The DOL Fiduciary Rule still remains uncertain although part of the regulation went into effect earlier this month. Most of the debate about the DOL Fiduciary Rule is ridiculous. Who would be against a common sense rule that requires advisors put client interests first? Any advisor not doing this shouldn't be an advisor to begin with. From a client point of view, it is non-sensical to argue against the DOL Fiduciary Rule. Who wants an advisor putting commissions above the client? Would a doctor remain in business if he did not put his patients' interests above his own? The truth about the DOL fiduciary rule: it's long overdue and it should do more to protect investors. It only covers retirement accounts of individuals, not taxable or institutional accounts, and it should do more to protect investors from fees.
John C. Bogle, founder of both The Vanguard Group and the first index mutual fund, wrote on this topic in the Financial Analyst Journal. The article, titled "Balancing Professional Values and Business Values", can be accessed here. The article is written for financial professionals, but I think it is a valuable read for clients as well. It is tough to come up an argument against his points.
The argument against the DOL Fiduciary Rule is the required record keeping. Since client account records and information are already collected and stored by advisors, this argument doesn't hold much water. A more interesting question is how did we get to the current status quote of selling products to generate commissions rather than putting clients first? Why is anyone (accept brokers themselves) defending a commission-based relationship? A transaction based model has never been in the clients best interest, yet much of the financial advisory industry still works on commission. There seems to be a growing shift toward a percentage fee on AUM model which is a step in the right direction. The short answer to how we got here is 'profits'. Brokers make more money from transactions then from fees on AUM, and that is a real shame on the industry. Now the industry has to move away from the commission-based distribution model. This may hurt broker profits in the short-term, but it is clearly in the best interest of clients. The DOL Fiduciary Rule is long overdue and more is needed to straighten out the unnecessary conflicts built into the current advisor/client relationship. For example, 12b-1 fees are sales fees which some mutual funds pay to advisors who sell those funds to clients. Clients may not even be aware of these fees which they are paying to their advisor because they are buried in the mutual fund expense ratio. These 12b-1 fees should be done away with as well as mutual fund loads. Both are fees investors should not pay... it's just common sense.
Michael Grove, CFA