Calming down the Broker-Dealer Phobia

It seems that if you can think of something, there is a possible phobia associated with it. I pulled up a list of phobias off of the internet. The top 100 phobias list the common themes that maybe some of you have. Spiders and Snakes make up the top two and rounding out the top 5 are heights, crowded spaces and dogs. These are the ones you would expect. While we are indulging the topic, lets look at some you may not have realized. Number 26 on the list is Hippopotomonstrosesquippedaliophobia, which is the fear of long words. I will try to not spook you in this article with that. Number 17 is Alektorophobia – The fear of chickens and Number 37 is Phobophobia – The fear of fear. Some of them are quite entertaining.

Having said all that, it seems that when new things come around, there is the legitimate number 33 on the list, Metathesiophobia – The fear of change. On April 6, 2016, The Department of Labor laid down the fear card with it’s new Fiduciary Rules. While everyone in the retirement plan business has been wrapped up in the new rules and the fear associated with it, the big question keeps coming from the broker dealer channel. Should we even let our advisors sell retirement plans? Should we allow them to pick investments or yet alone offer a preferred list?

The new Fiduciary Rules in the simplest of terms state that an advisor must act in the best interest of the client. Now, who could argue with that? The very essence of a retirement plan is that a plan is established and operated for the benefit of the participants. With this statement in mind, why did we have to come out with these new rules that put Theophobia in the mind of every person in the industry? Theophobia would be the Fear of God. I am not an attorney and I don’t dive into breaking down the syntax and hermeneutics of the code. But I can read and listed to those that have. It seems that the basic thought is that an advisor shouldn’t make more money based on the type of investment that is chosen. I know there is more to it than that, but I believe this makes up the pure intent of the law.

So lets get to our topic. How does this cause fear in the broker dealer community? I can’t tell you how many conversations I have had with broker dealers that fear their advisors activity in this area. Not that they think they are bad or malicious, but fear of little careless common mistakes that cannot be overseen 100%. The fear that they will be taken to court thru the actions of an advisor acting on their own, compares to snakes and spiders for the common person. So what is to be done?! I thought you would never ask.

Fees! That 4-letter dirty word to the powers that be and the lifeblood that fuels all of our endeavors for those of us that work in the industry. How do we come to a place of commonality? How do we keep the authority that is necessary in balance with the opportunity of involvement by advisors? Here is where the difficulty starts for the broker dealer that supervises commission only advisors. It sure seems that this is the first step to lead all the horses to one trough of water. Not calling advisors horses at all. If all advisors utilize the fee based approach instead of commissions, most bench-marking and comparison would be more like apples to apples in the mind of the Department of Labor. And in their mind, it would be easier for a plan sponsor to understand what is being presented to them in the sale process.

At FutureBenefits of America, we have been utilizing the fee based approach to retirement almost exclusively for 10 years. All of the MEP’s we administer are all fee based with no rebates on funds. The utilization of Portfolio Strategist has helped strengthen the offering since almost all strategist take on the role of 3(38) fiduciary oversight of their work. In addition, an outside fiduciary oversees the plan as sponsor and trustee. This approach has bought much comfort to the many broker dealers we have worked with. Those that have been with us before the new rules came out were able to enjoy life without the fears of fiduciary rules.

Let us know if you are tired of dealing with Fiducio-phobia (we just added that one to the list). We can help with your prognosis.