July 30, 2010
The fiduciary standard should not replace the suitability standard already in place. There is no proof it provides more protection for the consumer and actually harms consumers by increasing costs and uncertainty for the financial professionals they work with. These costs will be passed on in increased fees or decreased services available. The number 1 reason to work with an advisor is because things WILL change and any plan will need to as well. Suitability standards are fine for this, fiduciary standars under a 20/20 hindsight basis are completely inapproriate, especially in light of increased costs and compliance. There seems to be a perception that a fee only advisor is giving unbiased advice. There are 2 huge flaws to this premise: 1) not everyone can afford the fees, I just met with 2 clients for simple IRA enrollment for an hour at their work, that may generate $40 in yearly compensation. What fee only planner has a category for an hour of time on retirement for $40 an hour? 2) A fee only planner is more profitable as they provide less time and service. They have their retainer, now they hope they are not needed so they can spend time in pursuit of additional fee paying clients. In summary, the fiduciary standard is expensive, and actually provides less protection for consumers than the suitability standard in use today does.