Earlier this year the long-anticipated “Fiduciary Rule” was issued by the Department of Labor (DOL), greatly expanding the requirements on financial advisers to ensure the public is being properly served rather than being sold products. I have been advocating for the Securities and Exchange Commission and/or DOL to require that all advisers be obligated to their clients as a fiduciary for many, many years — appearing in articles as far back as 2012 and routinely meeting with leaders at brokerage and other financial firms urging them to adopt these client-centric principles ahead of the curve. Ultimately, I started a new firm in 2013 with the singular focus of working exclusively for the benefit of our clients.
The Financial Planning Coalition, comprised of the CFP Board, NAPFA, and FPA (I am a licensee and member of all three) worked tirelessly to inform Congress, the SEC and the DOL of the importance of the Fiduciary Rule in protecting financial-services clients, in opposition to a very powerful and monied Wall Street lobby. Wall Street’s position was that they could no longer profitably serve clients, particularly smaller clients, if they were required to act as fiduciaries.
In 2014, I became one of 30 founding members of the XY Planning Network. As a group, we agreed to each adopt service models and pricing structures at our individual firms that would enable anyone who needed advice from a CFP® to work with us, even if the client didn’t have substantial wealth already. The Network has grown from the original 30 to over 350 members in just two years and was cited in a DOL hearing as a model for the fact the firms could indeed serve the public as a fiduciary.
I am particularly fond of a comment posted on Twitter by Barry Ritholz that summarizes how to run a firm that serves as a fiduciary: “Do the right thing every day. Rinse, repeat.”
Founded as a fiduciary firm, the DOL ruling will have no impact on Precedent Asset Management or our clients beyond enhanced documentation of our recommendations surrounding retirement plans. Our fiduciary pledge to our clients can be reviewed at https://precedentam.com/fiduciary/.
How has Wall Street responded? SIFMA, FSI, and a number of other Wall Street member organizations have filed lawsuits to stop the implementation of the Fiduciary Rule. At the same time, firms that are not acting as fiduciaries already are scrambling to figure out how to implement the rules, and a surprising number of firms are throwing in the towel. Some have closed the doors on providing advice altogether, and others are merging or selling to larger Wall Street firms as they struggle to find a viable business model.
Eventually the dust will settle, the rules will be in place, and life will continue on. The experience of our friends in Britain, Australia and other countries that adopted these rules many years ago, indicates that investors will be well-served, and firms that prioritize client outcomes will continue to lead.