Betterment, one of the major online investment advisors (or robo-advisors), has sent a message to President-elect Donald Trump not to try and overturn the new fiduciary rule that was handed down by the Department of Labor earlier this year. The ad urges Trump to “stand on the side of America's 75 million retirement savers, not the firms with deep pockets who are lobbying.”

Jon Stein, the founder and chief executive of Betterment, wrote in the ad on page B12 of the Wall Street Journal that “Americans' right to honest financial advice is in jeopardy, and we are counting on you to protect that right.” (For related reading, see: Trump Advisor Promises Repeal of Fiduciary Rule and Can Trump Roll Back the Fiduciary Rule?)

Rule Provisions

The fiduciary rule requires all advisors who work with retirement plans or accounts in any capacity to act in a fiduciary capacity with their clients, putting their clients' interests ahead of their own. This means that advisors must disclose their compensation as well as any possible conflicts of interest to their clients, and they must also unconditionally act in the best interests of their clients in all of their dealings or be liable otherwise.

This is a substantial upgrade in accountability from the previous suitability standard that many advisors were held to, where they could initiate any transaction with a client as long as it was considered to be “suitable” for them. The rule will start to be enforced on April 10, 2017, and many advisors and firms are still scrambling to restructure their practices in order to comply with the new regulations. But several of Trump’s advisors have stated that he plans to overturn this rule and decrease the overall level of regulation in the financial industry.

The robo-advisory business has taken issue with Trump’s intentions here, as they believe that they already meet the fiduciary obligation. They are in a position to capture the assets of many smaller clients who may be jettisoned by human advisors who do not wish to take on the liability of a possible class-action lawsuit that could be generated by clients with small balances who feel that the advisor has not acted in their best interest. Some robos are also generating new business by working with broker-dealers to create a viable solution for small accounts in the post-fiduciary market.

Craig Iskowitz, the founder of Ezra Group, a technology consulting firm in the financial advice industry told InvestmentNews that “The robo-advisers see the DOL rule as being a disadvantage for broker-dealers, and they think they'll be getting business from broker-dealers dropping small accounts.” (For more, see: Betterment Expands and Reaches for More Advisors.)

The ads run by Betterment may also help it to gain some name recognition, which could help its marketing efforts to compete with industry giants such as Charles Schwab and Vanguard. Iskowitz went on to say that “it will take a while for the general public to feel comfortable clicking a button to transfer a large part of their life savings. It's not just like buying a book on Amazon.”

Joe Ziemer, Betterment's vp.p. communications also said in a public statement that "there has been an increase in speculation about the state of the fiduciary standard in light of the election results and we want to continue to let our position be known while encouraging investors to make sure that they are receiving services and products in their best interests.” (For related reading, see: Betterment Review 2016: Fees and Investment Facts.)

The Bottom Line

Betterment is in a position to capitalize on capturing small client assets when the fiduciary rule goes into effect. The company is urging Trump to uphold the fiduciary rule because this will help it to grow its business and increase its assets under management. For more information on the new fiduciary rule, visit the Department of Labor's fiduciary rule web page.