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The time is now for the investment industry to shed its shameless culture or pay a steep price


By Scott MacKillop | January 23, 2017

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Enough feeble excuses and convoluted rationalizations for delaying DOL rule.

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January 19, 2017 — 12:03 PM MST by Guest Columnist Scott MacKillop

They stab it with their steely knives,
but they just can’t kill the beast. — The Eagles, Hotel California

It’s a shameful sight.

For more than six years, forces within our industry fought tooth and nail to prevent enactment of the Department of Labor’s fiduciary rule. They failed. Then they filed numerous lawsuits intended to kill or delay implementation of the rule. So far, those have failed.

Now, with the advent of a new administration in Washington, they are lining up again to give it another try. See: A veteran securities lawyer takes contrarian stance that the DOL, when boiling its 1,000-page ‘rule’ down to 16 pages, lays bare a fatal flaw.

They have some powerful allies. The House Freedom Caucus, an influential coalition of Republican lawmakers, is urging the new administration to overturn the rule. See: Who’s afraid of Virginia Foxx and friends?

Maybe pro-DOL forces should be but no panic yet. Thomas Donahue, CEO of the U.S. Chamber of Commerce, said the Chamber is “already working” with the Trump administration to “undo” the rule. Anthony Scaramucci, a top Trump advisor, said of the rule, “We’re going to repeal it.” And Andrew Puzder, Trump’s nominee for Secretary of Labor, is not expected to be a supporter of the rule. See: Mum on DOL rule, Labor chief appointee Andy Puzder’s ‘check-the-box’ 401(k) plan at CKE Restaurants speaks volumes.

What’s shameful is that our industry’s mission is to guide clients to a secure financial future by growing and protecting their assets. The DOL rule merely requires us to put client interests before our own. What’s wrong with that?

Apparently a lot, according to opponents of the rule.

Chokehold or smokescreen

They argue it will be costly to implement — between $7 billion and $11 billion, according to the House Freedom Caucus. See: At MarketCounsel, a Ron Rhoades-Skip Schweiss exchange reveals new DOL-rule threat — a Trump-led compromise creating a mutant strain of the reg that benefits no one.

Second, according to the Chamber’s Donahue, it will “choke economic growth.”

Third, say anti-rule forces, it’s bad for financial advisors.

How bad? So bad that Scaramucci outrageously likened its discriminatory impact on advisors to the Supreme Court’s infamous Dred Scott decision, which held that African Americans weren’t citizens, in an interview with InvestmentNews.

Finally, opponents argue it will “make saving for retirement more difficult for hardworking Americans” (Donahue again).

Let’s look at these arguments one at a time.

Yes, implementing the rule will be expensive. But much of the cost will be a one-time charge associated with converting to the new rule. Even if the House Freedom Caucus numbers are correct, they pale in comparison to the $17 billion that the White House Council of Economic Advisors estimates investors lose every year to conflicted financial advice in retirement accounts. Anyone who truly cares about the financial well-being of hardworking Americans would see this as a worthwhile trade-off.

Donahue’s concern that the rule will “choke economic growth” is a smokescreen. The real concern is that the rule will prevent the industry from charging retirement plan clients high fees and offering them conflicted advice.

Certainly, the industry’s bottom line will suffer, but millions of workers will benefit. The people who earned the money will get to decide how to spend it. This will actually help the economy. See: Why Wall Street’s DOL killer threat — that ‘millions’ of IRA investors will go unadvised under new rules — is hogwash.

Beyond belief

The “bad-for-financial-advisors” argument would be laughable if it hadn’t been taken to a jaw- droppingly meretricious extreme by Scaramucci. Comparing the imposition of a fiduciary duty on advisors to the 1857 ruling that African Americans are not citizens is either delusional or cynical in the extreme on Scaramucci’s part. See: MarketCounsel Summit weathers Trump mayhem as Scaramucci and Priebus bail and Kellyanne Conway makes a night flight to Miami

Putting aside the patent absurdity of the analogy, the argument simply has no credibility when you consider that tens of thousands of registered investment advisors have lived quite nicely under a fiduciary duty standard since 1940. See: How many RIAs are there? No, seriously, how many?

The argument that truly is laughable, however, is that the rule will hamper the ability of lower and middle-income households to save for retirement. Where did this concern for the little guy come from all of a sudden? Why didn’t we hear a peep from the anti-rule forces as $17 billion evaporated from the retirement accounts of American workers every year? See: An attorney explains where the ‘trail goes cold’ in PBS’ ‘Retirement Gamble’.

Investors have spoken

The ultimate fate of the DOL’s fiduciary rule is unclear. There are lawsuits pending designed to stop it and the new administration has not disclosed its intentions. See: How the future of the 401(k) industry may hinge on the outcome of a lawsuit brought by Fidelity employees against their own company.

So we wait.

In the meantime, investors have already told us what the standard should be.

A 2015 CFP Board survey found nine out of 10 Americans agree — with 76% strongly agreeing — that financial advisors “should put the consumers’ interests ahead of theirs and…tell consumers up front about any conflicts of interest that could potentially influence the advice.”

A 2016 AARP survey echoes this sentiment. An overwhelming 88% of retirement account holders responding to the survey agreed that the best interest standard is important. See: Where RIABiz’s view of RIAs as oases-of-ethics bumps up against the Merrill Lynch & Co. mirage — and why that mirage is still so effective.

Yet investors do not have confidence financial advisors will put their interests first. The CFP Board survey found that 60% of respondents believe financial advisors act in their companies’ best interest rather than the consumers’ best interests. And 63% believe current laws do not do enough to protect consumers from being taken advantage of in the financial markets.

Welcome the future

Is it any wonder? In fiscal 2016 the SEC filed a record number of enforcement actions – 868 — including the most ever involving investment advisors and investment companies, while collecting more than $4 billion in penalties.

Not to be outdone, over the past several years FINRA brought between 1,300 and 1,600 disciplinary actions each year. It barred or suspended nearly 1,200 individuals and expelled or suspended
23 firms. It also referred over 700 fraud cases to other federal and state agencies for potential prosecution. See: A wider window opens on David Zier tragedy as Convergent is made to pay and FINRA and SEC make themselves scarce

The financial services industry has a trust issue. But rather than waiting for regulators and politicians to set standards for our behavior, let’s give clients what they want and take charge of the process ourselves. Let’s bring about a culture shift that will put the interests of our clients before our own, once and for all. See: Critic calls ‘laughable’ FSI study that shows only 14% of advisors want DOL rule to stay

It starts with an individual decision. Then it moves to conversations among colleagues. The next thing you know a firm’s leadership might even get involved. After that, who knows what might happen? Maybe the culture of an entire industry changes? Maybe clients begin to like us. Maybe they will even trust us? If they trust us, they might use more of our services and our businesses might grow.

We should welcome the fiduciary standard rather than fear it.

Scott MacKillop is CEO of First Ascent Asset Management, a Denver-based firm that provides investment management services to financial advisors and their clients. He is a 40-year veteran of the financial services industry. He can be reached at