According to the opponents of a new rule designed to ensure that retirement savers get the best advice possible, the entrepreneurial mindset and innovative spirit that has powered the U.S. economy for decades is a thing of the past. They think we can't adjust — and thrive — under the new fiduciary rule.
I disagree. And my own Detroit-based business, around for 30 years, shows why.
The Department of Labor's fiduciary rule is an attempt to level the playing field for consumers by requiring the financial services industry to provide retirement investment advice in the best interests of clients. In legal jargon, it's the end of the suitability standard. But it ought to be the beginning of something better.
Since the fiduciary rule was proposed, the financial services industry has been running around like Chicken Little. Their oft-repeated message is that the rule from the Department of Labor will harm the "average Joe" investor by increasing costs, reducing access to advice and derailing retirement plans.
The dire warnings about "orphaned accounts," a metaphor long-used to describe accounts previously assigned to advisers who've since left a firm, have escalated dramatically as the industry applauds the Department of Labor's plans to kill the rule.
Independently verified data on this so-called trend is hard to come by. But other facts are impossible to deny.
First, the financial services industry itself, not any government rule, has long limited access to services. The most visible is minimum account size requirements well in excess of $100,000, and directing small accounts to call centers or assigning them to rookie advisers who are hardly in the position to offer advice.
Second, compensation for commission-based advisers provides a disincentive to servicing a small account at a big firm.
Other claims made by those in the financial industry opposed to the fiduciary rule fail the smell test.
For instance, the claim made by the Insured Retirement Institute and others that roughly three million clients would liquidate over $30 billion in existing retirement assets is dubious at best. Given the entrepreneurial spirit of American business, I can't believe that millions of potential clients with billions of dollars to invest would simply be ignored.
A more rational conclusion is that someone will rise to the challenge of serving this multibillion dollar, not-so-niche market. Why wouldn't the financial services industry evolve like the accounting profession?
Tax preparation firms such as H&R Block emerged as alternatives for people with simple needs. They left the higher-value services to traditional accounting firms — and got rich doing it. Wall Street might make less money under a fiduciary rule, but picking winners and losers shouldn't be the goal of public policy that affects all Americans.
Why am I so confident in calling out bogus Wall Street claims? Because we've been serving as a fiduciary for small account holders for over 30 years.
When we started Cygnet, a fee-based investment adviser, our vision was to provide all people with the same quality and objectivity of advice regardless of wealth, income or investible assets. Our concept is no different than how a blood pressure cuff and cholesterol test work the same during a physical, whether you're a CEO or an auto assembly-line worker.
Thirty years later the result is an investment advisory firm that serves as a fiduciary for over $100 million, but with an average account balance of less than $150,000. Our minimum is $10,000, but we'll waive it if you have a relative who's already a client, or if you automatically invest each month in amounts that would result in a $10,000 investment in two years.
The U.S. Chamber of Commerce claimed recently that investment advisers are dropping clients with an average account balance of $21,000. My response: Tell them to give us a call!
If a small firm from Detroit can succeed in being a fiduciary for the average Joes that keep Michigan chugging along, you have to wonder why Wall Street is fearful of the fiduciary rule. Maybe Wall Street is no longer a true American innovator — or truly concerned about that average Joe.
Brian Lakkides has been a financial consultant with Cygnet since 1992.