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Exclusive Interview: Skip Schweiss Says Public Today “Much More Aware” of Need to Work With Fiduciary

Exclusive Interview: Skip Schweiss Says Public Today “Much More Aware” of Need to Work With Fiduciary
November 19
00:03 2019

We last featured Skip Schweiss, President of TD Ameritrade Trust Company, in our December 2014 Exclusive Interview (see “Skip Schweiss Calls Disclosure ‘Terrible,’ Says It Would ‘Confuse’ Investors,” FiduciaryNews.com, December 16, 2014) Skip is responsible for TD Ameritrade Institutional’s Retirement Plan Solutions platform, providing tools and support that can help independent RIAs build and grow a retirement plan business. Schweiss since 2010 has also served as TD Ameritrade Institutional’s Managing Director of Advisor Advocacy & Industry Affairs, charged with amplifying the voice of independent RIAs in Washington and raising awareness of issues important to advisors and their clients.

Schweiss is widely recognized as a leading advocate supporting the fiduciary standard and the RIA model, including being named multiple times to the Investment Advisor IA25 list of top industry influencers, the Insider’s Forum Leadership Award, and the Committee for the Fiduciary Standard’s Fiduciary of the Year. He more recently served three years as a member of the Financial Planning Association board of directors and in October 2019 was named president-elect.

FN: Skip, first and foremost, congratulations on being elected to be President of the FPA. Tell our readers, what have you been focusing on since our last interview?
Schweiss: I’m honored and humbled to be given this responsibility, but I’m ready to take it on. In terms of my adviser advocacy role at TD Ameritrade Institutional, we continue to keep a close eye on all things Washington that might impact investment advisers and their clients. We inform advisers about those proposals and developments, listen to their feedback, and share their voices with policy-makers.

In the Tax Cut & Jobs Act of 2017, we helped convince Congress that curtailing or even eliminating the tax deduction for retirement plan contributions was a bad idea, as was going to a FIFO-only tax lot accounting system. To be sure, we haven’t been able to restore the tax deductibility of advisory fees, though we’re still making our case to our elected representatives.

We’re also supportive, generally, of the SECURE Act that overwhelmingly passed the House this past spring. It opens up the Multiple Employer Plan market, which we think is important to allow access to the retirement savings system for millions of workers in smaller companies. It also extends the required minimum distribution (RMD) age from 70 ½ to 72, which seems to make sense in light of extended working lives.

Other things we’re watching include the potential to expand the accredited investor definition, modernizing advisor advertising rules, and presidential candidate proposals around taxes on wealth and securities transactions.

FN: Let’s talk a little bit about the story arc of “fiduciary” since we last spoke. In 2014, “fiduciary” was still pretty much an insider term. Then in 2016, the DOL finalized its Conflict-of-Interest (a.k.a. “Fiduciary”) Rule. The mass media picked it up and, from that point, the secret was out. What was your first impression back then on reaction of the public once they noticed the import of fiduciary?
Schweiss: You’re right that the general public is much more aware today of the importance of working with a fiduciary. Back in 2010, the DOL first proposed its “Fiduciary Rule” and few people knew what the word “fiduciary” meant. When the agency came forth with a revised proposal, it was the “Conflict of Interest Rule.” Most of us have some sense of what a conflict of interest is.

And in the eight years between when the DOL first made its proposal and its ultimate defeat in court, the fiduciary standard received a huge amount of consumer press attention. I feel it elevated the concept in the eyes of investors. A smarter consumer is a better consumer, and that can only help RIAs.

FN: The brokerage and insurance industries fought hard to thwart the DOL’s Fiduciary Rule and ultimately succeeded. What do you think the DOL might have done differently in 2016 that could have helped it survive?
Schweiss: In 2010, when the rule was first proposed, the first-year Baby Boomers were celebrating their 64th birthdays and approaching retirement. This, of course, is a time when most people might roll over their workplace retirement plan account balance into an IRA. The DOL looked at this demographic wave and thought it would be wise to extend ERISA protections to IRAs. A good concept, but it turned out to be a bridge too far. In the process, the agency raised the public visibility of varying standards of care. So, in the end, as Phyllis Borzi has said, they may not have ultimately achieved their desired goal, but they did move the ball down the field.

FN: While the DOL’s Fiduciary Rule has gone by the wayside, it appears it’s now an important consideration in the marketplace. How would you describe the difference between how the retail investors view fiduciary today versus, say, five years ago? What’s changed and how has the industry responded?
Schweiss: There’s still plenty of evidence that consumers could be better educated on these issues. Surveys show about half of investors don’t know how much they’re paying for advice, and about one in six think they pay nothing. Yet, through the efforts of many dedicated souls, progress is being made with respect to consumer education and awareness. I’ve had quite a few investment advisers tell me that their clients and prospects are for the first time asking them about their fiduciary status. That’s a result of the DOL effort and the resulting publicity.

FN: Going forward, the DOL is actively pursuing a new version of the Fiduciary Rule. How has the marketplace already accounted for a fiduciary preference? As a result, what might the DOL put in a new Fiduciary Rule that would add to what the marketplace already perceives as a value?
Schweiss: The DOL is expected to release a new rule proposal in late 2019 or early 2020, one expected to relate to the SEC’s Regulation Best Interest (“Reg BI”) requirements. It’s hard to say, prior to seeing the rule, what its impact will be, so it’s probably better that I don’t speculate.

What I can tell you is that for many Americans, 401k plans are often their only investments, and many have little expertise in how to manage investments. These aren’t the millionaire investors most investment advisers serve. So, it’s an area that could benefit from strong standards of care.

FN: Speaking of regulations, what are your thoughts on the SEC’s Reg BI? Will it live up to its promise? Or will its only impact be to merely add another batch of paperwork to advisers’ compliance checklists?
Schweiss: If I could distill 1,363 pages of regulation, I’d say the SEC has raised the standard of care brokers owe their customers, but it also may have blurred the lines between brokers and advisers.

RIAs are held to a fiduciary standard and their brokerage competitors aren’t. It is an important marketplace differentiator. Now, RIAs should be thinking hard about revamping that pitch, because brokers will be able to say they are required to act in the customer’s best interest. To many customers, “best interest” might sound as good as, if not better than that legal word “fiduciary.” We likely won’t know the impact of Reg BI until we start seeing examinations and enforcement cases.

FN: OK, will leave the dreary world of the regulators behind and talk about “the coming thing” (or, in this case, “things”). First, we’ll tackle the retirement plan side of things. Between state-sponsored efforts and the new rules encouraging association-based 401k MEPs, there seems to be a trend towards pooled vehicles rather than the current stand-alone 401k plans. How will this movement away from individual company sponsored plans to group sponsored plans impact the financial services industry in general (especially for plan-level providers)?
Schweiss: The starting premise is that Americans simply are not saving enough for their retirement years, particularly given that those retirement years keep growing as we live longer. Half of businesses with fewer than 50 employees don’t offer a retirement plan to those workers, and we know that if people aren’t saving for retirement through the workplace, they just aren’t saving for retirement. Small business owners say the main reasons they don’t offer a plan are costs and administrative burden.

So we are strong supporters of the Multiple Employer Plan (MEP) model, where a smaller business can join an existing, pooled plan. It was great to see the DOL recently open the door to trade associations and Professional Employer Organizations (PEOs), though they stopped short of allowing corporate-sponsored MEPs because they didn’t feel they had the authority to do that.

We’re closely watching the SECURE Act in Congress, and have made our views known on that, as among other things it would open up the MEP market to corporate-sponsored plans. I don’t see larger companies joining these plans because they want their own features (vesting, auto-enroll and auto-escalation, profit sharing provisions, eligibility, investment menu, etc.). But for smaller businesses and their workers, this could be a game-changer, even a life-changer.

FN: If these forces are narrowing the market for plan-level providers, they may also be expanding the market at the retail level. Individual plan participants are likely to demand more personal service. They’ll obtain this either directly (through the group sponsored plan itself) or indirectly (on their own accord because the group sponsored plan is further removed from the employee). How do you see this trend impacting the financial services industry?
Schweiss: The financial services industry has to find ways to reach the mass market of consumers. These folks need help, arguably more so than the well off, yet it’s harder for them to access that expert help. We often think in terms of portfolio management, but many Americans don’t have – and may never have – an investment portfolio. Rather, they need help with such things as cash flow management, debt management, decisions on insurance, paying for living space, renting vs. buying a car.

We are starting to see new models emerge where consumers can pay a monthly subscription fee for financial planning help. That can help expand the market. It is important that our industry puts itself in the shoes of our customers, because more Americans need expert financial guidance.

FN: Finally, let’s review some of the components of the financial services industry itself and the strategies users of those services might avail themselves to. As a long-term fiduciary advocate, are there any people or organizations you think people should be aware of? We’re particularly interested in having you perhaps both reaffirm names people are familiar with and suggest names people might not be familiar with but should be.
Schweiss: There’s probably no greater single advocate for the consumer than the Consumer Federation of America’s Barbara Roper, along with her colleague Micah Hauptman. AARP is of course very active in that lane as well.

Knut Rostad at the Institute for the Fiduciary Standard is another passionate advocate for strong standards. The Committee for the Fiduciary Standard is not a legal entity, but its members are among the most passionate and engaged on these issues as well. Years ago, they introduced the Fiduciary Oath, which you can find at www.thefiduciarystandard.org/fiduciary-oath/. It can be a powerful statement to a client or prospect that many providers can’t stand behind.

If you’re an SEC-registered investment adviser, you should belong to the Investment Adviser Association (IAA); they do great work on behalf of advisers from their D.C. office. CFA Institute is a clear and consistent voice in this arena.  Our firm has sponsored initiatives with most of these organizations, and I’ve spent a lot of time in Washington with them.

I should also mention the trade associations. The Financial Planning Association (FPA), National Association of Personal Financial Advisors (NAPFA), and the Certified Financial Planner Board of Standards (CFP Board) have done strong work together for years as the Financial Planning Coalition.

FN: For retirement plan sponsors, what should they be looking at when searching for a plan-level adviser?
Schweiss: Sponsors should ask plan advisors about their licensing and registration status, how they get paid, and what standard they are held to when servicing their retirement plan clients. Are you a fiduciary to our plan? Most plans start out being “sold,” typically by an insurance agent or securities broker offering a “free” plan that has a lot of appeal to a struggling small business. Of course, there’s no such thing as a free lunch, so back to that question about how the salesperson gets paid. As long as you understand how the game is being played, and you agree to that, OK. We often see when a plan moves beyond startup to one or two million dollars in participant assets, they start looking for a fiduciary investment adviser to guide them.

FN: Same question for retail investors seeking to make sure they can find a fiduciary adviser: What’s the best way for them to do this?
Schweiss: There are some good sites to search, including NAPFA’s Planner Search site at https://www.napfa.org/find-an-advisor?q=78701 or the FPA’s at www.plannersearch.org/. The FPA only lists CFP Professionals, who now are required to be fiduciaries in their financial planning and financial advice work for clients.

I’ll also note that many Americans cannot access good, objective financial advice. I think they should have such access, which is why I chair NAPFA’s Consumer Education Foundation (NCEF), dedicated to expanding access to fee-only planners.

The Foundation for Financial Planning also does great work in this area. And most FPA state-level chapters host annual pro-bono planning days in their communities. It’s the mark of a true profession that offers its services to those who otherwise can’t afford them.

FN: Do you have any other thoughts you’d like to add?
Schweiss: Through the hard work of many individuals and organizations, the financial planning community is improving – maybe slowly, sometimes haltingly – the lives of our fellow Americans. On all fronts, it’s important work for our society and its citizens.

FN: Skip, it’s always great having a chance to speak with you. We remain impressed with your willingness to take the lead on so many fiduciary efforts both for your own firm but for the many trade associations you work with. You’re a role model for all that is good in the financial services industry.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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