Financial Advisers Should Keep Prepping for Fiduciary World

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By Sean Forbes

Nov. 17 — The financial services industry is all abuzz about what the election of Donald Trump will mean for the Labor Department’s fiduciary rule. But any uncertainty the industry has about the future of the rule hasn’t stopped most advisers from continuing to prepare for it.

Momentum to ax the rule is building. Rep. Ann Wagner (R-Mo.) told the Wall Street Journal and in a Facebook post Nov. 14 that she’s “confident” that the rule will be nixed by Trump and Republicans in Congress. The House Education and the Workforce Committee also released a press statement this week reiterating its opposition to the rule. The rule, which the administration calls the conflict of interest rule, requires advisers to retirement investors to put their clients’ interests ahead of their own.

For now, the Securities and Exchange Commission’s uniform fiduciary standard for broker-dealers is also off the table. SEC Chairman Mary Jo White told lawmakers at a House Financial Services Committee Nov. 15 that the commission won’t have its proposal ready before she leaves office, which she earlier announced would happen before the end of President Barack Obama’s term. Several lawmakers have criticized the Labor Department for not coordinating its rule with the SEC.

Even if the DOL’s rule is repealed, the industry is heading toward a more conflict-free landscape, with a tighter alignment with the interests of the client, Rob Foregger, co-founder of Next Capital Management LLC in New York, told Bloomberg BNA.

The fiduciary rule is “an accelerant” driving change that’s inevitable, Foregger said. “The reason I think it’s important to continue with the rule is that I think without it that it takes another 10 years for the industry to align towards the fiduciary standard,” he said.

Scott Puritz, managing director for Rebalance Inc., a robo-adviser based in Palo Alto, Calif., and Bethesda, Md., told Bloomberg BNA that he leans toward the “optimistic camp” about the fate of the fiduciary rule, because the DOL has prompted the industry to move toward greater disclosure.

“When you spend any time in the wealth management industry and in personal finance, you will see that there are hidden fees all over the place with the exclusive intention of making sure consumers can’t make informed decisions,” Puritz said. “Hidden fees are disgraceful. And I’m very comfortable going on record saying that.”

Compliance Technology

The industry as a whole has poured hundreds of millions of dollars, if not north of $1 billion, into upgrading their technology systems and in training to get ready for compliance with the fiduciary rule, which requires advisers to put their clients’ interests ahead of their own.

That’s a lot of money to throw away if the rule is ultimately nullified, Tom Embrogno, chief information security officer, co-founder, Docupace Technologies Inc., Las Vegas, told Bloomberg BNA.

Docupace provides business software to broker-dealers, registered investment advisers and financial advisers to handle back-office books, records and SEC processing requirements. The firm also provides cybersecurity services to its clients.

Advisers who are expecting the rule to disappear have a few options when it comes to their technological compliance measures, Embrogno said:

  •  embrace more transparency and fiduciary responsibility, which would have a side benefit of a reduction in errors and omissions insurance;
  •  halt tech upgrades all together, which may make sense for broker-dealers who operate on narrow profit margins; or
  •  accept that greater controls on the financial advice industry are inevitable, in which case it may make sense to keep the system one has and revise it as needed for changes when they do appear.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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