Are Fiduciary Advisers the death-knell for the middle class?

Tina Haapala |

Written by Gary Silverman, CFP®

According to FINRA’s CEO Richard Ketchum, a Department of Labor proposal to raise the standard brokers have to meet to give investment advice will cause the end of any such advice to any but the most wealthy citizens.

To that I say, “Hogwash.”

I’ve tried to keep my mouth shut regarding this battle because I am involved in it. As a fee-only Registered Investment Adviser licensed in Texas I am required to give fiduciary-level advice. That means when I give advice to a client I have to put their interests above mine and only recommend things to them that I think are best for them, even if I lose revenue because of it. Brokers have to meet a suitability standard. This means recommending a “suitable” investment which may or may not be (in the broker’s opinion) best for a client.

The Securities and Exchange Commission is also looking at this same area, but even the head of that agency admits she may not have the votes to pull it off.

Why the fuss? If you listen to the big brokerage firms back East, they’ll say that it’s impossible to make a profit on anybody other than the wealthy if they work for fees alone. According to them, only commissioned products allow enough profit to the brokers and their representatives to allow them to earn a living. They doubt they can fit those products under a fiduciary regulation, so to them fiduciary equals no advice for the middle class. After all, they contend, all those fiduciary advisers require their clients have a minimum of $1 million or more to invest. That certainly knocks out most middle-class clients.

I dunno about all that. Okay, I’ll give them the fact that most people who are middle-class don’t have $1 million in their 401(k). But somehow that hasn’t stopped me from making a pretty good living…with no minimums required. There are large groups of advisers out there, who hold themselves to fiduciary standards, who specialize in serving the middle-class.

Unlike some of the East-coast power brokers, those advisers, as well as myself, don’t have multi-million-dollar salaries, stock options that add millions more, or the ability to win that Aspen vacation if we sell enough stuff. Maybe if some of that went away they could figure out how to serve the normal person profitably.

Both brokers and advisers have been known to rip off their clients in a number of ways, so no matter what rules exist people seem to be quite able to ignore them.However, saying that it’s bad for the client when an investment adviser offers the best advice is ridiculous. Not to mention a bit self-serving.

I’m not holding my breath for a fiduciary standard coming any time soon. As I write this Congress is having hearings on the issue. The large brokers have a powerful lobby. If only Congress had a fiduciary standard of its own.


This article was published in the Wichita Falls Times Record News Your Money column on September 13, 2015.