16 Defined contribution plans continue to dominate, but broader application of ERISA’s fiduciary
ERISA’s fiduciary protections are extended to governmental
403(b) and other similar non-ERISA plans. Via legislation in
Congress, safe harbor protections are created to absolve plan
sponsors from potential liability — provided fiduciary investment advisors are engaged.
17 One defined contribution plan to rule them all. The U.S. government consolidates the many various
types of defined contribution plans into “one defined contribution plan for all,” with a standard-form utilized for plan adoption and with a simplified menu of options.
All employers are required to offer qualified retirement
18 In the long term, routine examinations and inspections of RIA firms become far less frequent
plans and/or payroll deduction to IRA accounts. Contribution
limits are made more uniform. Defined benefit plans con-
tinue to exist for many government entities and some firms,
but with lower maximum contribution limits; the number of
new employees enrolled in defined benefit plans continues to
decline, overall, in the United States.
Once conflicts of interest are minimized throughout a greater
portion of the investment advisory profession, a cost-benefit
analysis of frequent inspections reveals their lack of true
impact as a means of consumer protection.
Inspections involving firms that possess custody, however,
become more frequent and more robust, as a means of deterring Ponzi schemes and other frauds. More frequent targeted
inspections serve to prevent frauds often start small from
becoming much larger.
It’s also worth pointing out these four threats to the profession:
State-run retirement plans
Continued opposition to the application of fiduciary standards, coupled with
the messaging from broker-dealer firms
that small accounts cannot be serviced
unless high commissions and other fees
can be charged, will continue to fuel the
growth of state-run, low-cost retirement
plans — to the chagrin of all in financial
services who believe that such is not a
proper function of government.
FINRA takeover of RIA regulation
FINRA, whose market share and revenues continue to decline, will seek to take
over the regulation of RIAs (although
the states, along with the CFP Board and
other organizations, will strongly push
back against such a takeover).
If FINRA succeeds, the movement
toward further embracing bona fide fiduciary standards stalls, and even reverses. Rising
regulatory costs from becoming subject
to FINRA would drive many smaller RIA
firms to merge, and the cost of entry into the
investment advisory space would dissuade
many new RIA firms from forming.
Tax policy changes
Substantial changes in tax policy may
emerge that eliminate tax-deferred and
tax-free investment vehicles and products, including any further contributions to defined contribution plans and
IRAs. The elimination of Roth IRAs, in
particular, will be seen as an avenue to
Other tax law changes may force the
annual recognition of capital gains and
losses, as well as have them taxed as
ordinary income. Still other changes
may further eliminate itemized deductions, including all state/local taxes and
“Universal health care” will eventually occur (via a combination of nonprofits and Medicare), and this will
result in the elimination of deductions
for amounts contributed to Health
Savings Accounts. “Tax simplification”
may reduce the value proposition of
some financial advisors, and lead to substantially easier-to-file tax returns (with
“draft returns” prepared for many wage
earners by the IRS itself ).
Monied interests and politics
Powerful economic interests oppose
many reforms, and slow down others.
Without a Constitutional amendment
to overturn Citizens United, efforts to
modify the regulation of financial and
investment advice will be slowed.
But, even then, reform efforts will
continue at the federal and state levels,
aided by broad recognition of the need
to continue to reform the standards for
the delivery of financial and investment
advice, with reforms occurring during
the favorable regulatory climates that
exist from time to time at both the federal and state levels.
Ron A. Rhoades, JD, CFP, serves as the
director of the Personal Financial Planning
Program and assistant professor of finance
in the Gordon Ford College of Business at
Western Kentucky University. He also is
an investment advisor and an estate plan-ning/tax attorney, and he has often served
as a consultant to broker-dealer, RIA and
compliance firms. This article represents his