I’m still trying to get my brain around the letter that Rep. Steve Garrett, R-N.J., and other Republican members of his House Financial Services Subcommittee sent to SEC chairman Mary Schapiro on March 17, advising her “not to move forward with a fiduciary rule.” It seems the House Republicans don’t feel that the SEC has “…identified and defined clear problems that would justify a rulemaking and does not have a solid basis up which to move forward.”
(See Melanie Waddell’s news report on the letter from Rep. Garrett and other members of his House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises.)
For its part, Garrett’s subcommittee is going to hold hearings on the matter, including on the issue of a new SRO (they didn’t specify for whom), and further suggested that the SEC conduct its own “thorough” cost-benefit analysis of the whole reregulation of brokers. Aside from the transparent delaying tactic of the Republicans (no doubt in some way inspired by SIFMA to gain more time to garner support for FINRA as the SRO for RIAs), the suggestion seems quite reasonable: Who wouldn’t want to see a clear comparison of the potential benefits of new regulations versus the costs they are likely to incur? After all, the Federal budget (and its corresponding budget deficit) has filled out a bit in recent years, and the Republicans seem to feel the need to at least slow the expansion.
But before we start handing out cigars and raising a glass to how rational and responsible we all are, let’s consider what we’re really talking about here. As I’ve pointed out on numerous occasions (including once to a less-than-impressed NAPFA Board), the problem with promoting a “fiduciary” standard is that its real meaning is often lost in the legalese. Or put another way: Scant few people have even a clue what it means. And that malady seems to afflict our leaders in Washington, as well.
So let’s be clear, to avoid further confusion. What we’re talking about is a duty to put the clients’ interests first; that is, requiring brokers—along with investment advisors—to do right by their clients. Seen in that light, the House Republicans’ request begins to look a little less reasonable: They want to do a cost/benefit analysis on doing the right thing? On putting the clients first? Is that how we decide today in America whether to do the right thing? To check and see how much it’s going to cost us?
Is this really the message that Congress and the SEC want to be sending at a time when public confidence in our financial institutions, in the markets, and in financial advisors is at its lowest point in decades? “Well, you know, we’d really like to do the right thing for our clients, but golly gee, it’s kind of expensive, so I guess we’d rather not…” And if this lack of ethical fortitude isn’t bad enough, it raises an even more troubling question: What do they mean by the “cost” of doing right by the clients? Why would “good” advice be more costly? Unless of course, people have been profiting from giving “bad” advice. I know, it sounds crazy. But why else would Congress be asking if we really can afford to treat clients right?