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Does Fiduciary Rule Give RIAs Competitive Edge?

As the independent segment of the investment advisory business continues to grow, the U.S. Department of Labor’s recently implemented retirement-savings regulation, known as the fiduciary rule, may increase those advisers’ competitive advantage over traditional broker-dealers.

That’s according to Christopher Van Slyke, founder of San Diego-based WorthPointe Financial Planners. Independent advisers, also called registered investment advisers (RIAs) because they must register with the Securities and Exchange Commission, have a fiduciary duty to their clients. In other words, they are required to act in their client’s best interest.

The new rule mandates all financial advisers abide by that standard, over and above a duty of suitability, which requires solely that a product make sense for the client. It applies only to retirement accounts.

Registered investment advisers are typically paid a flat fee, a percentage of the assets they are managing, which provides an incentive to grow client accounts. Broker-dealers are generally paid through commissions on transactions made on a client’s behalf, which generates an incentive to do more transactions.

Opponents of the rule say it will likely increase the cost of getting some forms of professional advising, thereby reducing the number of people who can afford to do so.

The rule allows commission accounts to remain as long as clients are made aware of the potential conflict of interest.

But some big firms whose representatives use that model may feel pressure to switch over to a fee-only system to avoid potentially violating the new rule, Van Slyke said.

Even if that does come to pass, however, it’s likely to be a slow process as the transition would necessitate extensive changes at those traditional firms.

In the meantime, RIAs are likely to reap the benefits of greater public awareness of what it means to be a fiduciary – and of the regulation requiring it for those managing retirement-savings accounts.

“To me the whole idea of non-fiduciary retirement advice is absurd,” Van Slyke said in a June 9 interview, the day the rule went into effect following a 60-day delay caused by President Donald Trump’s executive order seeking a review. “Imagine going to Pfizer and asking which drug to take,” Van Slyke said. “They’re going to give you the one with the highest profit margin. That’s why you have to go to a doctor.”

It’s not that Van Slyke is particularly bullish about the staying power of the rule, considering the early opposition to it among members of the current administration in Washington, D.C.

“I don’t think the battle is over,” he said.

However, the controversy over the rule’s implementation has been, in essence, a free marketing campaign for RIAs.

“For our business, the more people talking it about the better,” he said. “It’s the best advertisement for us.”

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