June 12, 2017

Embrace the fiduciary rule

Christopher P. Provo

I am writing in response to the article "Avoid the Fiduciary Rule" by Nichols College Professor Christine Beaudin and Robert Kuppenheimer in the May 15 edition of the WBJ. In my opinion, the article fails to properly distinguish between investment advisors and investment advisor representatives, who already act with a fiduciary standard, and brokers or registered representatives, who they refer to as "advisors" in the article. Clarification of various roles and impact of the rule is necessary. I have clarified five points made in the article.

Investment advisors and investment advisor representatives currently are required to abide by the fiduciary standard imposed by the new U.S. Department of Labor proposed regulations that will affect brokers and registered representatives, thus many of these advisors will remain unaffected. Currently, brokers and registered representatives are held to a different standard. Brokers' recommendations must be suitable at the point of sale, but they are not under an obligation to provide ongoing investment advice. Typically, monitoring the investment falls on the client, not the broker. Clients typically pay a commission for each transaction.

Conversely, investment advisors must abide by the fiduciary standard which requires them to work in the best interest of the client. Advisors are fully accountable to provide ongoing advice regarding the investment holdings for as long as the client remains with the advisor and investors generally pay an ongoing asset-based fee for this level of advice.

1. The article explicitly states that President Trump's delay of the implementation of the regulations are encouraging. The new proposed rules will require brokers and registered representatives to be transparent and forthcoming with respect to fees and act in the best interest of their clients. Investment advisors are already fiduciaries.

2. The article argues that the new regulations are already practiced on a large scale. The new proposed rules will, for the first time, require brokers and registered representatives to be transparent and forthcoming with respect to fees.

3. The article states "additional costs assumed by the advisors will likely be passed along to the consumer." The costs to clients using fee-based advisors are not likely to change or increase as a result of the regulation. Brokers are paid via sales commissions, which are already being reduced industry-wide due to the proposed DOL changes.

4. & 5. Calling the Department of Labor the "clear winner" and saying the "clear losers are the households with IRAs and advisors" in this scenario is questionable. If the proposed changes go into effect after June 9, brokers will be required to act in the best interest of the client. The clear winner seems to be the consumer.

Overall, the article raises some valid points, but is overshadowed by some inaccuracies and broad use of the term advisors. The points I have mentioned are relevant to consumers understanding what is happening with the DOL.

-Christopher P. Provo is president & CEO of Provo Financial Services, Inc. in Shrewsbury.


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