In a world where the DOL Fiduciary Rule is presumed dead- and we have different regulatory bodies, primarily the SEC, coming in with new rules- transparency has become paramount.
With all the information people have at their fingertips today, it's easy for them to look behind the curtain. Clients are holding advisors to higher standards and won't settle for anything less than independent, fiduciary advice. That's what I keep hearing from our recent grads, and it's encouraging to me how clearly they see this independent, transparent model as the way of the future. It gives me great hope that what will propel our industry forward- in terms of not just success but also a better reputation- is the client's preference, experience and outcomes. It is critical that we as an industry embrace transparency as the clearest path to win clients' trust.
To ensure consumers have continued access to this type of advice, the onus is on independent, Registered Investment Advisors (RIAs) to educate legislators on the value of this approach. As we witnessed in the fight over the DOL Fiduciary Rule, we're up against the tens of millions of dollars wire houses spend every year in their lobbying efforts, and the new tax law further exacerbates their advantages. Under the new rules, RIA fees are no longer deductible for our clients (while commissions paid by clients are still added to cost basis). And because most firms in our business are pass-through entities, the new law specifically calls out that we don't get a tax break, while big wire houses clearly benefit from the significant C Corp tax cut. We need to provide the education necessary to level the playing field, so that fiduciary advice channels can remain a competitive choice for consumers.
Independent RIAs have long had a history of being a pretty collegial group. We share best practices and great ideas fairly openly, even at large industry conferences. Plancorp has been a part of Zero Alpha Group (ZAG) since its founding in 1995. ZAG is a longstanding example of open sharing of best practices. There are now a number of study groups for likeminded advisors around the country who openly share ideas. This helps the firms, but ultimately provides clients with a better experience. One that stands in stark contrast to services offered by large wire houses.
Independent RIAs need to leverage that collaborative mindset one step further. By working together in a leadership role, we can make sure that what was a revolutionary approach to providing fiduciary advice to clients over 35 years ago, is around for the long term. As fiduciaries, this endeavor is in our clients' best interest-to ensure they have access to independent, objective advice for the long run.
This post originally appeared in Wealth Management's Mid-Year Outlook 2018.