Do Independent Advisors Oppose Expected DoL Fiduciary Rule?

The below article was written by Maddy Perkins on July 10, 2014 and originally published on

As the midterm elections approach and the debate around the Department of Labor’s expected fiduciary proposal rages on, advisors will be paying attention to Washington.

A study by the Financial Services Institute on upcoming elections and industry issues showed an overwhelming majority of respondents oppose the DoL’s expected rule.

The survey, which polled 2,300 independent financial advisors, also asked who would gain control of the Senate (66% said the GOP). Other questions touched on advisors’ retirement, succession planning and equities performance.


However, considering that many independent advisors say they act as fiduciaries, even if they aren’t legally obligated to adhere to that standard of care, the most surprising numbers came in response to the fiduciary question:

“Question 3: Do you believe the Department of Labor (DOL) should redefine the definition of “fiduciary” for financial advisors effectively banning the earning of commissions on IRA advice?”

Ninety percent of respondents said “no.” However, polling experts have long emphasized how questions articulating specific outcomes may influence respondents’ choices. FSI, which conducted of the survey, has been at the forefront of opposition to the proposal.

Initially rolled out by the Labor Department in 2010, the proposal has been consistently delayed as industry groups like FSI and SIFMA lobby against it. Most recently, the DoL moved the proposal date from August to January 2015 and some question whether it might not be shelved completely.

Proponents have argued that a fiduciary rule is necessary to address conflicts of interest in the advice offered to investors, particularly regarding the handling of employee-sponsored retirement plans.

So why are so many independent advisors opposed to the possible change? Some simply don’t want more regulation.

“I feel like my industry is the most heavily regulated industry there is,” says CFP Kurt Cambier, senior partner at Centennial Capital Partners in Littleton, Colo. “When Washington swings a stick they aim to regulate who they can.”


According to Chris Paulitz, senior vice president of membership and marketing with FSI, the reason has to do with the commissions advisors receive. He say the initial Labor Department proposal would have made it “next to impossible” for advisors to charge commissions on retirement advice.

Naturally, advisors who earn mainly commissions may be startled by the idea. “This is their business model,” says Paulitz. “This is how they earn a living by servicing all swaths of clientele.”

FSI and other opponents argue that eliminating commissions on retirement advice would prevent advisors from serving clients at lower levels of wealth. The organization posits that fee-based advice is generally unavailable to investors with small accounts.

“All we are doing is defending small investors with an average IRA of $25,000. Are you going to charge these fees on a small account? Who can do that ethically?” Paulitz says. “You have got to find a way to find investors confident financial advice.”

However, since the DoL has yet to release its new proposal, there’s no guarantee the commissions ban will be included. Additionally, banning commissions is “not necessarily congruent with a fiduciary standard,” says Janet Stanzak, president of the Financial Planning Association.

“The argument that the middle market will not be served when exercising a fiduciary standard suggests an advisor can’t put the interests of the client first when providing investment advice and recommending an investment that pays a commission,” Stanzak says. “As long as the advisor does put the client first and provides full and fair disclosure, there isn’t anything wrong with being paid in the form of a commission.”

But others suggest that fee-only services are simply better for clients.

“There are enough products out there that are fee-only. It would be a better benefit for the clients,” said CFP Matt Jehn, managing partner at Royal Oak Financial Group in Columbus, Ohio. “If people have lower amounts of wealth, commissions hurt them even more. If they have a lower amount they should pay a flat fee so their money can work harder for them.”


Other highlights from the survey indicated that most financial advisors do not plan on retiring anytime soon:

  • 85% of respondents do not plan to retire or sell their practices in the next five years.
  • 71% said they weren’t planning on retiring in the next 10 years.
  • 59% of advisors say they don’t have a finalized succession plan.