Earlier this year, the Department of Labor (DOL) re-proposed a rule that would require financial firms and advisers providing retirement advice to do something the vast majority of consumers already believe they are required to do: provide advice that is in the best interests of their clients.
While many advisers strive to do the right thing even though they are not legally required to do so, incentives to sell products often conflict with best-interest advice to clients. The DOL’s common sense proposal to require those who provide retirement advice to function under a fiduciary standard has unfortunately been met with strong opposition – primarily from financial industry groups. They say the rule is “unworkable.” I disagree. What is unworkable and should not continue is the status quo: a regulatory framework that allows for advice that is not in the best interest of clients and that erodes the retirement savings of millions of Americans.
The DOL’s proposed update of its rule is long overdue. I began my career four years before ERISA became law 40 years ago. There were no Individual Retirement Accounts (IRAs), let alone 401(k) plans; many people relied on their pensions; and stock ownership was the province of the well-heeled. Today, that’s no longer the case. Pensions are almost a thing of the past and individuals are required to take on greater responsibility for their finances, including making choices from among increasingly complex financial products to save for a comfortable retirement. Today, American savers invest more than $14 trillion in 401(k) plans and IRAs.
With this shift in responsibility for retirement planning from employers to individuals, the public has lost an important safety net. Now more than ever they need competent and ethical financial advice from professionals they can trust. Research shows that they want and expect this advice to come from people who are going to put their best interest first.
Opponents to the DOL’s fiduciary rule suggest that the rule will limit advisors’ and firms’ ability to serve middle-class retirement investors and will hurt small businesses. This is not consistent with my personal experience.
As a Certified Financial Planner™ professional for more than 25 years, I have devoted my practice – a small business – to providing advice in the best interest of my clients, and have done so profitably. CFP® professionals adhere to a fiduciary standard when providing financial planning services, even those of us who receive commissions. I provide advice to retirement plans for small businesses and to individual clients with a variety of account sizes, and I also help small businesses reduce costs and increase performance of the retirement plans they offer to better meet the needs of their employees.
As a past chair of the Certified Financial Planner Board of Standards’ Board of Directors, I can say without hesitation that CFP Board’s experience implementing a fiduciary requirement for CFP® professionals has been extremely positive. In fact, since CFP Board instituted this requirement in 2007, the number of CFP® professionals has increased by more than 30 percent, bringing the total to more than 72,000 CFP® professionals in the United States. CFP® professionals, along with members of the Financial Planning Coalition partners, the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), have voluntarily agreed to put their clients’ interests before their own.
The argument that the DOL rule will diminish the availability of services to middle-class Americans is simply not credible. The average account size of the 401(k) plans I advise is $51,400. My firm has absorbed the minor additional costs to provide advice under a client-first standard, because it is the right thing to do for our clients and it is good for business too. For those claiming that they are unable to serve middle-class clients under the DOL rule, my firm and scores of CFP® professionals and FPA and NAPFA members across the country would be happy to help fill the gap.
While there are modifications and clarifications that are needed to make it more workable for advisors, the DOL’s proposed rule is long overdue. After 40 years and seismic shifts in the way Americans plan and save for retirement, we cannot afford to go back to the drawing board. The industry has always been able to adapt to regulatory change, and it will again. There is never a wrong time to do the right thing.
Ferrara, CFP® is chairman and CEO of ProVise Management Group LLC, based in Clearwater, Florida and writes on behalf of the Financial Planning Coalition.