What A Tighter Fiduciary Rule Means for Alternative Asset Investors

August 16, 2017

What's possible with alternative asset investing and the new fiduciary rule?



Originally published in Wealth Management's 2017 Midyear Outlook in August 2017. You may download the original PDF here.

Recently, the Securities and Exchange Commission (“SEC”) announced their intention to work with the Department of Labor (“DOL”) on defining, implementing and supporting the DOL’s Fiduciary Rule (“Rule”), after the delay created by President Trump’s February 3 memorandum.

The Rule elevates the standard that financial professionals who work with retirement plans or provide retirement planning advice to a fiduciary to one requiring acting in best interest of the client at the most honest and transparent level, disclosing all fees and commissions in dollar amounts, and eliminating any conflict of interest.  Ultimately, the concern for any cryptic fine print and shaky decision-making is replaced with transparency and confidence, and a trusting partnership is formed.


The Rule had such an effect that Edward Jones banned commissions on mutual funds in individual retirement accounts and helped clients sell or transition all non-traded REITs to new accounts outside the Edward Jones platform.

While the Rule can be seen as burdensome and over-regulation by a department not tasked with investor protection, but rather to foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States, many see it as a tool to bring back investor confidence and best practices to an industry being displaced by robo-advisers and struggling to gain the trust of a millennial generation.

We see one major benefit that all fintech companies strive to create: efficiency.

Alternative asset investments can be a tricky undertaking for both parties. Rules like this mean a more streamlined process for buyers, sellers and advisors every time. Upon engaging a broker/dealer or financial advisor, qualified investors know all appropriate information will be disclosed upfront, minimizing the need for a long sales process, and replacing it with a collaboration on goals based investing. Now an investor can gain access to a strong cash-flowing asset, like a non-traded REIT without worrying about the overburdensome fee structure that has existed in the past.

The Rule finally allows advisers to focus more on the advice and client relationship, with less time “selling” — a major bonus for the $80 billion industry of nontraded REITs.

Certain asset classes, including nontraded REITs were not a part of the original proposal in April 2015, preventing broker/dealers from including them in retirement plans, which they had been doing for many years prior. The final version of the Rule eliminated specified asset classes, and alternative assets were once again an option for retirement plans.

Nontraded assets have been a long-time popular addition to retirement plans, benefitting both retirees and broker/dealers equally by adding diversification and cash-flow. What is more exciting in this new market is that the efficiency created by the Rule to get into the asset is compounded by the efficiency created through technology to get out of the asset, if ever required. This allows a broker or adviser even more comfort that this asset is the best asset for an investor.

Curious to learn more about options in alternative investing? Contact us today at info@cfxtrading.com


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