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Thread: Brokers fighting the fiduciary rule make two arguments. First, they don't want to charge asset-based fees. Second, they worry that small clients will be left behind. 1/
As I've stated before, asset-based fees are common in fiduciary accounts, but should not be THE defining characteristic. The purported reason they are currently the defining characteristic is that asset-based fees keep adviser and client interest aligned and reduce conflicts. 2/
As I've also noted before, dual registered RIAs (meaning they are also registered reps or their firm has a b/d affiliate) are legally fiduciaries. But they have tons of conflicts: e.g., cross-selling products like insurance, affiliated mutual funds, revenue sharing. 3/
Why are direct commissions the one conflict that they "officially" can't have when the others are equally bad or worse? 4/
Further, and @BarbaraRoper1 makes this point: How are 1% C shares or 25bp 12b-1 trails from A shares different than an asset-based fee? Can't a broker figure out what each of his client pays him each year (100 or 25bp), switch to a no load fund and charge this directly? 5/
If the broker properly explained to his clients the funds he sold them, they should not balk at this and the broker will lose zero business. Is this the concern of most brokers, that they would have to explain this and clients would balk/leave? 6/
How many brokers are out there still selling A and C shares? My data show net outflows from these funds, but obviously someone is selling them because there is complaining. Are there still brokers out there that just sell these shares and provide zero other advice, ever? 7/
And if so, I am sort of OK with this! But I think it very, very, very rarely happens in mutual funds. A, B, and C shares are defined by their complicated and opaque fee structures. 8/
But, if you are acting as an adviser, even just a little bit, you need to be a fiduciary. And then, to me, simply collecting an asset-based fee does not make you. You'd better address all the other conflicts I mentioned in 3/. 9/
IMO, regulators have gotten themselves in a mess by making asset-based fees THE defining characteristic of being a fiduciary. It gives brokers something to actively fight against when the underlying spirit of the standard is far more subtle than the fee structure one chooses. 10/
