With the June 5 announcement and approval of the Regulation Best Interest (Reg BI) rule package, the SEC stepped into the void left by the vacated Department of Labor (DOL) Fiduciary Rule. Personally, I found it interesting that while many of the larger brokerage firms praised the Reg BI rule, I heard almost nothing from larger Registered Investment Advisers (RIAs), hybrid firms and most of the independent advisors that I talk to on a regular basis.

If you are interested in the Reg BI or its effects, you have probably already read up on it, so I won’t go into detail – except to say the package includes:

  • A regulation-required best interest conduct for broker-dealers
  • The Form CRS Relationship Summary, a new disclosure form with specific sections, not to exceed 2 pages and containing questions for the consumer to ask their advisor/broker
  • An interpretation of the 1940 Investment Advisers Act for investment advisers
  • An interpretation of the 1940 Investment Advisers Act that interprets the “solely incidental prong” of the broker-dealer exclusion from the definition of adviser

Why it should matter to you

As far back as 2013, I wrote about a proposed DOL fiduciary rule. While the idea and trend toward a true fiduciary standard (at least for ERISA accounts) looked promising, I realized that the rule was going to force too much change for the industry. It was a revolutionary rule that would prove to be too much for the industry – Revolutionand ultimately, it was too ambitious for the DOL. However, even though that particular rule died, it does not mean the fiduciary movement is dead, too.

So what else is going on? You have probably read that states are jumping into the fiduciary discussion. Currently, New Jersey, Nevada and Massachusetts are creating rules that will shift the way that advisors/brokers in those states do business.  (My guess is that you will see more states that are not happy looking at their own versions, too.) The CFP board is clarifying what it means to be a fiduciary for their CFP professionals and the DOL is stepping back into the mix (working with the SEC) with a rule that will set their vision for ERISA accounts.

10 years from now, being a fiduciary will not be a differentiator in the marketplace.

All of this sums up why I have been saying Reg BI is evolutionary. In my opinion, we will see a slow, rule-by-rule movement to a truer fiduciary standard – a movement that gives time for brokerage firms to adjust their standards and for advisors and brokers to change their business models.

That matters because 10 years from now, being a fiduciary will not be a differentiator in the marketplace, just as being fee-based (which once was) is not today.

Market with a focus

Since the Reg BI announcement and approval, I have been asked what to make of the rule and interpretation. My suggestion is that first, I would market the “heck” out of the fact that the SEC says that they have two standards; one for brokers and one for advisors. I also suggest that fiduciaries could even create ways to draw out the differences à la Jeff Foxworthy:

  • If your financial advisor shows you a government-mandated document, asking you to ask him/her about their conflicts … they’re not a fiduciary
  • If your financial advisor has to put your best interests first, but doesn’t clearly define what that means… they are not a fiduciary
  • If your financial advisor has to clarify “solely incidental” advice… they are not a fiduciary

You get the point.

In the future

While in today’s world, you may be able to make a little headway with the difference between a fiduciary and a broker, I still think it makes sense to point your clients and prospects toward the future. Creating personas, understanding what drives your target market and adding in a fiduciary message makes the most sense when discussing/marketing. For example, “as a retiree with 30+ years in retirement, doesn’t it make sense to work with someone who is obligated to a fiduciary standard today, versus someone who isn’t?”

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