Apr

6

There are big rule changes coming down the pike for Financial Advisers, Brokers, or anyone who sells and/or implements a financial product for a client.

Here is a very brief overview of the Fiduciary Rules that were released overnight. I have a link at the bottom if one would like to read more on the subject matter. I'll try and write more on the subject as I can.

This is one of the biggest changes that has come down from regulators in years. I was talking about this to one of my employees yesterday. He was worried about what this would mean for us. I told him not to worry because we already act as fiduciaries and disclose any possible conflicts of interest that may arise from time to time.

But, as I told him, there is one big change that will likely (and we now know I am likely right) come from this: MORE PAPERWORK.

The regulators have come up with something called a "Best Interest Contract" (BIC). I haven't seen one yet, but I'm sure it will be at least one more page of paperwork, likely many more.

This will, almost certainly, create new paperwork for the clients to sign. The problem this creates is that there is already WAY TOO MUCH paperwork for clients. I know the regulators think they are making things better for client by creating this type of disclosure, but in reality, it makes things worse. If clients carefully read and reviewed everything I'm required to give them, there would likely be close to 1000 pages of disclosure documents (more in many cases) that they'd have to go thru.

What's worse, is that most the disclosures are written by lawyers for lawyers. The average person can't understand what is written let alone "see the whole picture" that is presented in all the documents.

So this will effect me by the increase in paperwork that new (and possibly existing) clients must sign. I don't see how it will have anything other minor "other effects" on my business.

However, my friends that are in brokerage business and sell commission based products for a living are likely going to be in for a big surprise. Now, I don't yet understand what the level of surprise is for them, but I think it will be big. We'll have to wait to see how the individual regulatory agencies are going to interpret and enforce what is in these new rules.

Final thought (and this is strictly opinion): This is a wonderful thing for big financial businesses and a horrible thing for the small financial businesses. Sure, this will initially cost the big brokerage firms a lot of money in the beginning. But don't worry, they can afford it. The good news for them is that the more complicated things get, the more compliance intensive things get, the more compliance/regulatory costs rise, the more it squeezes out the little guy. And if you're a big guy and in this for the long haul, this is even a better deal because it makes it even more difficult for new little guys to start up their small shops.

Here is a link that gives some additional color on the new fiduciary rules.


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