GVT: Your Best Interest - Geoffrey E. Blyth

Geoffrey E. Blyth
Geoffrey E. Blyth
Senior Vice President, Chief Investment Officer
gb@geneseevalleytrust.com
585.586.6900

July 2016

On April 6th, the Department of Labor (DOL) released its long-anticipated fiduciary rules governing the oversight of retirement accounts by financial advisors. (The rules do not apply to non-qualified account investments.)

The “streamlined” (per Secretary Perez) rules, a 1,028-page volume, were meant to simplify the way the financial industry delivers retirement savings advice. Labor Secretary Thomas Perez said,

“Today’s rule ensures putting the clients first is no longer a marketing slogan, it’s the law.”

In short, the rules require any investment advisor receiving compensation for making individualized investment recommendations to a retirement plan participant or Individual Retirement Account (IRA) owner to now be a fiduciary. A fiduciary is one who holds a legal and ethical position of trust, usually as regards the care of financial assets.

They must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest. As a fiduciary, advisors on retirement accounts will now be held to a higher standard than what most retirement advisors adhere to today – a lesser “suitability” standard that lets them recommend products that are suitable but not necessarily in their clients’ best interest.

That’s right. Product-peddling advisors have not explicitly been required to have their clients’ best interest in mind.

The final rules make clear that recommendations to roll over 401(k) assets to an IRA are subject to the fiduciary rules. The rules acknowledge that a decision to move assets out of a 401(k) may be based on factors other than fees, such as a broader range of investment choices or more personalized investment advice. GVT has long been involved in these two areas, and is already uniquely qualified to administer the new rules.

The financial industry has battled the DOL over these rules and will most likely continue to attack and litigate them, even after winning significant concessions. Why? There is a lot of money to be lost by firms/advisors implementing these new statutes.

LPL Financial Holding, Inc., a large company of independent financial advisors, cut fees by up to 30% in March, and, according to Obama administration estimates, imposing a fiduciary standard on advisors to retirement accounts would save investors some $40 billion over the next 10 years.

Most advisors want to put their clients first, but operate in an environment where misguided economic incentives often prevent that from happening. With the rules in place, advisors will compete based on the quality of the advice given, not the quantity of compensation received.

By virtue of our Trust Company status, GVT is, and has always been, a fiduciary. It’s in our DNA, having exercised fiduciary powers for almost 23 years.

The fact that the financial industry is just now regulating a standard of conduct to do what is inherently right, speaks volumes about the lack of transparency and honesty in the industry. Senator Elizabeth Warren (D. – Mass.) bluntly opined, there will no longer be “slick-talking advisors pushing complicated products.”

Our clients are our partners and we work very hard so that they can attain their financial goals. Their success is our success.

As the debate over these fiduciary rules continues, we question whose interests are being championed, the industry or their clients. For GVT, our clients’ best interests have always been our moral compass. That won’t ever change, rules or no rules.