August 24, 2010
I just recently resigned my Series 7, 63 and moved to an RIA firm in anticipation of the fiduciary standard. I sent a letter to my former clients explaining that I will no longer work with them without a minimum $1,500/year retainer. This means about 50% of my former clients will be without a representative. Many of these people are not capable of managing their financial assets. I have had to stop people from cashing in their 401(k) because they didn't realize the way they were doing it, it would be a taxable event. Others are getting poor service from the 401(k)plan at their former employer, but don't realize they can do a rollover until they met me. People need help and a 1-800 number is not enough.
I have written to and spoken with some people on the Committee on the Fiduciary Standard, the bulk of whom had $500k minimum AUM to be a client. I had asked then about a business model to bring a fiduciary standard to the bottom 80% of Americans who hold just 7% of financial assets. I begged for even a table napkin version of the number of clients, revenue per client, standard of care, and no one could help me. I called and wrote NAPFA. Nothing.
I believe those who advocate for the fiduciary standard only should be required to come up with a model that would create adequate revenue for the representative and a standard of care that is commensurate with the revenue available. Call a trust company in a major city and ask about their minimum account size. The minimum AUM per client continues to rise. This is a business decision based on regulations, risk (inherent of the trust-client relationship) and reward. How well do bank trust departments serve the general population?
Keep in mind, we have an aging field force in financial services and new people must be brought into the business successfully and any new regulatory regime will need to work within reality. I am afraid that the fiduciary only people are idealists who do not understand other paradigms and vilify those who live in them without due process.
I have moved on to a fee-only model for investments, and to a certain extent, don't care which standard is decided on in terms of my own practice, however, I am 53 and have been in financial services for twenty years.
I urge caution and common sense in the SEC's approach, because requiring a high standard of care with no means to produce the revenue to support it will simply mean a loss of access to a registered person for the bottom 80% of Americans. You must build reasonable revenue models into the regulatory model.
See the New York insurance model for life insurance commissions. They had to create a model that can produce agents successfully, long term. And so too does the SEC and FINRA. A client-centric regulatory model without adequate regard to the representative and that results in cuts to the field force of more than 50% as in England, will be a failure. Idealistic, yes, but still a failure.