Lunch encounter: Chance meeting convinces Aikin fidush change on the way

Says DOL's Borzi emphatic about pushing through new definition of fiduciary

Nov 16, 2012 @ 3:57 pm

By Dan Jamieson

Advisers need to prepare for a heightened level of duty as the trend continues toward stricter standards of care, especially in the area of retirement plans, said Blaine Aikin, chief executive of fi360, during a session at the Schwab Impact conference Friday.

The Labor Department's proposed fiduciary definition could be particularly nettlesome, he said. The five-part definition would be open to interpretation, “and there's a lot of heartburn over the fact that it would extend to advice provided to IRA holders,” said Mr. Aikin, who is also a member of the Committee for the Fiduciary Standard, an advocacy group. “That would bring in a lot of people from the brokerage and insurance industries.”

Mr. Aikin said he had a chance meeting at lunch several months ago with Phyllis Borzi, assistant secretary for the DOL's Employee Benefits Security Administration, who has been pushing for the controversial revision.

“She was emphatic that this is going forward, if she was still there after the election,” Mr. Aikin said. Ms. Borzi is expected to keep her post following President Barack Obama's re-election.

In addition, the department's new cost-disclosure rule for retirement plans is making plan sponsors aware of fees, Mr. Aikin said. The rule “is among your best friends” because it “provides the evidence of what other people are charging and what they're doing,” he said.

It is a “nightmare” for those providers with lots of conflicts in the products they sell, he added.

Regarding the Securities and Exchange Commission's effort to develop a uniform fiduciary duty for anyone giving personalized investment advice, Mr. Aikin said the brokerage and insurance industries are “are pushing hard to make it more of a disclosure-based regime.”

He doesn't believe that's a good approach, however. “Fundamentally, disclosures don't work …" he said. "Study after study show [that] telling investors your interests are not aligned tends to disarm them.”

Furthermore, Mr. Aiken said, disclosures historically have not been enough to meet a fiduciary standard.

The Financial Industry Regulatory Authority Inc.'s suitability rules, which went into effect July 9, also have “fiduciary overtones,” he said. They expand the know-your-customer standard, require reasonable diligence in formulating recommendations and recognize that customers can rely on a brokerage firm or associate, he said.

“This last one is really interesting," Mr. Aiken said. "If clients may rely on the firm and the associate, that is one of the core things that goes back to the fiduciary standard.”

The trends toward a higher standard of care “are unmistakable,” he concluded. He suggested that advisers aim to enhance their professional credentials, and invite clients to compare their services and pricing with those of competitors.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

The undiscovered cyber threats advisers should really worry about

What's the biggest cyber security threat that could really hamper your practice? Cyber Expert Tony Scott offers some strategies to keep your firm safe.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

RIAs struggle to keep clients grounded amid stock market euphoria

With equities at record levels, financial advisers are confronted with realities of greed and fear.

Regulators showing renewed interest in cracking down on investment fees

SEC, Finra targeting high-fee share classes, 12b-1 fees and failure to give sales load discounts and waivers to investors.

Complexity of new indexed annuities causing concern

Insurers are using 'hybrid' indices as a way to differentiate themselves, but critics contend the products are less transparent, more confusing and don't add financial benefit.

Critics say regulation hasn't curbed overly rosy projections for indexed universal life insurance

They say rule didn't go far enough and more stringent measures may be necessary.

House and Senate reach tentative compromise for tax overhaul

Lawmakers still need to get a cost analysis of their agreement, so it's not yet definite, according to a source.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print