Just prior to drafting this paper, I did a quick search in my Outlook Inbox for “DOL Fiduciary”- 192 results….and that doesn’t include the ones I’ve already sent to the Deleted box. So if you’re a financial advisor and you’ve not been inundated with like emails, you’re either a master at Outlook’s incoming mail rules or your internet connection is dead.
As you know by now, the Dept. of Labor (DOL) has issued their final issues on a Fiduciary Rule; simply put, advisors who “receive compensation for making investment recommendations that are individualized or specifically directed to a particular plan sponsor running a retirement plan, plan participant, or IRA owner is a fiduciary”. [note- we’re drawing the distinction between fiduciary and suitability standard]
For years now, I – like many others - have listened to the likes of Suze Orman, Dave Ramsey, Jim Cramer, etc. And like many of you I suspect, I have gasped at some of the advice I’ve heard dispensed thinking, “They can’t say that! They don’t know anything about the client!”. So when the Fiduciary Rule was in its infancy and there was discussion of restrictions on radio and TV personalities, I thought – good, about time. Not so fast…..
But - according to the ruling - Are the personalities mentioned above providing advice “specifically directed” to an individual or to a general audience? The DOL has expressed that the intent of the ruling is not to regulate journalism or the entertainment industry, but rather to ensure paid investment professionals are making recommendations that are in the best interest of the investor. One point for Suze. [Is Suze a Fiduciary: No 1, Yes 0]
Tim Hauser –DOL deputy assistant secretary- said “If you’re not getting a fee for a recommendation you are not a fiduciary…”. What about Dave Ramsey? He receives fees from advisors that have paid subscriptions as being an ‘endorsed local provider’. Does that qualify as being “paid”? Not according to the DOL. Another point for Suze. [Is Suze a Fiduciary: No 2, Yes 0]
But wait Suze, I caught you here: Under the Regulation, you are providing investment advice if you: ….provide to an IRA owner a recommendation regarding: (among other things) the management of securities or other investment property, including:- investment policies or strategies;- portfolio composition;
Gottcha! How many times have I heard you discuss portfolio strategy and allocation (read: composition)? And I have you on this too: the DOL defines a recommendation to be: "A communication that, based on its content, context, and presentation would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action." Or one that, “appears that a recommendation is one that would reasonably be an encouragement to act.” One point for me! [Is Suze a Fiduciary: No 2, Yes 1]
The DOL goes on to clarify: generalized suggestions to the public that are not targeted to a given individual are not recommendations. Wait. What? I am penalized a point [Is Suze a Fiduciary: No 2, Yes 0]
At the risk of going into extra innings, the DOL has concluded that Suze (Jim, Dave, etc.) is not a fiduciary, hence not held to fiduciary standards. However, in closing my thought is - If you don’t want to be a fiduciary and you don’t want to be responsible for your investment advice, don’t give investment advice.
From The Federal Register, Vol. 81, No. 68: Thus, the final rule includes a new ‘‘general communications’’ paragraph (b)(2)(iii) as an example of communications that are not considered recommendations under the definition. This paragraph affirmatively excludes from investment advice the furnishing of general communications that a reasonable person would not view as an investment recommendation, including general circulation newsletters; television, radio, and public media talk show commentary; remarks in widely attended speeches and conferences; research reports prepared for general distribution; general marketing materials; general market data, including data on market performance, market indices, or trading volumes; price quotes; performance reports; or prospectuses.