Is Bad For Business Sometimes Good?

Change and innovation is often resisted, and disruption can be harmful to the status quo.

Did whip and horseshoe makers fight against the adoption of early cars by highlighting them as being dangerous?

How many print media papers talked down on-line media and initially resist change?

Today, FitchRatings, the big credit rating firm, issued a press release warning about the harm that might come to pending changes in how investment products are developed, marketed and sold.  They highlighted how the Department of Labor’s (DOL) pending Fiduciary Rules might negatively impact asset management firms.

The following is a direct quote from the Fitch report:

“The proposed rules raise the risk of regulatory enforcement and or trial bar litigation, and will likely force RIAs to do more to prove that a client’s product choices indeed meet the individual’s best interests.  The new proposals could curb the willingness of agents to promote complex and higher fee products.  Asset managers and insurance companies would also bear responsibility for examining distribution policies and commission structures paid to independent and affiliated distributors that sell many of the investment products reaching retirement accounts.”

The full press release from Fitch can be found by clicking on the link listed below.

Fitch: US Labor Proposals May Squeeze Complex Financial Products

Fitch is doing what they should do, raise a red flag on behalf of those who invest in asset management companies.  The DOL’s proposal might impact profit margins and diminish the case for investing in asset managers.

Many traditional asset management firms are resisting change that will come if they are held to a true fiduciary standard.  This is understandable.  Current business models will be harmed and time and money on innovation will be required.

Versus just an investment warning, however, the Fitch press release brings the following questions to our mind:

Would changes that might harm status quo asset managers be a benefit for investors?

Is the Fitch report yet another example of why more transparency and change needs to come to how investments are developed and sold?

When you read what are likely to be vigorous arguments from Wall Street discrediting the proposed DOL Fiduciary Rules, it might be appropriate to keep in mind the following Shakespeare quote: “Thou doth protest too much.”

 

Preston McSwain is a Managing Partner and Founder of Fiduciary Wealth Partners, an SEC registered investment advisor committed to forming fiduciary wealth partnerships with clients, professional colleagues, and the community. To see more of his posts, and follow him on social media, please visit the following:

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