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Exclusive Interview with fi360’s Blaine Aikin: DOL’s Fiduciary Rule “Takes Advisors to a Fork in the Road”

Exclusive Interview with fi360’s Blaine Aikin: DOL’s Fiduciary Rule “Takes Advisors to a Fork in the Road”
October 18
00:02 2016

Having covered the fiduciary industry from more than seven years now, it’s easy to run into the same people over and over again at major conference, events, and confabs. Blaine Aikin is one of those people. He’s the Executive Chairman at fi360 and is a sought-after thought leader in fiduciary responsibility. With more than 25 years of industry experience, Blaine is well-versed in all areas of fiduciary duties and best practices, as they relate to financial advice, investment management, investment products/platforms and business development.

For those not familiar with fi360, it helps financial intermediaries use prudent fiduciary practices to profitably gather, grow and protect investors’ assets. Since 1999, the firm has provided financial professionals with the education, designations, training and tools necessary to act as a fiduciary in their work with investors. Headquartered in Pittsburgh, PA, fi360 is the home of the Accredited Investment Fiduciary® (AIF®) designation, the fi360 Toolkit® and the fi360 Fiduciary Score®.

FN: Blaine, welcome back to the FiduciaryNews.com Exclusive Interview series. It’s been a little more than three years since we’ve featured you and a lot has happened since then. Before we get into that, would you care to share with us any personal milestones you’ve achieved since we last spoke?
Aikin: It’s great to be back with you, Chris. It has been a busy three years. This year has been particularly busy, not only on the fiduciary front with all of the regulatory changes, but on the personal-professional front as well. At the beginning of the year I changed roles at fi360, transitioning from CEO to Executive Chairman. Over the past couple of years we assembled an incredibly talented leadership team. Our former COO, Bill Mueller, has become CEO. Bill is an operational wizard and has taken responsibility for the internal operations of our rapidly growing company. That change has allowed me to concentrate more on marketplace developments, interact with our clients and stakeholders, and contribute to the field of professional investment advice.

With respect to contributions to the profession, this year I became Chair-elect of CFP Board of Standards. That role has certainly kept me busy and has been incredibly fulfilling. I will have the honor of serving as Board Chair in 2017. We will be ramping up the new Center for Financial Planning and taking action on recommendations from a special Commission on Standards that has been working on CFP Board’s Standards of Professional Conduct. It is an exciting time to be deeply involved in this profession.

FN: Let’s talk about the DOL’s Conflict-of-Interest (a.k.a. “Fiduciary”) Rule. What do you see as its strengths?
Aikin: Let me highlight three strengths:

First and most fundamentally, the Rule effectively closes the definitional loophole that has allowed personalized investment advice to be rendered without fiduciary accountability. This essentially restores the “natural order” in the sense that society must be able to rely on professional advisors to serve clients’ best interests, whether it is in regard to law, medicine, or financial services. That was clearly the intent under ERISA but it has not been the reality. The rule makes clear that advice involves enforceable fiduciary obligations.

Second, the Rule crafts a workable, although cumbersome, way of accommodating established business practices that involve inherent conflicts-of-interests (such as non-level compensation and proprietary products) within a framework designed to assure that investors’ interests are protected. This framework is based upon prohibited transaction exemptions, most notably the Best Interest Contract Exemption (BICE).

Third and most importantly, the Rule is serving as a catalyst for needed change in the overall field of professional investment advice, not just in the retirement space. I love working in this field and want financial advice to be recognized by the public as a respected, trustworthy profession. We have great practitioners in every segment and business model within financial services, but we have been operating in a broken system when it comes to advice. We have been trying to build our profession on an unstable foundation when we have two different standards of conduct for practitioners. A strong foundation for professional advice requires a consistent culture of fiduciary responsibility and enforceable adherence to the fiduciary duties of loyalty and care.

FN: What do you see as its weaknesses (and how might they be addressed)?
Aikin: The weaknesses of the Rule can be summarized in one word – complexity.

There are intricacies in the Rule that are extremely challenging to digest and apply. The framework the DOL has crafted is a balancing act. It seeks to accommodate common yet conflicted business practices and simultaneously assure adherence to fiduciary principles. The framework is very complicated as evidenced by the 1000-plus pages associated with the Rule. Having said that, I think the balancing act the DOL was called upon to perform could only be accomplished by building all kinds of guardrails around current business practices.

The Rule takes advisors to a fork in the road. One fork takes you down a fairly straight and narrow road with few obstacles, the other is winding with diversions along the way to deal with obstacles raised by conflicts. I think most firms are going to make any changes necessary in their business practices to take them down the straight and narrow lane that is more clear and certain.

The DOL will definitely need to issue a steady stream of clarifications and adjustments to allow firms to understand and comply with the Rule. More importantly, firms will need to use sound business judgement to adapt to meet the intended purpose of the rule, which is to achieve fiduciary accountability for investment advice professionals. In short, the path of least resistance to overcome the weakness of complexity is for firms to adapt to the fiduciary principles upon which the Rule is based versus trying to adapt the fiduciary standard to conflicted business practices.

FN: Even if somehow the Rule is rescinded, how might the fact that it has let “the cat out of the bag” mean competitive forces will make it a practical reality with or without the formal regulation to back it up?
Aikin: You hit the nail on the head. There is no turning back. Most firms are in motion in the fiduciary direction and the momentum is unstoppable.

The reality is that regulation is a lagging indicator of marketplace developments. The competitive momentum for fiduciary accountability has been building for some time. With growing marketplace transparency through better disclosures and technology-enabled benchmarking, costs of conflicts have become increasingly apparent. At the same time, consumer advocates have taken up the cause of educating the public to the importance of fiduciary advice.

Objectively speaking, what we all want from our professional advisors is trustworthy and competent advice. Having a rule that requires ALL advisors to be fiduciaries dramatically accelerates the trend to fiduciary accountability that was already building.

FN: And what about the SEC? How do you see them following up on the DOL’s Rule? Will the same market forces alluded to above make it difficult for the SEC to ignore formalizing the fiduciary standard?
Aikin: Yes. The poor politically-polarized SEC is caught between a rock and a hard place. The rock is internal political gridlock within the Commission and the hard place is the reality that the marketplace and the DOL have created a force for change that is powering past the Commission.

The longer the SEC waits to act, the more its relevance is diminished.

Keep in mind what the Dodd-Frank Act requires of the SEC if (when) it decides to extend the fiduciary standard to all who provide advice to retail investors. It must impose a standard that is no less stringent than the Investment Advisers Act of 1940 and it must recognize that commissions and proprietary products are not inherently at odds with fiduciary obligations. That guidance requires the same balancing act that the DOL just confronted. I can’t see the outcome being much different.

FN: We’re already beginning to see changes in the industry (Merrill Lynch just announced it was removing commissions from its IRA offerings). How do you see this dynamic playing out within the industry? How might the switch towards emphasizing “fiduciary” among the largest industry players put more pressure on the traditional fiduciaries (i.e., generally smaller RIAs)?
Aikin: The largest industry players have some inherent advantages; most importantly, infrastructure. Technology is obviously becoming increasingly essential to increase efficiency and provide advanced capabilities for advisors. The resources of these large players to keep on the cutting edge of technology and to offer administrative and compliance support are formidable.

The major disadvantage of many large players is an entrenched sales culture and the infrastructure that has been established to support it. These are big ships to turn and my sense is that some will try to damn the torpedoes and steam ahead without making the necessary course adjustments. This won’t work. The firms that will be most formidable in the marketplace going forward will be those that turn quickly to put the wind at their backs.

I think smaller firms with increasing need to specialize, invest in technology, and build brands of professional excellence. These firms can be more nimble, manage a more consistent identity and brand, and build upon the head start they often have with respect to a culture of fiduciary responsibility that is woven into the very fabric of the organization. That said, there will be continuing consolidation in this space to address the advantages of scale.

FN: With the greater interest in “fiduciary,” one could easily imagine this having a positive impact on an organization like fi360. How have you seen your membership (both current and prospective members) react as a result of the DOL’s Rule? What kinds of benefits and services do you see them asking for in light of these regulatory changes?
Aikin: Since the DOL rule announcement last April, we have seen unprecedented demand for our training and services. Engagement from existing designees (most notably the Accredited Investment Fiduciary® (AIF®)) has been higher as measured by attendance on our monthly webinars. Interest from prospective broker-dealers and advisor clients has resulted in record-setting new designee totals in recent months. In addition to strong demand for fiduciary training (for advisors, support staff and home offices), we’re seeing great interest in utilization of our software solutions to help implement fiduciary practices. The most common request we’ve had from advisors is to help them scale their business using fiduciary practices. From broker-dealers, we’re hearing loud calls for oversight of advisor practices and activities.

FN: fi360 just unveiled a new fiduciary training program. How has this improved upon some of the training you’ve offered in the past? What methods did you use to incorporate member feedback in designing this new program? How can it be accessed?
Aikin: While we only recently announced the launch of our Fiduciary Essentials for Advisors (FEA) training program, we already have several firms in implementation. Interest has been broad, with firms having signed contract commitments ranging from 100 to over 10,000 trainees. The FEA program grew from client demand for foundational fiduciary training, which can be delivered in a highly scalable manner. FEA shares the same DNA as our designations (such as the AIF®), but doesn’t go into the same depth. It is not so much an improvement as it is an alternate delivery method at the desired level of detail. We can deliver the FEA program through our learning management system (LMS) or our clients’; we can co-brand and customize disclosures and content, too. Those interested in more information on FEA, or any of our products and services, can visit our website, www.fi360.com, or give us a call at 866-390-5080.

FN: Can you give us a hint as to what fi360 might have in store next? What kind of partners are you looking for in your endeavors?
Aikin: Our history not only training advisors, but developing prudent practices grounds our perspective. As our case law and our thought leadership evolves, so will our training – as it has in the past. We have new software capabilities in beta release now, which we’ll launch by the end of the year; a formal announcement will be coming soon. Feedback from both individual advisors and broker-dealer home offices is helping shape our deliverables. We know of no firm, including fi360, that has a comprehensive software solution for all fiduciary needs. We’re focused on developing capabilities demanded by the market and currently underserved. We’re open to partnering with others in order to best serve our clients’ comprehensive needs.

FN: We like to give folks kind enough to agree to be interviewed a chance to add anything we might have missed. What further comments would you like to share with our readers?
Aikin: As I mentioned earlier, technology plays an increasingly vital role in the field of financial advice. In our view, investors seek, above all else, competent and ethical advice. We believe that what most investors want is advice from the best human advisor they can afford who is equipped with state-of-the-art technology. It is not a question of robo versus human, it is a matter of the appropriate mix of human and technology that best serves specific client segments. Technology enables advisors to be more competent and objective. We’re keenly aware of the critical role advisors (human advisors) play in helping investors reach their goals and are focused on being advisor enabling. It is no coincidence that we embed fiduciary principles in everything we do at fi360 – it’s good for investors, advisors, the profession, and society at large.

FN: Blaine, it’s been great to speak with you again. No doubt FiduciaryNews.com readers will find your thoughts and insights quite enlightening and helpful. We look forward to hearing more from you in the future and seeing more from fi360 in the years to come.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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2 Comments

  1. Paul Smith
    Paul Smith October 19, 08:39

    Thanks Chris,
    What a treat to see and read your interview with Blaine. His thoughtful approach to a complex industry challenge is worth all our time, and it’s no surprise that fi360 is poised to take the lead again, as we chart the course through these moving waters.
    His “fork in the road” metaphor adds clarity to the fundamental choices that have to be made, and the fact that Merrill has been able to move past what Blaine refers to as their “entrenched sales culture” and leverage their financial and technical strengths to become a change leader, makes a strong statement to the industry as a whole – it’s time to get over your paralysis and find your better selves.
    We can really do this…….. Exponentially increase the fee based activity done out of the RIAs, and leave the BDs commission business in place for the sophisticated investor who appropriately wants to participate in IPOs and complex alternative investments, where “Best Interest” is nebulous at best.
    Paul Smith, AIF NAPLIA

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