DOL's Latest Lame Duck

News Flash, more regulation. March of 2017 RR's and RIA's are legally liable for mutual fund losses for qualified IRA monies unless their is undeniable proof that (said investment) choice was THE best and ONLY option for the client, which is never the case because there are literally millions of investment choices available. You heard right, RR's literally will have to pick up the tab. It is called the DOL new fiduciary rule. Barry Obama has promised to exercise executive action to implement it unless time runs out.

What’s even better is that whether the clients "best interests" where at heart are left to the discretion and decision making process of the... CLIENT. Lawyers will have a field day suing advisors who should have known that 2008 was going to happen! It is just another attempt by the leffff..... blah blah blah.

Point is, state farm last week just announced their reps no longer have a book of MF accounts. That AUM was stolen from their reps, surrendered. Imagine selling your 500MM book of business for nothing, or should I say handing it over. The company wants nothing to do with the liability of potential losses or strike-suit lawsuits. The definition of Fiduciary has just become a new mandate that reps must never experience losses or face certain guilt in a case of fraud and manipulation for their own benefit. You have to love the full comprehension of the financial services industry by the current administration.

 

The only way to react to this is with sarcasm so I commend you. Our industry exists for one reason only, to service our clients ethically and morally by growing their assets as much as legally permissible. Anyone in securities who disputes that deserves to be oust.

As you could tell my point was a condescending one as well. If the DOL really wanted to fix the problem, they would have acted in a more productive and positive manner and actually worked WITH, not against advisors.

 

You think this will change the 401K investments available too? I am curious how this will affect that aspect because most corporate sponsored 401K plans I've seen rely heavily on Mutual Funds.

 
Best Response

most of the changes in the 401k space have happened imo. we have a team in our office that is our region's biggest 401k team, and the way they described it was basically having to be a loss leader to get access to more profitable areas of the company (equity compensation, executive financial services, wealth management for C suite). plus they already have to operate as a fiduciary, so I don't know that their world will change much.

it wouldn't shock me if they had to justify their fund lineups, but more often than not when I see a client's fund lineups its the usual suspects: BlackRock, fido, and vanguard. the only litigation potential is if they gave the client a share class that was more expensive than they would've otherwise qualified for. mutual funds will continue to be the vehicle of choice for 401ks I think, I can see issues with HFT getting into ETFs for big company's payroll dates and front running trades.

my biggest question is what happens to people who are at fidelity, etrade, scottrade with their IRA accounts? they clearly don't want to use an advisor, but the custodian of their IRA has to operate as a fiduciary under this new rule. what happens there? we will have to tell a handful of clients to take their accts elsewhere because they fall into this group, but I wonder if their experience would be any better...

I see this law eliminating a lot of bad apples from the industry (firms and advisors), but I also see a great potential for unintended negative consequences. the overwhelming majority of WSJ comments I see on articles about this rule express the feeling: "keep the gummint outta my investments!"

 

You note that most 401k changes have already happened. Structural allocation changes? Or just more book keeping for the sake of liability protection? Thinkadvisors.com did a study last month portraying how Independent broker dealers are sweating big time. Increased HR and fee based only platforms will heavily be eating them away.

Your second paragraph is on point. The fiduciary breakdown WILL make those accounts now have unlimited temptation to be labeled, "Substandard Management" in the case of any downside. Therefore launching problems at these Asset Management funds across the board. Whether or not these lawsuits stick is irrelevant, DOL wants nothing more than the oversight and scare tactic in their favor.

 

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