The industry turned out in droves this week to front the US Department of Labor’s hearing regarding the introduction of a fiduciary standard.

Over four days and almost 40 hours – the equivalent of almost completing Series 1 to 5 of Breaking Bad – big-wigs and influencers pushed their viewpoints and interpretations of what the changes would mean?

Essentially the issues are the same issues as faced by other markets. Non fee-based advice has long been subsidised by product payments and commissions to ‘distributors’.

This has created a perception among some consumers that financial advice is free.

The hook for taking advice may not be quite as powerful as the compulsion felt by Mr. White’s customers for his cyan-blue Crystal Meth products, however basic economics point to rising consumption of a good or service if it’s price reduces.

Although, in the case of (subsidized) financial advice it wasn’t exactly a Boxing Day sale rush! Other factors combine to keep people away from taking advice – education, wealth levels, engagement, apathy etc.

Nonetheless, the argument from manufacturers is that by pushing people into fee-based models from ‘free’ commission subsidized alternatives will result either in lower balance clients paying too much for the service or removing themselves from the market completely.

Internationally this has created an Advice Gap. However it has also spurred the entrance of new models into the market, supported by technology for example, in providing more affordable solutions to lower asset-level consumers and those unwilling to pay (much) for advice. Some of these offers also appeal to higher-balance investors.

Yet, fear of an Advice Gap is no reason to hold back.

The removal of potential bias in financial advice product selection and greater transparency afforded to consumers are both huge positives.

The impact of removing commission on certain products and services is really an opportunity for the industry to introduce new models and ways of distributing products.

Thus the move to greater transparency with the intention of driving better outcomes for consumers is to be applauded.

Some of the approximate 80 speakers at the DOL hearings stressed this will push costs up and in some cases lead to worse outcomes for consumers, e.g. force clients in broking accounts into more expensive fee-based accounts.

One provider even tried to sound altruistic, claiming the change would mean $150m more in revenue for his firm that he doesn’t want.

In reality it wouldn’t equate to $150m as many would be lost either completely to the industry or will find their way to some of the new alternatives being introduced.

At the end of the day, professional, impartial financial advice benefits the majority of people who receive it (can afford it or are prepared to pay for it).

The sad outcome is that some people will make poor choices without the assistance of an advisor and some people will make poor choices with an advisor. While some scallywag advisors will seek to personally benefit from the choices they make on behalf of clients – in extreme cases this manifests as fraud.

But so long as the industry maintains it’s trajectory of client focussed outcomes and solutions-led products and services with the end customer always in mind, then the aggregate benefit delivered by the asset management industry without commissions muddying the water will outweigh anything it’s been able to deliver 30 years ago, 20 year ago, or even 10 years ago…

The future is all about the customer.

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