Recently one of the legends in the financial services industry passed away. Eugene Maloney of Federated Investors was a leader in understanding and supporting all things fiduciary. I want to spend a few minutes passing on some of the lessons I learned from Gene and why they remain incredibly important in a changing regulatory environment.
Gene would call my office and start to talk about various individuals at the DOL or SEC and how their actions were impacting the role of a fiduciary. Now, even though I went to law school and passed the bar, I always made sure that someone else was on the call with me to make sure that I wasn’t missing anything because Gene was so smart and I was always madly taking notes. His calls led to a plethora of projects that helped in a practical and operational way to validate how various financial providers could improve their fiduciary services.
One thing Gene believed was that if you could prove the cost of your services, regulators were not going to care how much you charged in relationship to the market. This led to a host of projects in which Spectrem helped to show how the costs of 401(k) recordkeeping, trust processing and trading compared to the overall costs of managing a brokerage relationship justified the fees that were being charged. This is an important concept as the Best Interests rule is implemented.
Gene believed that trust banks left a lot of potential prospects on the table by not working across the organization. If someone made a large deposit, where did that come from? Perhaps an inheritance? We interviewed individuals who had received a large inheritance and found that the trust banks were hesitant to get involved in reaching out to beneficiaries and trying to get them to leave their assets at the bank.
But overall, Gene believed that most advisors, of all types, were trying to do the best for their clients. Of course there were bad guys, but those were the exception.
A lot of the research Spectrem Group has completed regarding fiduciary topics was inspired by discussions with Gene. Not surprisingly, our results show that most investors think their advisor is a fiduciary, although clearly they are not, because most investors still consider a Full Service Broker to be their primary advisor.
It’s interesting to note that younger individuals are more willing to pay for fiduciary services than older investors.
I’m not sure if there is someone who will take on this important role in our industry. Gene would bring together Harvard Law professors with operational experts and client experts to do the best for those of us competing in this complex industry. Thank you, Gene, for all of your energy.