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Preparing For The DOL Fiduciary Rule: The Role Of Low-Volatility ETFs

Mar. 07, 2018 2:02 PM ETACWV, LGLV, CIL, XRLV
Damon Verial profile picture
Damon Verial


The DOL rule has led to its first case: A suit against Scottstrade for holding sales contests that can be considered as not having their clients’ best interests in mind. In my line of work, I encounter many financial advisors, and nearly all of them are worried about how the DOL will affect their work and livelihood. While the rule will not go into full effect until July 2019, we all saw suits coming, even with the partial implementation we have now.

The strangest part of this rule is that it brings little new to the table, merely placing physical red tape over abstract lines that have been long recognized and accepted. Financial advisors, by the nature of their careers, are already held to fiduciary standards - the new rule simply gives ammo to clients who feel wronged for whatever reason. I think of the rule as the “Warning! Hot!” text that is now printed on McDonalds’s coffee cups: The coffee was always hot, but now I don’t have to blame myself when I’m burned as I juggle two cups of joes while skateboarding.

Both advisors and clients lose freedom. Clients have fewer options, as certain types of transaction-based accounts will be eliminated. Advisors suddenly find themselves walking on thin ice and being pushed to make “safe” decisions, such as merely shoving everything into ETFs because to do otherwise could be seen as exploiting clients (after all, if the literature states that advisors cannot outperform an ETF, to make multiple stock transactions in place of the client is clearly not in the client’s best interests).

The best advisors are going to slog through this. At the request of my financial advisor clients and readers, here's my advice to them. But let me start with a bit of optimism: By ensuring their investment practices are

This article was written by

Damon Verial profile picture
Damon Verial is a statistical analyst who uses his skills to research stocks, options, and investment strategies. In addition, Damon is the writer of Copy My Trades, a trade-alert, subscription-based newsletter, available at his personal website. He is also the writer of Exposing Earnings, an in-depth earnings prediction service here on Seeking Alpha. . Damon makes his living as a gap trader, an earnings trader, and an interday trader. In his free time, he writes for Seeking Alpha, where he focuses on seasonal investing, market timing, and earnings analyses. . Damon has written several successful stock analysis algorithms, including algorithms that can predict gap closure, intraday patterns, and news overreactions. They will soon be publically available for subscribers. .Damon’s undergraduate education was in statistics and mathematics at the University of Washington; his graduate education was in psychology at National Taiwan University. He currently lives in Fukuoka, Japan.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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