"They wanted to know how my fee structure worked for me, and how it worked for my clients," Garrett said. 

On Monday, Garrett was in attendance at the AARP headquarters in Washington, D.C., where President Obama announced his endorsement of the Department of Labor's new "conflict of interest" rule. 

The president singled out Garrett as someone who puts clients' interests first, and quoted her when he said: "There is a segment of the industry today that operates like the gunslingers of the Wild West. We don't have the rules and regulations to protect those we're supposed to be serving." 

Though the rule has yet to be made available to the public, it is widely presumed it will impose a uniform fiduciary standard on group retirement and individual retirement advisors across the financial services industry – even while still allowing commissions and revenue-sharing deals. 

Monday's announcement came more than four years after the DOL's initial effort to advance a new standard, which has met intense pushback from Wall Street investment firms and fund companies all along. 

Garrett, of course, is a big fan of the DOL's efforts. 

"The fiduciary fee-based, or hourly-based, model is a phenomenal way to get advice to people with lower levels of assets. And it allows you to bring holistic solutions that are in their best interest, which is what everyone assumes we are all supposed to be doing anyway," she said. 

"This new fiduciary rule is for the betterment of our society. We are not a profession yet, and we won't be until we are all fiduciaries," she said. 

Garrett expects a higher standard of care will cause some disruption in the industry, but nothing like the mass exodus of providers from the lower end of the market predicted by those fighting the rule. 

"I think you'll see a handful of firms go out of business, and you'll see some others merge, but the reality is the fee-based model of our industry has been the fastest growing segment," she said. 

Garrett also acknowledges that a new, broader definition of a fiduciary won't necessarily mean a windfall for all RIAs. 

"Some think it may be a competitive disadvantage for those of us already operating as fiduciaries," she said. "Up until now, we've been able go out and leverage our difference. A new rule, one that is strongly written, will level the playing field for all end-uses. That will let our secret out." 

Photo: Sheryl Garrett
Garrett, of course, has plenty of company among RIAs.

Greg Carpenter, a co-founder of Employee Fiduciary, a Mobile, Alabama-based RIA that specializes in the small-plan market, thinks the DOL's proposed rule will, in fact, be disruptive to the 401(k) market, which remains dominated by the broker-dealer world, not RIA fiduciaries who work on fixed fees. 

When he started his firm 11 years ago, Carpenter took a big risk walking away from asset-based and product-based compensation. 

Now, Employee Fiduciary services 2,300 plans with about $2 billion in assets. But it was a struggle, said Carpenter, to get his model off the ground. His firm couldn't claim a profit until it had about 400 sponsors under advisement. 

Still, Carpenter – whose blog postings have appeared on BenefitsPro – is a big advocate of the fee-based approach. 

"The non-RIAs in the small and midsize plan market will tell you the 2 to 3 percent in fees they charge is modest – and it is for a plan with $100,000 in assets," he said.

But that 2 to 3 percent grows quickly as assets do. After all, 2 percent on a $1 million plans is $20,000; 2 percent on a $10 million plan is $200,000. 

All of that is paid for with participant assets, leaving less for retirement, he said. 

"The bottom line is we see a lot of abuse in the small-plan market. Anyone who advises a 401(k) plan should be a fiduciary to the plan. It's just that simple," Carpenter said. 

A uniform fiduciary standard may mean a new expense to participants to account for compliance costs. But Carpenter thinks that would be offset by the money participants would save in reduced fees. 

Finally, he scoffs at the idea that the new rule would leave smaller plans and their participants without access to affordable plan guidance. 

"The American financial market is one of the most efficient in all of history. If broker-dealers and their advisor channels want to stop advising 401(k) plans, there's a huge market of fiduciaries ready to come and take over," he said. 

The DOL's proposed rule will not become public until it is released for comment in a few months or possibly sooner.

Photo: Greg Carpenter