The most unlikely hero has come to the rescue of advisors offering analysis on whether commissions can exist under a fiduciary standard.
Timothy Hauser, the U.S. Labor Department’s deputy assistant secretary, came to the rescue of U.S. advisors earlier this week confirming that commissions won’t be done away under any new fiduciary rule, and the reverberations could be felt all the way up to Canada.
"We are absolutely not banning commissions," he told Financial Planning magazine a day after hearings to draft a fiduciary rule. "We just want everyone who is working on retirement accounts to be acting as fiduciaries."
That’s good news for Canadian advisors now facing calls to implement a copy of the American requirements – whatever they turn out to be.
Hauser made it perfectly clear that the DOL isn’t trying to get rid of commissions but rather that it simply wants to eliminate conflicted advice ensuring advisors are acting in the best interests of clients.
"I wasn't really calling into question whether commissions are OK or not," Hauser said. "We are trying to do something to take those conflicts of interest [in commission sales] and tamp them down."
The Labor Department’s found that the quality of advice received by clients when there aren’t any conflicts is superior to advice given when there are. They’re simply interested in providing Americans with the best retirement advice possible. It’s not to take away an individual or company’s ability to make a living.
"Our aim is not to reduce anyone's profitability," he said. “But unfortunately financial incentives really matter. It's easy for people to talk themselves into [putting their own financial interests first]. We are trying to change that."
Ultimately, the DOL will provide a “best interest contract” exemption that allows for the sale of commission products as long as advisors and their firms agree to put their clients’ best interests ahead of any income generated by those commission products.
Critics of the plan believe this will create a mountain of litigation but the DOL don’t quite see it that way.
“It's not like we are trying to generate business for trial attorneys. I think this proposal will create more of a level playing field for firms that are not playing with a conflicted model,” said Hauser. “The fiduciary rule will strengthen the entire industry.”