5 Fiduciary standards will emerge from the SEC and DOL, in a strongly applied manner, under a
The foundations for this push are already present, including:
A a keen knowledge among policy-makers of the importance of the
B the substantial coalition of
dozens of consumer and
other groups that support the
C greater knowledge of
just what “fiduciary”
means and what a
bona fide fiduciary
(especially when a
conflict of interest is
D a desire to walk back
the current SEC’s
Interest” (the title of
which is deceptive);
E the desire to occupy
the fiduciary space at
the federal level, as
emerges from more states moving to impose their own
fiduciary standards; and
F greater endorsement of, and less opposition to,
the fiduciary standard as more and more Certified
Financial Planners exist, bound by their voluntary
acceptance of a stricter fiduciary standard than the
SEC currently requires.
The “incidental advice” exemption for brokers from the
application of the Advisers Act also will be substantially narrowed. All this is a question of “when,” not “if.” And, once
instituted for a couple of years, this new era of “fiduciary
investment advice” will be very difficult to unwind.
6 This will drive more firms and advisors toward fees paid by the client rather than fees derived
A There will be a realization that it is nearly impossible to
properly manage a conflict of interest, in order to keep
the clients’ best interests paramount to the interests of
the financial advisor. It is better to avoid conflicts of
interest where possible.
B Fees will reflect the level of service and expertise
applied, and will be “reasonable.”
C While levelized commission platforms will emerge,
questions will arise concerning whether even a
reduced 3% or so commission is “reasonable compensation” under a fiduciary standard, when so little
advice is provided.
D All ongoing (even intermittent but often) investment
advice eventually will become subject to the fiduciary
standard; only quite limited “sales exceptions” and
“education exemptions” will exist.
7 Asset managers’ fees will continue to decline.
A The annual expense ratio of mutual funds and ETFs
B 12b- 1 fees will disappear — if not by regulatory fiat, then
by pressure arising from an ever-increasing number of
fiduciary advisors who understand that 12b- 1 fees add
no value to a mutual fund’s shareholders.
C Other revenue sharing payments will cease.
D Soft dollar payments by funds to brokerage firms will
either disappear by federal legislation, or will diminish
under pressure from fiduciary due diligence.
E Greater focus will emerge on the internal transaction
and opportunity costs within funds and ETFs.
F ETFs will gain greater market share, in part due to
lower transaction costs (as they affect continued fund
shareholders), and in part due to the tax-efficiency of
equity ETFs. (However, Congress may seek again to
change the tax rules in this area.)
G Sharing of securities lending revenue with the investment advisor or its affiliates will be banned.
H As alternative sources of revenue dry up for fund companies, the annual expense ratio (AER) for mutual funds
and ETFs stabilize, but at lower average AER levels than
are present today.
8 “Flat annual fees” — whether paid in quarterly installments or via monthly subscription
services — will become more prevalent.
Asset-based fees will continue, but will decline. Forward-
thinking RIAs will bifurcate fees, charging robo-advisor like
low AUM fees for investment portfolio management, while
charging flat annual fees for ongoing financial planning.
for brokers from
of the Advisers
Act also will be
narrowed. All this
is a question of
“when,” not “if.”