When the Department of Labor rolled out its Fiduciary Duty Rule for brokers, it seemed like a no-brainer to many. At its core, after all, the whole point of forcing brokers and wealth management folks to assume “a fiduciary standard” with their clients, ensuring going forward clients would receive solid financial advice designed to serve their best interests. Those held to a “fiduciary duty” standard are expected to handle their clients’ affairs with the same prudence they would in managing their own affairs.
Moreover, the fiduciary duty rule means that brokers and wealth managers have no room to conceal any potential conflicts of interest and all fees and commissions are disclosed on products they plug. In essence, the rule was designed to prohibit financial advisors from urging you to utilize a particular product simply because it would monetize a kickback for them. While all of this is seemingly well-meaning, Stephen Iaconis, CERTIFIED FINANCIAL PLANNER™ and Managing Director of Level Four Wealth Management in Birmingham, Alabama, notes one very large chink in the fiduciary rule’s armor: The rule simply doesn’t account for the existence of subpar advisors.
“The fiduciary rule is pivoting people in our industry into going fee-based. There are plenty of financial advisors feeling pretty scared of the Department of Labor with this,” says Iaconis. “If they’re doing the right thing, though, they shouldn’t be worried. The problem is there are financial advisors out there who are just going to flat-out give bad advice, commission or fee-based.” Iaconis stresses this “bad advice” is not necessarily intentional, but rather is the byproduct of a failure to perform an in-depth physical examination of a client’s situation.
Iaconis’ assertion about financial advisors are fearful of the Department of Labor is certainly not unfounded. In fact, a Financial Services Roundtable poll published in early August 2017 determined that 68 percent of respondents would be taking on fewer small accounts due to increased compliance costs and risks. And the cost of being fee-based is, well, an increase in fees. Fifty-two percent of those polled in the Financial Services Roundtable survey specified that they expected higher compliance costs would inevitably end up passed down to clients in the form of additional fees. Additionally, only 12 percent of those polled indicated that the new rule would help them to serve their clients’ best interests. It seems as though the legal reality of forcing financial advisors to uphold a fiduciary duty standard may end up hurting those it was originally designed to protect.
“I think it’s been too oversimplified. People are being taught that fee-based financial services = good and commissions = bad,” says Iaconis. “It’s much more a matter of whether or not you’re using a solid, knowledgeable resource to manage your wealth.”
Another issue Iaconis believes clients often fall victim to when it comes to financial advice is focusing too much on their financial advisor’s persona and not enough on the effects the advisor is actually having on their personal wealth. “I’ve heard clients say, ‘I like my advisor.’ There is a tremendous amount at stake with your financial future to hone in on what a ‘nice guy/gal’ your advisor is. Sure, they are nice, but are they any good?” he explains. Iaconis urges anyone working with wealth management advisors to “give yourself permission to be selfish with your finances.”
He says, “As financial advisors, we’re supposed to be guiding you with your financial future. You’ve worked to create your wealth, so it’s up to you to be honest with yourself about if your financial advisor is doing what’s best for you. Fee-based or commission-based, you know when your interests are put first.”
Iaconis urges people to seek out financial advisors with good reputations and specific professional designations, such as the distinction of being a CERTIFIED FINANCIAL PLANNER™.
“Your financial advisor, in many cases, could help you by taking on the role of CFO (chief financial officer) of your personal finances. Their job is to look at where you are financially, find out where you want to be, and then determine the most effective ways of getting you there,” says Iaconis.
Stephen D. Iaconis, CFP® is a registered representative with, and securities are offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Level Four Advisory Services, LLC, a registered investment adviser. Level Four Advisory Services, LLC and Level Four Wealth Management are separate entities from LPL Financial.
Investing involves risk including loss of principal. No strategy, including diversification, assures success or protects against loss.
This article was prepared by Alabama Media Group.