Ask Charlie Epstein about the fiduciary rule, and expect an earful. Epstein, America’s self-proclaimed 401k Coach, estimates that between 100,000 to 150,000 advisors will exit the industry as a direct result of the DOL’s Conflict of Interest Rule, known colloquially as the fiduciary rule. A number of broker-dealers will follow suit and get out of the 401(k) business altogether, as well.
“This crazy, unexpected fallout and resulting fear factor in compliance departments is so high at the moment,” he said from the floor of Excel 401(k): The Advisors’ Conference Monday afternoon in Las Vegas. It might sound dire, but leave it to Epstein to add a positive spin (for Epstein, anyway).
“For the smart broker-dealers and advisors, there has never been a better time. In addition to the lucrative nature that can come from figuring it all out, no one really knows yet what’s hiding in [the rule].”
Far from ominous, Epstein reminds advisors that no one similarly knew what a 401(k) was until its “father,” Ted Benna, a resourceful benefit broker, discovered an obscure provision in an arcane tax code that he could apply in a creative manner.
“How much of that kind of thing is in the fiduciary rule just waiting to be uncovered,” he added.
However, his eyes are wide open, and he emphasized it won’t be easy, hence the lucrative nature of the coming fallout.
“Advisors with broker-dealers still need to hire a lawyer. They can’t simply rely on the BDs compliance department. They have to break out of the shackles of their BD, because not once does the DOL say anything about products you can sell, it’s all about services rendered, or compensation for services provided. Will they get sucked into the vortex of ‘billable hours’ like CPAs attorneys?”
The new environment will require a “deep dive” into the DOL’s fiduciary standard of care in order to determine how to “package their intellectual capital and expertise and charge more than their competition.”
In typical Epstein-speak, the Massachusetts-based advisor and the principal of Epstein Financial Group argued that, as a 401(k) advisor, the government “wants me to be as plain vanilla and standard as possible so it can control me.”
Claiming the DOL’s rule was the result of a “hostile takeover of the financial services industry by the legal community through lawsuits,” he emphasized the department has no enforceable powers, and the Treasury Department with which it colluded doesn’t have the necessary manpower, “so they got together with lawyers to figure it out through lawsuits.”
“It’s a set up,” Epstein, the author of Save America, Save! concluded with a wry smile. “Which lawyer will tell me how much I can reasonably charge my clients? Will it be the lawyer that charges $1,000 an hour or the lawyer that only charges $225 an hour?
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Except that as we are now seeing in NY, the states and local government can now put this private industry out of business. They can offer a plan with no liability for the employer or the state. An adviser can’t do that. True they probably can’t optimize a plan the way a good adviser/TPA/Consultant could, and who knows about service but with an employer have no responsibility will they care? This is only the beginning of the end.