election in 2018.
— Check out If DOL Fiduciary Gets Delayed, Seize the Moment: FSI’s Brown on ThinkAdvisor.