By Mark Rylance, CFP®, CFT ™
It all started nearly 40 years ago around a kitchen table. That was the official beginning of RS Crum as told by Dick Crum, our founder and champion. It was at this kitchen table that Dick counseled a young couple about their budget, helping them find more money to save.
The young couple said at the time (I’m paraphrasing) “Dick, you’ve been so nice, how can we pay you for your time?” Unfortunately, at that time, they couldn’t. There was only one way for an advisor to get compensated, and that was by selling them an investment product (like a stock, mutual fund, insurance product, etc.), which carried huge commissions, not to mention they had to have a lot of money to invest in the first place. That’s when the light bulb went off! What if I charged a fee for my time, regardless of whether they purchased an investment product? This was the birth of “fee-only” advice at RS Crum. With this one decision, RS Crum became a fiduciary.
The fiduciary standard requires advisors to act impartially and provide advice that is in their clients’ best interest, and in doing so, fiduciaries must act with the care, skill, and diligence that a prudent person would. A fiduciary must avoid misleading statements about fees and must avoid any and all conflicts of interest.
Flash forward 40+ years to today and brokers, insurance agents and other product salespeople still will not claim the fiduciary title and commit to work in their client’s best interest; that was until last year when the Department of Labor introduced a new rule that would require providers of employer investment plans (i.e. 401k, etc.) to become fiduciaries. The rule was scheduled to go into effect in April 2017. Unfortunately, with the stroke of a pen, President Trump issued a memorandum that will delay the implementation of the rule by 180 days; and more than likely, permanently.
Advisors to the President claimed that the fiduciary directive was an unnecessary regulation. Gary Cohn, one of President Trump’s economic advisors described why he thought the rule was terrible in the Wall Street Journal noting that “companies would be forced to offer retirement products with the lowest fees even if it isn’t best for the client.” Apparently paying the lowest fees possible is bad for the client — they can only make this up on Wall Street and in Washington DC.
With the ruling, Wall Street will go back to business as usual, charging high fees for their 401k products and other services. Brokers will continue to be governed by a “suitability standard”, which states that as long as an investment recommendation meets a client’s defined need and objective, it would be deemed appropriate — falling well short of a fiduciary standard. I have always wondered why the brokerage houses would not want to abide by a standard (fiduciary) that directs them to work in the best interest of clients, but I’ll let you fill in the blanks on that one.
The good news is that regardless of the actions of Washington DC and Wall Street, we know what is right. Putting our clients’ interest ahead of our own has been at the core of RS Crum for over 40 years and will continue well into the future. We are eternally grateful to have had a visionary like Dick Crum show us the way for so many years.