Investors need to get smarter about their money post-DOL fiduciary rule: panel

To protect investors, holding financial advisers to higher standards may not be enough.

Simply put, investors need to get smarter about their money and the financial-services industry must help them up their game, according to a panel of leading government and industry leaders who gathered in Washington, D.C., on Wednesday.

Phyllis Borzi, assistant secretary of the Department of Labor and an architect of the fiduciary rule, moderated a one-hour discussion with panelists from Betterment, Morningstar and the CFP Board. They talked about investor challenges, including finding the right advisers, asking the right money questions and client-data accessibility.

The Financial Literacy and Education Commission meeting follows in the wake of the DOL’s fiduciary rule, which requires all advisers act in their clients’ best interests on retirement accounts. Now as the investing public learns more about the rule and absorbs its impact, consumer advocates want to build on that to with more education about personal finance.

“We need overarching policies and a safety net for consumers, like the fiduciary rule,” said Marilyn Mohrman-Gillis, managing director of public policy and communications at the CFP Board. The industry also needs to “look to provide tools to consumers to make smart choices.”

The Department of Labor and Ms. Borzi herself have taken great strides to implement regulation that would put more responsibility on financial advisers and protect investors from unnecessary fees and portfolio management. Opposition has been fierce from firms and members across the industry, with numerous lawsuits already filed. Still, there has no doubt been a strong push from proponents bringing awareness to the new rule and saying the time is now to help investors prepare for their futures.

Sarah Newcomb, a behavioral economist at Morningstar, said it’s important to nudge consumers into retirement-savings programs, such as default 401(k) plans, while teaching important financial lessons about protecting their nest eggs from themselves and those in the industry.

“If you don’t educate them afterwards, when they are drawing on their 401(k)s they are no better than where they started off,” Ms. Newcomb said.

Regardless of smart in general an individual is, the industry needs to assume everyone is starting with very little financial knowledge, panelists agreed. Furthermore, they may not know what type of adviser, with which designation, to go to; or what questions to ask about their finances, they said. Ms. Mohrman-Gillis said a simple consumer tool with adviser comparisons that allows investors to swipe through financial professionals’ qualifications, including certification, education and experience could help determine who would be the best adviser for their needs.

Jon Stein, chief executive of Betterment, the leading independent robo-adviser with about $4.8 billion in assets under management, said online automated investment platforms are solid options for consumers because of the low cost, transparency and consistency they provide.

“If you ask the algorithm at 9 a.m. what it would do, and again at 4 p.m., it will give you a consistent answer,” Mr. Stein said. “Whereas with a traditional financial adviser, who knows. It’s a black box what goes on and why recommendations are being made.”

Financial institutions should go a step farther to help these online sites, as well as traditional advisers, easily access client information, Mr. Stein said. Technology exists today to safely view client information from data providers, but large institutions for the most part are not ready or do not want to share that information.

“If we really want to encourage the best products and decision-making, we need to make your own financial data available to you,” he said.

Ms. Borzi pointed out that along with educating investors, the industry could spend time educating advisers as well.

Mr. Newcomb said there are three legs to assist consumers with financial literacy: smart policy, education and nudges and technology-assisted decision-making. She said in 10 years, it might be common to see a consumer open up a bank account and a robo-adviser account.

“Along the way we need to be learning the simple rules of thumb that help us to navigate the way,” she said. “The policies that are out there to protect consumers need to be aligned with the customers’ best interests and not the best interests of the unscrupulous.”