The Labor Department’s fiduciary standard rule is as good as dead, Ron A. Rhoades, fiduciary law expert, told ThinkAdvisor in an interview.
The assistant finance professor at Alfred State and a leading proponent of the rule, Rhoades has been grieving ever since Feb. 3, when President Donald Trump directed the department to analyze the rule to determine if it should be delayed or repealed. On that day, Rhoades blogged that the action betrayed not only Trump voters but all consumers and that it will permit “Wall Street to financially rape the American people.”
Mr. Trump’s memorandum negatively impacts individuals and will eventually harm the overall American economy, Rhoades insists. The only hope of putting a fiduciary rule in place is a change of administrations, he stresses.
Nevertheless, the longtime lobbyist to Congress on financial planner and investment advisor issues, and a leader of the Committee for the Fiduciary Standard, is continuing the fight for folks to be assured of obtaining investment advice that is in their best interest.
In the interview, Rhoades, a Certified Financial Planner and director of financial planning at Alfred, in Bowling Green, Kentucky, discusses the challenges faced by advocates of the DOL rule – which addresses FAs advising retirement accounts – in view of the new administration’s anti-regulatory stance.
Before co-founding an investment advisory firm, Rhoades was a business and estate planning attorney for 30 years. About six years ago, he began teaching and opened a small solo fee-only practice.
ThinkAdvisor recently talked by phone with the popular speaker, who appears at conferences held by firms and groups such as TD Ameritrade, the Certified Financial Planner Board of Standards and NAPFA (National Association of Personal Financial Advisors).
Fun fact: The professor worked his way through college performing as a variety of Walt Disney characters — from Goofy to Winnie the Pooh to The Big Bad Wolf — at Disney World in Florida and on road shows. He brings some of these colorful experiences into the classroom, where, he says, all his students are planning, upon graduation, to become fee-only advisors. Here are highlights of our conversation:
THINKADVISOR: You blogged that Feb. 3, 2017, was “Black Friday.” That’s when President Trump issued a memorandum to the Labor Department to analyze the fiduciary standard rule to see if it should be delayed or rescinded. Why was that a dark day?
RON RHOADES: Ever since President Trump was elected, I’ve had a real strong feeling that the rule would be killed, and I still have that opinion. Of course, he could somehow see the wisdom of the rule. But surrounded by Wall Street insiders who seek to protect the sell-side institutions, I don’t see how that will occur. What’s “the wisdom of the rule”?
It’s a win-win-win — good for individual Americans, good for advisors who were willing to be trusted advisors and good for the American economy. The only losers, in the short term, are the manufacturers of expensive investment products and the intermediaries who promote their sale.
What are the chances of the rule’s being watered down?
There’s a real danger of that, and [if so], you won’t recognize fiduciary for what it is. I hope the legal community rises up if they try to redefine a fiduciary. But it’s tough to be on the defensive after you’ve been on the offensive for years trying to get a strong rule through – and then there’s a change in administrations, and you’re playing a different game.
What do you think the future holds for the rule?
Four years from now, in all likelihood, we’ll have another shot at it. Given the fact that the current rule has been upheld by three courts, we have a foundation of getting it in place in the next administration pretty quickly. It’s not going to be a six-year process again, like it was this time.
Are consumers disappointed about what’s happening to the rule?
I doubt if they realize that President Trump just substantially impaired the retirement hopes and dreams of hundreds of millions of Americans. People don’t understand that what happens with the fiduciary rule is going to affect their future in retirement — whether they’ll live in a trailer or a nice house.
So, it appears that consumers are uneducated when it comes to fiduciary.
Most [who have a broker] don’t know they’re in an arms-linked relationship: They think they’re getting advice, when in fact their “financial advisor,” “wealth manager” or “financial planner” is selling a product. They expect they’re receiving advice in their best interest. Unfortunately, the majority of the time, that doesn’t happen.
What’s the matter with selling product?
When a firm is pressuring you to sell certain products that make the firm or you more money, over time those economic incentives are going to affect your judgement, and you’ll succumb to that temptation. The fiduciary rule is designed to eliminate conflicts of interest, to the extent possible, by levelizing compensation and removing those incentives.
How naïve are most clients about fees?
About a fourth to a third of [brokerage] clients believe that their broker doesn’t charge them anything. Nearly all the rest have no idea that, when they’re sold highly expensive products, the total fees and costs they’re paying often amount to 2% or more a year, and 4% or more for products such as variable annuities.