There is Hope in #Fintwit

I am a student of prior wars. One of the craziest wars was World War I, sometimes called the Great War. Parts of this war took place in Northern France, Belgium and Southern Germany via trenches. The Germans advanced and dug large trenches over a vast stretch of land and then defended it. The Europeans also dug trenches very close to where the Germans dug their trenches. The Generals on both sides periodically ordered their men over the side of the trenches to advance to the other trenches. If you failed to get out of your trench when ordered, then you were likely to be shot dead right there by your own side. If you got out of your trench, then you were likely to be shot by the enemy. This insanity repeated itself for several years with neither side advancing. All that happened is thousands upon thousands of people were needlessly killed by incompetent military leaders.

Today's political climate reminds me of this trench warfare. Instead of playing out on a battlefield somewhere, it is playing out on Twitter®. This is just pure stupidity in more ways than one. First of all, nobody should believe that their opinion on Twitter matters in the grand scheme of things. Secondarily, if you are espousing your political beliefs on Twitter, then you will most certainly get attacked and perhaps even some will try and cause you to lose your job. This is all totally ridiculous. It really should stop. I have started to see it rear its ugly head in #fintwit. This is disturbing to me, because our industry already has to fight off all these stinking Ponzi schemers. We do not need to be sullying our reputations as a group over mindless political opinions.

Twitter is today's trench warfare. A bunch of people with way too much time on their hands send out tweets and foolishly believe that their words carry a lot of weight. The truth is Democrats do not care about a Republican's opinion and vice-versa. So, I am going to double cancel culture the both of you Democrats and Republicans. Cut it out. You are giving our profession a black eye.

I notice some things about our industry having been a part of it since 1988. For most of my career, other financial advisors have mostly looked at each other as competition. I recently had a financial advisor with an office in my building tell me that we were competitors. I told him that we were not. He disagreed. I tried to reason with him that the people that he knows in his circle are in a different circle than the people in my circle. He was unconvinced. Although, I could have offered a ton of help to this younger advisor, he was totally opposed to the idea of even having a further conversation, much less help from a competitor. I thought how sad. He was trying to branch out on his own, but months later, I noticed that he took a salaried job at Citibank. No surprise.

I met another financial advisor who once told me that he knew how much assets under management that I had. I replied, "You're kidding?" He said, "No. In fact, I have a list of every financial advisor in town and how much they have in AUM on an Excel spreadsheet." I was stunned. Why is this guy wasting his time worrying about what other advisors in town are doing? Seems pretty dumb to me. Must be a male ego thing, I guess.

There are some young people coming up today who are making changes in that attitude. Specifically, Jason Wenk, Tyrone V. Ross, Jr. Dasarte Yarnway, Brittany Castro, Emlen Miles-Mattingly, Douglas Boneparth, Ryan Hughes, Alex Rosenberg, Taylor Shulte, Justin Castelli, Breanna Reish , Alex C. (the Armenian) and Kyle Van Pelt. Forgive me, if I left you out. Those are the names that came to my immediate mind. These folks are all about helping each other. They do online seminars, video blogs and reach out to each other by social media. Others have businesses that help young advisors. These people are doing great things for our industry. I can tell you confidently that the future of the financial profession is in good hands with these young professionals. They get it and frankly, I do not care what their political beliefs are since they have no effect on what they are trying to accomplish and I strongly believe will accomplish. 

Let me know if I can be a resource.

https://riarules.com

https://marianfs.com

ERISA Fee Disclosure Rule Fails Smell Test

Everyone was waiting with bated breath over the Department of Labor fiduciary ruling that came down recently. I for one actually thought the tide might have been turning against Wall Street firms and insurance companies, but boy was I wrong. I was foolish to believe that the Department of Labor was going to level the playing field in the retirement plan area when it came to fee disclosure. This just didn't happen.

I recall when I was the Branch Manager II for Charles Schwab in Jacksonville, (almost 8 years ago now) we had a retirement plan guy come in to speak to my team about their retirement plan services. The spill was the usual non-speak..."we are the best and to hell with all the rest." However, I wasn't quite convinced. So, I began to question the young fellow as to how much the fees were inside their 401k plan that they wanted us to sell. He replied that "there was no fee to the plan participants." I knew this was not true because of revenue sharing offered by mutual funds. You see, mutual funds have 12(b)-1 fees which they use to pay firms to market their funds. In the retirement plan arena, fees have long been hidden from participants, but make no mistake they exist.

Typically, the sales pitch is made to the employer that "you can save on your administration costs by taking the revenue sharing from the mutual fund 12(b)-1 fees as an offset." So, when that young man was telling me that there was no fee to the plan participants, what he really meant is that he could reduce or eliminate the fees to administer the retirement plan by utilizing the 12(b)-1 revenue. The plan participants would never see any fees and the employer could possibly not have to pay any administration fees. It was a win-win situation for both.

Fast forward to the recent ruling by the Department of Labor on fiduciaries and fee disclosure. Retirement plan advisers who charge fees will have to disclose their fees to plan participants and employers. However, if you can believe this, 12(b)-1 fees can continue to be hidden from view! Wall Street firms and insurance companies win again!

As a result of this ruling, it will be business as usual for Wall Street firms and insurance companies who use 12(b)-1 revenue sharing arrangements to sell their retirement plans to employers. What has changed for them? Absolutely nothing.

However, retirement plan advisers who charge fees will now have to disclose their fees in writing, while the Wall Street firms and insurance companies do not have to disclose their 12(b)-1 fees. Are you getting this picture? Wall Street firms and insurance companies want to squash their fee based competitors and it looks like they have succeeded.

If this is any indication of the power and influence that these groups have over registered investment advisers, then I shudder to think how the SEC will come down with their interpretation of fiduciary rules. In my mind, this is proof that nothing will change for Wall Street firms and insurance companies. It is likely that registered investment advisers will be subject to more onerous rules, costs and requirements. The goal of course is to squash the competition. Sadly, the competition, registered investment advisers, are the best choice for retirement plans, in my opinion, yet they will not appear that way to employers and participants.

The Gravy Train Looks Like it Will Continue

It is beginning to look like Wall Street is going to win the battle over a fiduciary standard. Registered Investment Adviser firms like ours have always been subject to a fiduciary standard. It is the Banks, Wall Street firms and Insurance companies who have not been subject to the fiduciary standard.

For those of you who do not know, a fiduciary standard of care is one where the adviser must put the interests of the client ahead of their own. Banks, Wall St. firms and Insurance companies have been subject to a much more lax standard called suitability. This basically means if they think it suits you at the time of sale, then that is all that is required. It doesn't matter if it has a 10% commission and 10 years of surrender charges as long as it is suitable for you.

Banks, Wall Street firms and Insurance companies control most of the power and influence in Washington, primarily because they generate a tremendous amount of revenue from selling products to consumers. Registered Investment Advisers or RIA's as we are known, sell advice, not products. The problem with RIA's is that we are all independent people with independent ideas. There is no one association or group that represents us.

There is a consortium of organizations grouped under the name of the Financial Planning Coalition that would like me to believe that they represent me. However, this is simply not true. This group consists of the CFP Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors. The CFP Board regulates CFP's. The Financial Planning Association is an organization that includes CFP's, but also ChFC's and other professionals who hold themselves out as financial planners, but are not necessarily CFP's. The NAPFA is a very small organization of Fee Only advisers who have a requirement that their members are purely fee only and sell no commission based products. NAPFA is the best of the three by far.

Of these three groups, the CFP Board only has say over CFP's. There are a ton of individuals out there calling themselves financial planners, but who are under no supervision at all. I have seen numerous cases of insurance agents and bank employees who say they do financial planning, but are not registered to do so. Somebody needs to regulate ANYONE who claims to be a financial planner or who holds themselves out as a financial planner or claims to provide financial planning services. Sadly, the runaway train of bogus financial planners keeps right on rolling down the tracks.

The CFP Board is made up of CFP's who work at guess where? Banks, Wall Street firms and Insurance companies. A very small percentage are independent Registered Investment Advisers with absolutely no employment affiliation with any Bank, Wall Street firm or Insurance company. It does not take a smart person to figure out that if the primary revenue source comes from the financial advisors affiliated with these behemoth firms, then that in all likelihood is where their loyalty will lie. I have been a CFP for almost 20 years and they have yet to prove otherwise to me.

The Financial Planning Association is comprised of a similar makeup of professionals. Most all of them have employment affiliations with Banks, Wall Street firms or Insurance companies. Very few are independent Registered Investment Advisers. Again, it does not take a smart person to figure out where their loyalty lies, either.

The NAPFA is a very select and small group of professionals. The last time that I read about them, they had less than 3,000 members nationwide. I believe that the CFP Board and the FPA have close to 30,000 each. Although NAPFA is a good organization, their sheer lack of numbers probably minimizes their influence in Washington.

This Financial Planning Coalition is up against two major Wall Street organizations in SIFMA (Securities Industry and Financial Markets Association) and FINRA (Financial Industry Regulatory Authority). Both of these organizations want FINRA to oversee Registered Investment Advisers as the regulator of choice.

Somehow when most of the fraud and deceit in the financial services arena comes from Banks, Wall Street firms and Insurance companies, these powerful organizations have managed to turn the tide in their favor and portray RIA's as the enemy in Washington. When the reverse is actually true.

If you get nothing else in this article, understand this point. Registered Investment Advisers are subject to a fiduciary standard already and have been for a long time. Banks, Wall Street firms and Insurance companies have been subject to a suitability standard for also a long time. However, the Dodd-Frank legislation mandated that all financial advisers be subject to the fiduciary standard. The problem is that you cannot sell products and sell products from inventory and meet the legal definition of a fiduciary. As a result, Banks, Wall Street firms and Insurance companies are scrambling to re-write the definition of a fiduciary so it allows them to keep selling their products. In other words, they want the status quo. In addition, they want to gain control of Registered Investment Advisers. We are not the problem (RIA's.) The Banks, Wall Street firms and Insurance companies are the problem. They are the ones selling consumers all these high revenue, high commission, and no liquidity products. They do not want their gravy trains to end. Consequentially, they are lobbying hard to change the legal definition of a fiduciary and gain compliance supervision over Registered Investment Advisers.

It is all about money, power and more importantly control. They want control of the competition which are RIA's. Once they gain control, then they can exert burdensome compliance rules that make the cost of being a Registered Investment Adviser much more expensive. This is the end game in my opinion.

Unfortunately, as a group, Registered Investment Advisers are left to rely on the ethical morals of the people in Washington to protect us. Fat chance that will happen. Sadly, RIA's are the ones that are in the best position to protect consumers. If FINRA ends up in control of RIA's and succeeds in changing the definition of a fiduciary, then consumers will be the ones who lose.

As with everything else in life, we will adapt and move forward. However, it does not mean we will like it. As a consumer of financial services, you had better be very wary of anyone who is affiliated with a Bank, Wall Street firm or Insurance company. They are out to sell products and make as money as possible from consumers. Damn be the consequences.

RJ