Most Hybrid RIAs Favor Retirement Fiduciary Standard

Hybrid retirement investment advisers and broker/dealers who may sell at least some commission-based investment products are not necessarily opposed to the U.S. Department of Labor’s stalled fiduciary rule, according to the results of a survey conducted by DPL Financial Partners.

The survey, the results of which were released this week, polled about 230 fee-only advisers, hybrid RIAs and broker/dealer-registered representatives about the DOL’s Retirement Security Rule, which seeks to bring under fiduciary care retirement-related investment advice, including annuity sales and one-time rollovers.

For hybrid RIAs and broker/dealer representatives, when ranking on a scale of one to 10, the average score was 6.8 reporting that they believe there should be a fiduciary standard for insurance brokers providing retirement investment recommendations; meanwhile, the average was 8.7 out of 10 for fee-based advisers strongly agreeing with the sentiment.

The results for advisers who may be offering some commission-based sales was of interest to David Lau, the CEO of DPL Financial Partners.

“I wasn’t surprised by the fee-only responses,” Lau says. “I was surprised to the extent that hybrids and brokers agreed with the fiduciary standard.”

Lau, who founded DPL Financial Partners in 2018, is in strong support of the DOL’s latest iteration of the fiduciary rule, which earlier this year was stayed by two Texas federal courts, stays that are being appealed by the department.

Lau’s firm specializes in commission-free and low-cost annuities and insurance products for both RIAs and individual investors. He frames the fiduciary as both the right things for consumers and part of a market movement toward fee-based advisement that has been taking hold for years.

“The [annuity sales] compensation structure, meaning commissions, don’t really align with adviser structures,” Lau says. “Advisers predominantly work on fees, which has been a massive movement for advisers, institutions and clients. … This evolution has been moving in a massive way, and the insurance industry hasn’t evolved with it.”

Insurer Pushback

Several, advisers and insurance industry groups have voiced strong opposition to the DOL’s fiduciary rule. Part of their argument has been that the commission-based system creates a viable model for advisers to work with lower-asset investors who might not otherwise have access to advice. The groups also point to consumer best interest regulations on annuity sales that are already in place at the state level and through the Securities and Exchange Commission.

“The real issue with [the fiduciary rule] is that it would limit consumers’ options for professional financial guidance to only fiduciaries,” a spokesperson for the American Council of Life Insurers said. “A consumer survey finds that middle-income retirement savers would be very concerned about a regulation keeping them from accessing the professional financial guidance they want and need.”

The spokesperson went on to note the surveying, done by Greenwald Research, which found that compensation by commission is sometimes preferable to ongoing adviser fees.

“This fiduciary-only approach was tried in 2016 and proved harmful to retirement savers,” the spokesperson said, referring to a prior rule that was eventually knocked down by the U.S. 5th Circuit Court of Appealsw. “With more than 4.1 million Americans turning 65 each year through 2027, public agencies should be working to expand and not limit people’s options for retirement.”

According to the DOL, existing regulations are not doing enough, and many advisers are presenting themselves as fiduciaries when selling products for commission.

DPL’s survey made the case that hybrid RIAs and broker/dealers do not see the current “best interest” standard as working well, either. When asked if the best interest standard for insurance brokers created consumer confusion about the “role/obligation” of the person giving the advice, RIAs and broker/dealers marked on average a score of 5.9 out of 10 for strongly agreeing, and  on average 6.8 out of 10 for fee-only advisers.

DPL found further support when asking the respondents if they believe insurance brokers have an “unfair advantage” in not having to comply with a fiduciary standard. On average, RIAs and broker/dealers strongly agreed by a score of 5.9 out of 10 that not having a fiduciary standard is an unfair advantage, compared with an average score of 8.4 for fee-only advisers who strongly agreed with the statement.

No matter what advisers may think, the debate over the fiduciary rule is currently taking place in the courts through the stayed cases: American Council of Life Insurers v. DOL and Federation of Americans for Consumer Choice Inc. et al. v. DOL et al. 

Advisers who took the survey were relatively more skeptical that the rule will make it through in something close to its current form. In a score of one to 10, the average was 4.6 for fee-only advisers believing it will get through, with an average score of 4.8 for hybrid RIAs and broker/dealers agreeing.

Market Play

None of the debate has stopped annuity sales from roaring, in part because the heightened interest rate environment allows investors to lock in strong rates. On Tuesday, insurance industry association group LIMRA reported 16 consecutive quarterly increases in U.S. annuity sales by its measure of the country’s largest providers.

Lau does not believe bringing annuity sales under the Employee Retirement Income Security Act will dampen the market. He argues that, with a fiduciary standard, consumers will have more faith in the products that they are ultimately demanding to create guaranteed income streams.

“Annuities are the most controversial mainstream product in financial services because of how they are sold,” he says. “Meanwhile, you have the industry and academics supporting them, and consumers calling for what they provide.”

Lau also notes that fiduciaries can still accept a commission for selling products—but it takes more tracking and work to do so.

When it comes to the fiduciary rule, he sees the upcoming election as having a near-term effect, with a supportive administration—Democrat—giving it a hard push, and a non-supportive one—Republican—likely preferring to let it die.

In the long run, he believes the demand for fiduciary-backed services will win out.

“The market is demanding it, and advisers are migrating to being fiduciaries,” he says. “The RIA market is booming, [and] more people are getting [Certified Financial Planner] licensing, so the movement is happening, regardless of regulation.”

Correction: Story corrects data representation of respondents throughout.