Smoking out the Fiduciary Rule By: Gabriel PotterMBA, AIFA® 2017.02.14

In 2001, my wife and I moved to a new apartment and we started to explore the dining and entertainment options in the neighborhood.  We noted there was a nifty bar just down the street – Johnny’s Smoke Free bar.  We had not hung out much in bars, but this place looked like a better fit for us.  First, they frequently had live music, mostly Irish bands.  My wife is a fan of Celtic music – from traditional folk, like you’d find on the Thistle and Shamrock hour, to Celtic-rock acts like the Dropkick Murphys or Enter the Haggis.  Second, I appreciated a friendly place where I could play a round of pool (badly), have a Guinness on tap, and simply walk home.  Most importantly, Johnny’s was a smoke free bar.  I did not have to worry about my clothes picking up smoking odor.  It was a distinctive feature that I appreciated. 

In 2003, New York established a state smoking ban to most indoor areas.  Most bars became smoke free.  Johnny’s Smoke Free bar changed its name to Johnny’s Irish Pub.  Now that Johnny’s lacked its distinctive niche, its namesake, would business suffer?  After all, bars and restaurants are about the hardest businesses to start up and keep profitable, so losing any value on the margins has to matter.  Johnny’s will celebrate their 20th anniversary this year, a full 14 years after the change in the law, so it looks like they’ve managed the change in the legal environment.

I’ve been thinking about Johnny’s for two reasons.  First, a Guinness sounds pretty good right about now.  Second, I’ve been thinking about the distinction between a best practice by choice or by mandate.  Johnny’s was the first smoke free bar in Rochester, but it wasn’t established just as a distinctive marketing niche, but as a best practice.  By mandate, New York State bars have had to follow the new standard.  Now, if the New York State smoking ban on indoor places were repealed tomorrow, how many bars would go back to their old ways?  Some bars would freely go back to the smoke-anywhere standard.  However, I suspect a significant number of bars would maintain the no-smoking standard by choice.  After 14 years of smoke free interiors, the expectation of the consumer has changed to a higher standard.

You may have guessed this blog post isn’t about actually about the smoking ban in New York.  It’s about the timing of the Fiduciary rule, Trump’s attempt to block it, and the expectations of consumers. 

The fiduciary rule was set to have an initial implementation date for April 10th this year and fully implemented by January of 2018.  President Trump blocked its implementation with a review, probable delay and ultimate dissolution.  Did Trump make his move just in time?  Consumers have not gotten used to the fiduciary standard yet.  Have enough consumers gotten wise to the scheme?   Do enough customers understand they can have a better option to choose from?   Financial firms have already spent millions of dollars and more than a year planning for the change in rules.  For instance, Wall Street firms like Merrill Lynch and Commonwealth already scrapped their commission-based IRA business models.  Even if Trump can slow down the rate of adoption, he cannot stop trends. The move towards better financial practices is inevitable and once consumers become used to these best practices, they will not want to go back.    

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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