fi360 Blog

Fiduciary Links: The effect of mainstream media coverage of the fiduciary debate

On the front page of the New York Times' Business section last week was an article about the fiduciary debate in reform. The article isn't anything new for anyone following this blog. It asks the same questions about whether or not brokers are trusted advisors or sales people. While the coverage doesn't make more stringent reform any more likely, what it does do is continue to expose the issue to a broader audience. 

The most significant finding in the RAND Report on adviser vs. broker-dealer regulation is investor confusion. While it seems less likely that reform is going to do anything to clear up that confusion, more coverage of the debate itself, along with coverage of the scandals of the past few years probably does go a long way in arming investors with some insight into the types of questions they should be asking related to compensation, fees, conflicts of interest, etc.

As long as the differentiator between regulatory standards isn't whether advice is involved, confusion is bound to exist. But pressure to meet the demands of the market could be just what is needed to change the culture of the industry. Absent a change in momentum towards the legislation of the fiduciary standard, continued coverage of the debate along with education by advocacy groups and leadership from the professional organizations will continue to drive progress towards the professionalization of financial advice.

Now on to the rest of the best links from the last week.

In the news/commentary: 

• Our own Kristina Fuasti was part of a recent regulatory roundtable to discuss regulatory reform and the fiduciary standard [Financial Planning]
• The cost of owning a mutual fund isn't always so transparent [WSJ]
• Jason Zweig says investors lose in the reform bill expected from Dodd [WSJ]
• This is a couple of years old already, but still worth watching. Chris Hansen uses his trademark hidden camera treatment on unscrupulous products sales people [MSNBC]
• Advisors with nothing to hide shouldn't have a problem with disclosure [Transitions]
• Fiduciary Benchmarks thinks investors are better prepared for retirement than they think and have a new tool that let's them check [Reuters]
• The good news: regulatory reform bill seems more likely than ever. The bad news: the bar has been lowered. [CBS]

From the organizations/associations/government/academia:

• We are doing a webinar this week on the different types of fiduciaries. Two experts from our membership and our COO will discuss under what circumstances an advisor would want to act as an ERISA 3(21) or 3(38) fiduciary, or as a non-ERISA fiduciary, what this means for your business model and how to market the distinction. [fi360]

From the blogs:

• Differentiating better business practices from trust [WSJ's Financial Adviser]
• Mercer Bullard says the new investment advice rule will promote objective advice [NYT's Bucks Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Investment advice rules finally arrive

Nearly three and half years after the Pension Protection Act became law, and after the first set of related investment advice laws were thrown out by the incoming Obama administration, new rules were finally released on Friday. The intent of the rules is to ensure 401(k) participants can receive unbiased advice. To accomplish this, the rules call for the advice to be either level-fee or based on a computer model that meets certain criteria.  The immediate reaction as reported by InvestmentNews is that the rules will certainly have a dramatic effect on the way the 401(k) advice industry does business. Supporters of the rules say that conflicted advice can be worse than no advice at all and welcome the changes, while opponents believe the new rules will lead to much of the industry staying out of the advice business altogether, leaving 401(k) participants as vulnerable as ever.

The proposed rules will be available on the Federal Register this week, with a public comment period lasting until the first week of May. Fi360 will have our thoughts on the proposed rules available here on the blog later this week.

Now on to the rest of the best links from the last week.

In the news/commentary:

• We knew it was coming, but the release this week of Dodd's reform bill is expected to include the Johnson amendment [InvestmentNews]
• The Committee for the Fiduciary Standard begins the fight against Johnson's amendment [Financial-Planning]
• Blaine's Fiduciary Corner column on 12b-1 fees from nearly two months ago continues to draw reaction [InvestmentNews]
• The Andy Rice, AIF, column on Roth IRA conversion also gets challenged [InvestmentNews] 
• IAA lobbyist Neil Simon explains the current state of the fiduciary debate in reform and what pro-fiduciary proponents can still do to educate lawmakers [RIABiz]
• Don Trone lists seven traits for being a leader as a financial advisor [RIABiz]

From the organizations/associations/government/academia:

• SEC Commissioner Elisse Walter addresses regulation harmonization in a speech at the IAA Compliance Conference, among other topics. Included in her speech was support of the "fiduciary pledge" idea from the New York Times two weeks ago. [SEC]
•  The Investment Advice rules announced by the DOL coincided with the announcement of an annual report by the White House's Middle Class Task Force, which included the rules as part of a broader section on improving retirement security [White House]

From the blogs:

• Sheryl Garrett, AIF, uses a case study to demonstrate why the fiduciary standard matters [The Motley Fool]
• Roger Wohlner looks at target date fund composition using the fi360 Toolkits [Chicago Financial Planner]
• After years of accumulating assets, even more questions arise once an investor nears retirement [The Investment Fiduciary] 
• Kate McBride wonders why a study is needed to determine the needs of investors should be put placed first by advisors [Wealth Manager Web]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: More on the Johnson amendment

The news of Sen. Tim Johnson's proposed amendment for a study on regulatory standards for investment advice, rather than actually enacting a standard, has predictably led to strong reactions. I don't typically like to lead off the Fiduciary Links with the same subject two weeks in a row, but with this being the dominant story from the past week, it seemed like it deserved its own category:

• Advisor, financial-planning and consumer groups quickly lined up in opposition [InvestmentNews]
• If the Johnson amendment stays, does it open the door to adviser regulation from FINRA? [RIABiz]
• Is the Johnson bill a negotiating tactic? [Registered Rep]
• Bob Clarke says that the bright side to the amendment is that it shows the brokerage and insurance industries are legitimately worried that a fiduciary standard is coming. [Investment Advisor]
• Looking at the Johnson amendment and the difficult fight over a fiduciary standard [New York Times]
• Kate McBride laments the fact that putting investors' best interests first needs to be studied [Wealth Manager Web]

And, if you missed Kristina's post from last week, you can see why we think the amendment is bad for investors. We would encourage you to let Johnson and the rest of the Senate Banking Committee know what you think as well.

Now on to the rest of the best links from the last week.

In the news/commentary:

• Despite the guarantee, annuities aren't always a bargain [Wall Street Journal]
• A new financial reform bill is due from Dodd this week [Wall Street Journal]
• Target date fund transparency on the SEC and DOL's to-do list [Financial Advisor]
• A look at how fees impact 401(k) plan results [Financial Advisor]

From the organizations/associations/government/academia:

• The SEC's Investor Advisory Committee is meeting today, and their agenda includes a discussion of the fiduciary standard [SEC]

From the blogs:

• The Curious Capitalist thinks proactive measures are needed on top of a fiduciary standard in regulatory reform. [Time]
• The Bucks Blog presents a fiduciary pledge investors should ask their advisors to sign [New York Times]
• The Committee for the Fiduciary Standard's Knut Rostad talks about how most brokers want a fiduciary standard and already conducts themselves as if there was one. [Wall Street Journal]
• The number one hope for upcoming DOL 401(k) advice regulations: conflict-free advice [The 401(k) Fiduciary Advice Blog]
• A look at a 401(k) plan that exemplifies the need for regulatory reform [Huffington Post]
• A blogger suggests tying compensation to performance to address concerns about broker motives. However, he seems to miss the point that a fiduciary duty is about process. [The Atlantic]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: The lobbying efforts against the fiduciary standard are working

Bloomberg reported last week that a new proposal for regulatory reform from Sen. Tim Johnson (Dem.-S.D.) would include an SEC study on if a fiduciary standard is needed, rather than actually including the fiduciary standard itself. This comes just a week after a joint effort by various consumer groups warned that such a tactic was possible and urged Congress to resist.

Further study isn’t needed to determine whether the fiduciary standard is better for advice-seeking investors – it undeniably is. The only reason to study the issue is to determine whether investors’ interests should be compromised for the interest of financial service firms to maximize profits and minimize the cost of compliance. It is also worth noting that the SEC has in effect already studied the issue and reached their conclusion. When the Rand Report on investor perception of advisors came out, it led to SEC Commissioners concluding that advisors and brokers should be regulated according to what they do, not what they call themselves, including extending the fiduciary standard of the Investment Advisers Act to all who give advice, as originally intended by the legislation.

The news of Mr. Johnson's proposal is discouraging at best, as it is clear that powerful brokerage, insurance and banking lobbies are all too effective in pushing the issue back far enough that they hope everyone will forget about it. If you would like to let Mr. Johnson know what you think of his proposal, you can contact him via his web site: http://johnson.senate.gov/contact/

Now on to the rest of the best links from the last week.

In the news/commentary:

• Surprise SEC custody audits has advisers reconsidering whether they want custody.  [InvestmentNews]
• Robert Powell looks at DOL's request for information on annuities for 401(k) plans [MarketWatch]
• Editorial: "the markets themselves don't exist to serve the intermediaries, nor should they be so regulated." [InvestmentNews]
• Non-profit board members have fiduciary responsibility [Redding.com]
• Risk and regulation among the hot topics at TD Ameritrade Institutional Conference [Financial Advisor]

From the organizations/associations/government/academia:

• Fi360 recently participated in a podcast on what the fiduciary standard means for an advisor's practice [CFA Institute]
• The latest Reish bulletin looks at what's on the plate of regulators for 2010 [Reish & Reicher]

From the blogs:

• Congratulations to Carl Richards of Behavior Gap, who recently began bloggin on the Bucks Blog of the New York Times. [Behavior Gap]
• A look at one of 2009's biggest fiduciary stories, the DOL's decision to pull back 401(k) participant advice rules, and what we might expect from new rules expected out this month. [Fiduciary News] 
• A look at some of the potential issues in requiring annuities as a 401(k) option [Chicago Financial Planner]
• Investment risk means more than just volatility [The Investment Fiduciary]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Thinking through a Roth IRA conversion

Beginning this year, most investors can now convert traditional IRAs to Roth IRAs. The conversion could make sense for affluent investors, who anticipate their tax rates will only go up from where they are now. But the factors aren't that simple for many investors, or for fiduciaries who are advising on the decision. In his Other Voices column for InvestmentNews, AIF designee Andy Rice takes a look at many of the factors that a fiduciary needs to consider before making a recommendation for their client.

Also related to Roth retirement plans, there has been recent lobbying for Roth conversions to be allowed for 401(k) plans and the Obama administration last week endorsed Roth IRAs as the default option for automatic enrollment plans.

With the decision of whether to tax now or tax later on retirement assets having such a big impact on what investors will be able to withdraw, fiduciaries should be familiarizing with the benefits and risk of Roth plans and a process for determining what works best for each of their clients.

Note: Andy's article is an entrant in the fi360 member article competition. You can leave feedback on entered articles from our website. And, if you are an AIF/AIFA designee who has written an article in the past year and would like more information on entering it into the competition, log in to the designee portal for more information or email resources@fi360.com.

Now on to the rest of the best links from the last week.

In the news/commentary:

• Survey shows that brokers think a fiduciary standard will not be implemented for advice [Registered Rep]
• Another look at the same study though, finds that advisors believe the fiduciary standard would be beneficial for their profession [Financial Planning]
• Expect the new 401(k) investment advice rules related to the Pension Protection Act to come out soon. [InvestmentNews]
• Scapiro says the SEC will examine 12b-1 fees this year [InvestmentNews]

From the organizations/associations/government/academia:

• A study shows that many plan sponsors are facing challenges in compliance with new 403(b) regulations [TIAA-CREF]
• Regulators are seeking comment on the use of annuities in retirement plans [DOL]
• Consumer group worries that the brokerage and insurance lobbies will be successful in weakening currently proposed fiduciary standard from regulatory reform. You can also listen to their news conference. [NASAA]

From the blogs:

• A look at the potential fiduciary issues associated with using ETFs in retirement plans [Fiduciary News]
• A look at how arms-length contracts can become fiduciary relationships via the Mark Cuban insider trading case [Business Law Prof Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Principles for a stronger profession

In her opinion piece from last week, Deena Katz looks at the five core principles of The Committee for the Fiduciary Standard and asks, "who could argue against them?"

The financial advice industry is still young compared to the classic professions of medicine, law, clergy, etc. Growing pains are a part of the confusion as to who is a fiduciary and what that means in this context. But they are not an excuse to point fingers or to look for loopholes. Through a look back at her experience growing up the industry, Ms. Katz urges advisors to look past their differences and pull together in support of a stronger profession based on principles.

Now on to the rest of the best links from the last week.

In the news/commentary:

• Financial Planning Coalition has scaled back their goals for regulatory reform [InvestmentNews]
• But the Coalition promises to continue the fight [WSJ Financial Adviser Blog]
• More state oversight of RIAs would mean more Ponzi schemes [InvestmentNews]
• SEC to use external auditors for fraud detection [InvestmentNews]
• New benchmark built for retirement income management [InvestmentNews]
• New bill would require DC plan statements to include monthly payments,  may boost annuity sales [Registered Rep]
• Don Trone looks at the basics of the fiduciary process [Financial Planning]
• Seven reasons for wirehouses to change their model [RIABiz]
• Proposed bill would requre proxy vote disclosure [Bank Investment Consultant]
• Advisors should pull together in support of a stronger profession based on principles [Financial Planning]
• Brokers fear the unknown of new regulation [InvestmentNews]

From the organizations/associations/government/academia:

• A new study shows automatic enrollment has also led to higher match rates from sponsors [Employee Benefit Research Institute]
• New members appointed to DOL's ERISA Advisory Council [DOL]
• Labor Secretary Solis to testify before Education and Labor Committee [House Committee on Education and Labor]
• SEC approved new money market regulations [SEC]

From the blogs:

• Uncertainty in the Senate not expected to change fiduciary standard in regulatory reform [WSJ Financial Adviser Blog]
• Are property appraisers fiduciaries? No, but an interesting thought. [The Personal Property Appraisers Post]
• An ERISA attorney's look at the Supreme Court decision not to hear the Hecker v. Deere case [Boston ERISA and Insurance Litigation Blog]
• Being proactive with transparency doesn't always work in your favor [Pension Risk Matters]
• A look at the studies that found advice improves participant outcomes with some personal experience mixed in. [401(k) Fiduciary Advice Blog]
• Another look at the studies indicating that advice helps participants [NYT Bucks Blog]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Bogle's plan for restoring the faith of investors

When John Bogle speaks, we all should listen. In an opinion column last week in the Wall Street Journal, Bogle said, "the faith of investors has been betrayed." Betrayed by an industry that has failed to act as good stewards to the investors they serve and has placed short term returns over long-term value. To restore this faith, he calls for the legislation of fiduciary principles and policies to reward longer term investing.

Mr. Bogle's logic is so typically well reasoned and principled that it is hard to believe anyone could argue with him. But another spin around the headlines continues to show just how much of a role lobbying, politics and posturing is playing in financial regulatory reform.

Now on to the rest of the best links from the last week.

In the news/commentary:

• Sallie Krawcheck also has some suggestions for restoring investor faith [InvestmentNews]
• Everyone could use investment advice, the trick is figuring out how much you need, and how much it costs. [NYT]
• Conflict-free advice is among the changes needed to improve 401(k) plans, according to TIAA-CREF CEO Roger Ferguson [USA Today]
• Fee disclosure, target-date reform, fiduciary standard among reform to expect regardless of if Congress can enact large-scale reform [MarketWatch]
• Possible enactment of a more stringent fiduciary standard should be unaffected by Senate shakeup [WSJ]
• More fiduciary protections related to target date funds needed to fix DC retirement [Financial Times]
• A group of insurance organizations is pushing for a study into broker regulation, a move which some believe is designed to put off passage of reform [InvestmentNews]
• Supreme Court decides not to review Deere fee case [InvestmentNews]
• A call for fee transparency from Silicon Valley [Mercury News]
• Canadian media looks into the fiduciary debate occurring in the U.S. and Australia [The Star]

From the organizations/associations/government/academia:

• SEC Chairman Mary Schapiro outlines in a speech legal and regulatory goals for addressing a financial landscape that has changed drastically in the last 20 years [SEC]
• FINRA arbitration cases soared in 2009, led by breach of fiduciary duty claims [FINRA]
• The Western Michigan Fiduciary Forum, founded by AIF designees and friends of fi360, has proven successful and gained some attention for itself. [The 401(k) Fiduciary Advice Blog]
• BrightScope launches a 401(k) fee evaluation tool for plan participants [BrightScope Blog]

From the blogs:

• Goldman Sachs's Blankfein's support of a fiduciary standard is big news [WealthManagerWeb]
• A shift in thinking is occurring where not considering SRI factors, such as climate change, would be a potential fiduciary breach [Volans]
• FiduciaryNews last week talked to BrightScope about their news fee report and looked at the fall of target date funds as one of the top stories in '09 [FiduciaryNews]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: In support of the Senate reform bill

Last Monday, the Financial Planning Coalition, Consumer Federation of America, North American Securities Administrators Association, Fund Democracy, and Investment Adviser Association wrote a letter in support of the Senate Banking Committee's regulatory reform bill, which would hold anyone who gives advice to a fiduciary standard by closing loopholes to the Investment Advisers Act.

Along with their role in the letter of support, the Consumer Federation of America also released a must read myth-fact sheet on the reform bill, addressing misconceptions that a fiduciary standard would end the brokerage business model, would limit product availability, and more. It is a great look at how the bill is designed to ensure advice is given under a fiduciary standard.

Also last week, both the CEO of Goldman Sachs, Lloyd Blankfein, and SEC Chairman Mary Schapiro threw their support behind the fiduciary standard in testimony to the Financial Crisis Inquiry Committe, with Blankfein saying, "The advice-giving functions of brokers who work with investors have become similar to that of investment advisors. But, investors may not understand that the person they are getting advice from may be regulated under different rules and regulations"

Now on to the rest of the best links from the last week.

In the news/commentary:

• 401(k) automatic enrollment has had some unintended negative consequences, and it is being covered in consumer media [USA Today]
• In another story on negative consequences to otherwise good news, as 401(k) account balances recover, the less vocal the call for reform [LA Times]
• Shelly Banjo highlights firms that are getting ahead of the curb in preparing for a fiduciary future [WSJ]
• Mutual fund industry watching fee lawsuits with great interest [Financial Times]
• Bob Clark has nice things to say about fi360 and The Committee for the Fiduciary Standard [Investment Advisor]

From the organizations/associations/government/academia:

• Our friend Tom Kmak of Fiduciary Benchmarks says Americans are more prepared for retirement than you'd think [Portfolio]

From the blogs:

• A good fiduciary blog debates a name switch [The Investment Fiduciary]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Dodd's legacy to be a fiduciary standard?

The biggest story from last week in regards to regulatory reform is the news that Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is retiring at the end of his current term. As one of the architects of the Senate's financial regulatory reform bill, this has raised a number of questions about the affect his lame duck status will have on the legislation, which still has a ways to go before becoming law. Without reelection to worry about, he is certainly more free to act without regard to his political future. The question now is, which direction does that free him to move towards?

One sentiment says that he will seek to reward longtime supporters of his from the hedge fund and insurance company industries by influencing legislation to be more friendly to their interests. Another says that his influence is diminished by his decision and that makes consumer-friendly reform less likely. However, the most optimistic theory is that, freed from outside influence, Dodd will be able to concentrate even harder on pushing a bill that is for the best interests of investors, including a stricter fiduciary standard. We can't think of a better parting gift he could leave as his lasting legacy.

Now on to the rest of the best links from the last week.

In the news/commentary:

• Fred Reish looks at the fiduciary's duty to remove investments [PlanSponsor]
• InvestmentNews weighs the winners and losers of Dodd's retirement [InvestmentNews]
• Proposed legislation would make QDIA manager's act as fiduciaries [InvestmentNews]
• Kristina appears on a podcast addressing fiduciary duties for brokers under regulatory reform [Employee Benefit Adviser]
• Daily Finance has two stories of similar cases of John Hancock and Merrill Lynch arguing in court they are not fiduciaries despite marketing that suggests otherwise [Daily Finance]
• Some firms already preparing for a fiduciary future [Wall Street Journal]
• If InvestmentNews' 2010 Outlook comes to fruition, this will be a very good year for fiduciary standards. Make sure to check out the slideshow. [InvestmentNews]
• An article from two of our AIFA designees helps prepare plan sponsors for DoL examinations [PlanSponsor]

From the organizations/associations/government/academia:

• A new poll of nonprofit investment committees places liquidity issues and defining fiduciary roles among highest priorities for 2010 [SEI Institutions]

From the blogs:

• Do the events of the '00s mean an end to passive investing? [Fiduciary News]

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.

Fiduciary Links: Welcome to 2010

Welcome to the first week of a new decade. A short holiday week obviously means few developments on the fiduciary front, but the new year and new decade does bring out a lot of looking back and looking forward columns from around the industry, as you'll see in this week's links. Hopefully the decision makers take notice in the almost universal call for meaningful reform for the benefit of investors above all else.

On to the best links from the last week of 2009:

In the news/commentary:

• This year's Financial-Planning magazine's Movers and Shakers list features some familiar names: 2007 fi360 Conference speaker and Behavior Gap founder Carl Richards, and our founder, Don Trone
  
• The SEC has begun randomly contacting advisor clients to verify the nature of relationships and verify asset custody.
• Bob Clark sets his sights on the CFP Board saying they've passed on the opportunity to elevate financial planning to a profession.
• Fiduciary responsibility, a new regulator and more make the list of changes to look for in the '10s.
• 2010 will feature a lot of discussion on mutual fund fees.
• Kate McBride sees 2010 as the year of reform, again.
  

From the organizations/associations/government/academia:

• Our friends at Brightscope get featured in BusinessWeek.

From the blogs:

• Shelly Banjo of the Wall Street Journal and Veronica Dagher from Dow Jones discuss how advisers are preparing for 2010 and what a higher fiduciary standard could mean for advisory practices in their video post on WSJ's Financial Adviser blog.
• Roger Wohlner hopes 2010 will be the year of the fiduciary in his new year wish list.
• Due diligence on hedge funds show that close to half have legal or regulatory problems and a quarter misrepresent themselves.

Have a link we missed? Leave them in the comments section or email us at blog@fi360.com. For more of the best links during the week, make sure you follow us on Twitter.