The topic of who is required to serve in the client’s best interest was the topic of a Securities and Exchange Commission’s Investor Advisory Committee panel discussion held recently, according to Financial Advisor.
The SEC held the event due to uncertainty and confusion among many investors as to when their financial professionals are investment advice fiduciaries. The Department of Labor adopted a rule updating the definition of an investment advice fiduciary that would apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets. But two federal courts have put the rule on hold following a lawsuit by coalition of nine insurance trade organizations.
At the SEC discussion, a representative of the annuities industry asserted that a fiduciary standard would adversely affect their business. Jason Berkowitz, chief legal & regulatory affairs officer for the Insured Retirement Institute, cited research indicating that as many as 56% of professionals will stop working with middle-class investors if they are forced to adhere to the standard..
But that was disputed by Erin Koeppel, managing director of government relations at the CFP Board. He said the board’s strict fiduciary standards have actually benefitted the 102,000 financial advisers who are certified CFPs.
“Far from going out of business our increased numbers show that providing fiduciary advice is good for business,” said Koeppel, who also serves as the CFP Board’s public policy counsel.
“CFPs report compensation that is 10% higher than non -CFPs. Saying advisors will stop working with clients, especially middle-class clients if they are subjected to fiduciary standard, is contrary to our experience. What is restricted [by the standards] are financial advisors’ ability to take advantage of clients,” Koeppel said.
The latest survey of CFP registrants found 42% said they don’t require any asset-based minimums to work with a client, half of CFPs provide services to clients with household incomes ranging from $0 to $75,000 and 67% to clients with household income from $75,000 to $150,000, Koeppel said. “When we introduced fiduciary standards in 2007… we were told that the number of CFP professionals would decline, but instead they increased by approximately 90%,” she said.
CFP Board officials say that most CFP licensees accept commissions. Koeppel said that 67% of CFPs are registered reps of broker-dealers; 88% are investment advisor reps and 64% hold insurance licenses.
The DOL has said that its new fiduciary rule is necessary because some financial advisers put their interests before their clients’ interests, resulting in reduced returns and higher costs for investors.
During the panel discussion, Koeppel and Edwin Hu, a former SEC economist, expressed concern that insurance agents and representatives who recommend fixed annuities and IRA rollovers claiming they are providing one-time advice are all currently excluded from SEC and state regulation best interest standards and subject only to weaker state insurance annuities standards.
Berkowitz defended the state insurance standards and asserted agents and brokers who sell fixed annuities should not be held to the fiduciary standard. Americans “need access to the right kind of advice. But there is a difference between being able to trust and having a relationship of trust and confidence. I trust the person who cuts my hair, but I don’t think I’d consider them my fiduciary,” Berkowitz said.
Berkowtitz said that when the DOL put forth a previous fiduciary rule in 2016, a study found that 53% of firms limited or eliminated access to brokerage advice for smaller retirement accounts.
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