The Fight for the Fiduciary Standard: Addressing Industry Pushback

Lately, I’ve been speaking out about the financial services industry’s resistance to the fiduciary standard. Many of you know that I view this as one of the most critical issues facing investors today. I want to take a moment to address the arguments the industry is using to try and derail the implementation of the fiduciary standard.

Industry Spin #1: The Fiduciary Standard is “Unworkable” for Broker/Dealers

The financial industry claims that the fiduciary standard is simply unworkable in the current Broker/Dealer environment. They argue that brokers and dealers won’t be able to operate effectively under this new standard.

While this may be true for some, the reality is that firms like Gainplan have successfully been operating under fiduciary guidelines for decades, adhering to the Investment Advisors Act of 1940 and ERISA. In fact, there are over 11,400 investment advisor firms, managing more than $67 trillion in assets, that already operate under the fiduciary standard, serving over 30 million investors—both large and small.

The truth is, the fiduciary standard is not only workable but sustainable. It’s also better for clients. According to Mark Egan, an Economics Professor at the University of Chicago, “Holding brokers to a fiduciary standard over the period of 2008 – 2012 would have increased investor returns by as much as 2.73% per annum.” This performance difference is likely due to reduced commissions and lower fees—key areas where the fiduciary standard outshines the current system.

Industry Spin #2: “Best Interest” vs. “Suitable Advice” – Are They the Same?

The industry argues that “best interest advice” (fiduciary standard) and “suitable advice” (suitability standard) are simply two terms for the same concept. If this were true, the financial services industry wouldn’t be spending millions of dollars trying to block the fiduciary rules. Instead, they would simply agree to the standards and comply.

The industry knows that once the fiduciary standard is enacted, brokers will no longer be able to sell higher-priced products with inflated commissions. This would eliminate the conflict of interest inherent in the current system, where brokers’ compensation is tied to the products they sell, not the best interests of their clients.

Will some brokers and Broker/Dealers be put out of business? Perhaps. But they will be replaced by a new generation of investment professionals who are dedicated to putting their clients’ interests first. The financial services industry continues to grow each year, with increasing complexity in financial products. Professionals trained to navigate these challenges and protect clients’ interests will remain in high demand—they will simply be required to operate ethically and without conflict of interest.

Industry Spin #3: Will Smaller Investors Be Neglected?

One argument the industry uses is that the fiduciary rule will cause brokers to abandon smaller investors, leaving them with either no advice or the burden of paying higher fees. While I acknowledge that smaller investors might face challenges in finding affordable advice, I do not agree that this will result in higher costs for financial services.

In fact, the current system under the suitability rules allows smaller investors to be taken advantage of with hidden fees buried in financial products. Just because smaller investors aren’t aware of these costs doesn’t mean they aren’t paying them. I, for one, would much prefer a transparent, upfront fee structure for professional advice rather than being misled by hidden transaction fees, surrender charges, or internal expenses.

Some financial institutions, like Vanguard, are already offering low-cost solutions tailored to smaller investors. The key takeaway is that the fiduciary standard would expose these hidden costs and make financial advice more transparent. It’s better for investors to understand their costs from the outset than to be blindsided by charges down the line.

The Real Impact of Hidden Fees

Let’s wrap up with one last thought: Over the course of 30 years, just 2% in additional fees each year can reduce a retirement investor’s nest egg by 30%. Those upfront fees and commissions that brokers charge really add up.

In the end, the bottom line is clear: clients should always come first in the financial services industry. It’s time for Congress and the entire financial industry to embrace the fiduciary standard, ensuring that investors’ best interests are always prioritized.

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