Should the Financial Planning Coalition support the DOL's fiduciary proposal?

A two-sided debate about the FPC's stance on the proposed fiduciary rule

Jul 1, 2015 @ 1:38 pm

By Don Trone

The Financial Planning Coalition issued a statement on June 17 that it intends to support the Labor Department re-proposed fiduciary definition. If so, it will not be acting in the best interests of financial planners.

(Click here to read the Financial Planning Coalition's response)

Six months ago, the White House Council of Economic Advisers released the results of academic research showing that retirement savers are losing $17 billion a year as a result of conflicted advice. The research was based on samplings of industry bad practices that were then extrapolated across the entire industry. The DOL is using this research to justify its re-proposed fiduciary definition.

The Financial Planning Coalition should be defending financial planners and insisting that researchers take a sampling of industry best practices — specifically the practices associated with financial planning — and calculate the benefits that a retirement saver receives when an adviser provides him or her with a comprehensive plan.

The CFP Board has spent tens of millions of dollars promoting the importance of comprehensive financial planning. Do you know what the DOL's reproposed fiduciary definition says about the value of comprehensive planning?

The definition appears to be focused almost exclusively on managing fees and expenses and controlling conflicts of interests associated with different compensations models. It does not seem that the DOL is advocating a comprehensive planning process.

On the other hand, maybe I'm wrong. Maybe the DOL is proposing that there needs to be a greater focus on fees and expenses in addition to other generally accepted fiduciary best practices. If so, are financial planners prepared to meet this heightened standard?

The Employee Retirement Income Security Act requires that a fiduciary demonstrate the details of their decision-making process. Fiduciary oaths and promises to act in the best interests of the client are not sufficient. There are very specific practices associated with an ERISA fiduciary standard, and the courts have made it clear that “a pure heart and an empty head” is not a legal defense.

(Counterpoint: Don't miss the Financial Planning Coalition's response to this post)

What has the Coalition done to prepare financial planners on how to integrate an ERISA fiduciary standard of care with the six-step financial-planning process?

In 2009, the Financial Planning Association took on an important leadership initiative and decided it would provide its members fiduciary training. The FPA executive committee asked me to prepare a handbook to demonstrate how a uniform fiduciary standard of care (a standard that would satisfy the fiduciary requirements of both the SEC and DOL) should be integrated with the financial planning process. Unfortunately, as soon as the FPA handbook was published, the CFP Board notified us that none of the content would be approved for continuing-education credit. The FPA's initiative was derailed.

The Coalition does not have the knowledge or experience to understand the impact and consequences that an ERISA fiduciary standard of care is going to have on financial planners. There are thousands of financial planners who are capable of meeting the standard, but there are tens of thousands who are not. It will probably take five-to-10 years to adequately prepare the financial planning community to meet an ERISA standard, provided that the parties to the Coalition stop the shenanigans that have eroded the integrity of the fiduciary movement, and commit to providing financial planners with fiduciary training that inspires and engages financial planners.

(Related: 7 signs the fiduciary movement is ending)

If the Coalition continues its support of the DOL's proposal, it will lose the initiative to highlight how financial planning can have a profound, positive impact on retirement savers. The Coalition also is going to expose financial planners to a standard of care many are not prepared to meet, which is going to cause planners to face increased liability and compliance costs. These costs will likely have to be passed on to retirement savers and investors. It certainly appears that the Coalition is not acting in the best interests of financial planners.

Don Trone is the founder and CEO of 3ethos. He was the founder and president of the Foundation for Fiduciary Studies, and principal founder and CEO of fi360 and of the AIF and AIFA designations.

The Financial Planning Coalition's response to Don Trone's commentary

Since its inception, the Financial Planning Coalition – a collaboration among Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) – has strongly advocated for fiduciary accountability and transparency in financial planning, including a fiduciary standard of care. In fact, the Certified Financial Planner certification was the first – and remains the only – financial services designation to require a fiduciary standard, resolved in the belief that financial-planning professionals should put clients' best interests before their own when providing financial-planning services.

Unfortunately, too many Americans receive financial advice that is not necessarily in their best interest. The Department of Labor's recent proposal to redefine “fiduciary” under the Employee Retirement Income Security Act (ERISA) represents a long overdue rule that would align the interests of those providing financial advice with the best interests of millions of American retirement savers.

Retirement planning and the American economy, as well as institutional and government safety-nets, have changed significantly in the 40 years since the DOL adopted its current fiduciary rule. What once was adequate now leaves many Americans vulnerable, as more responsibilities around complex retirement saving and financial decisions fall to individual savers. In the face of this changing landscape, requiring financial professionals to act in their clients' best interest is necessary regulatory reform that will save American retirees millions of dollars.

While there are areas in the proposed rule that can be clarified, the proposal is a significant step in the right direction towards a safer, more equitable retirement planning landscape. Importantly, this comprehensive, carefully constructed rule not only will advance critical investor protections, but it will also preserve financial advisers' flexibility and adaptability to operate under a variety of different business models.

A secure retirement is an essential part of American life. It is time policymakers protect investors and savers with the tools available to them. Those who believe investors' interests should be put first and who care about Americans' retirement health and safety should lend their support to a fiduciary standard of care, including the DOL's historic rule-making initiative.


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