Compliance July 19, 2017

Education and Workforce Committee Joins Fiduciary Debate

The sweeping Financial CHOICE Act is not the only bill being debated in Congress that would impact the ongoing implementation of the DOL fiduciary rule.
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Signs emerged this week that the House Education and Workforce Committee will join the fiduciary fray and begin debating a bill called the “Affordable Retirement Advice for Savers Act.”

Introduced by Representative Phil Roe (R-Tennessee), in the eyes of its supporters the legislation would “protect access to affordable retirement advice by overturning the Obama administration’s fiduciary rule while ensuring retirement advisers serve their clients’ best interests.”

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That probably reads like a paradox for supporters of the Department of Labor (DOL) reforms that were designed by former President Obama but left to his predecessor to fully implement. The stated goal of the DOL is to do essentially the same thing by taking the exact opposite approach—showing just how widely opinions diverge concerning the likely outcome of full implementation of the fiduciary rulemaking.

The news that the formal markup process would begin for the Affordable Retirement Advice For Savers Act comes after the full House has already passed the Financial CHOICE Act, a sweeping bill that would not just halt the fiduciary rule but also roll back many of the Dodd-Frank Wall Street reforms adopted by Democrats when they held significant majorities in the wake of the 2008-09 financial crisis.

According to a summary provided by Rep. Roe, the Affordable Retirement Advice for Savers Act would “overturn the flawed fiduciary rule while improving policies governing financial advice to enhance protections for retirement savers.” It would, he argues, “strengthen retirement planning by requiring financial advisers to serve their clients’ best interests … Enhance transparency and accountability through clear, simple, and relevant disclosure requirements … Ensure small business owners continue receiving the help they need to provide retirement plans for their employees … Protect access to high-quality, affordable retirement advice so more Americans can retire with dignity and financial security.”

Given the similarity between how the wider CHOICE Act and the new legislation would treat the fiduciary rule, it’s no surprise that the same providers are applauding the Affordable Retirement Advice for Savers Act. For example, the Insured Retirement Institute (IRI) released the following statement from President and CEO Cathy Weatherford in support of the bill.

“At a time when Americans are increasingly more responsible for ensuring financial security during their retirements, preserving access to affordable advice is critical. The Affordable Retirement Advice for Savers Act … will overturn the ill-advised Department of Labor fiduciary rule, protect access to high-quality, affordable retirement advice, require financial advisers to serve their client’s best interests, and enhance transparency and accountability through clear, simple, and relevant disclosure requirements,” Weatherford argues. “IRI has long supported the adoption of a workable best interest standard which will provide consumer protections and protect access to financial advice and the wide array of lifetime income products.”

Interesting to note, the Affordable Retirement Advice for Savers Act does not just seek to repeal the fiduciary rule. It also seeks to clarify what should and should not be considered fiduciary advice in the retirement planning context. Certainly the bill could evolve or fail outright, but if passed as currently written, it would return the retirement advisory marketplace essentially to where it was before the Obama administration took its significant regulatory actions. Also important to note, a different version of the bill has been introduced by Senator Johnny Isakson (R-Georgia), also pending debate.   

Read the full text of the House version of the Affordable Retirement Advice for Savers Act here. 

In Practice July 19, 2017

Elite DC Advisers Have Had Enough of Falling Fees

The head of DCIO sales for Wells Fargo describes an encouraging trend in the way advisers are defining their value and assessing pricing that is fully rationalized and fair to both the client and the firm. 
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Ron Cohen, head of defined contribution investment only (DCIO) sales for Wells Fargo, recently sat down to talk shop with the PLANADVISER editorial staff.

The conversation initially focused on the surprisingly wide gap identified by new a Wells Fargo survey between what defined contribution (DC) plan sponsors say they expect from their advisers versus what advisers generally prioritize. In short, the research found that many DC plan advisers misunderstand their clients’ top concerns and expectations, potentially leading to friction when it comes time to assess fees and renew the relationship.

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But Cohen also pointed to an elite subset of advisory firms that are not only finding ways to better serve their DC plan clients’ particular demands—they’re also getting paid well to do it.

“At first it was the recordkeepers that were being squeezed on fees and told that their services have been commoditized,” Cohen observed. “More recently we have seen this challenge move more into the adviser’s domain. But just in the last couple months and years we have seen another trend emerge—of advisers standing up and saying, No More. This is my fee and we deliver tremendous value for that fee.”

In fact, Cohen noted that “more than a few” firms with a wide footprint in the DC advisory space are actually increasing their fees, in some cases quite substantially. What’s more, clients are willing to pay the higher fees in many cases because they have come to understand exactly what they are paying for and why. A big part of this success, and it sounds simple, is that the advisory firms are finally finding ways to clearly demonstrate in regular reporting everything they do for their plan clients, including all the behind-the-scenes man hours, analyses and general service activities the plan sponsor might not actually be aware of. 

“Why is this working? Because these firms are serving the real needs of their clients, and even more importantly they are proving and demonstrating their value,” Cohen said. “These firms have simply said no more to falling fees. They are no longer trying to just underbid to win and protect business. They know what they do is right by their client and that the deliverable fully justifies the fee.”   

Cohen suggested plan sponsors will generally respond positively to advisers who are proud of their service offering and willing to frame it as a premium-level service. Of course, not all sponsors will want to hire a premium-priced adviser, so this type of thinking may indeed limit the gross number of plans that an advisory firm works with.

“I was chatting recently with a $240 million plan sponsor who told me that they were doing a search for a new adviser to the DC plan, and they had responses come it all over the board in terms of fees. The range was from $87,000 to $200,000. That’s the kind of spread that has developed in the marketplace. Some advisers are standing up and saying, ‘We are worth this fee because we truly do more,’ while others are still undercutting.”

Different models will be appropriate for different plans, but Cohen suggested that it is difficult to see how an adviser might turn a sustainable profit delivering any kind of quality service to such a sizable plan at such a low fee.  

“The range is so diverse now, but the real retirement plan advisers who have real quality process in place, they have clearly had enough of being squeezed,” Cohen concluded. “Anecdotally, we are definitely seeing more flat-fee-for-service business as this unfolds—moving the understanding of the advisory fee away from the investments.” 

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