Of the three Washington “heavyweights” who appear destined to have an impact on the lives of independent advisors, I suspect the one who isn’t new that will have the greatest influence over the coming years. Rep. Jeb Hensarling, R-Texas, will take over the House Financial Services Committee from outgoing chair Spencer Bachus, and Elisse Walter will temporarily replace Mary Schapiro as chairwoman of the SEC, but it’s Phyllis Borzi, who, thanks to the reelection of Barack Obama, will keep her job as assistant secretary for the DOL’s Employee Benefits Security Administration, and consequently continue to lead the battle of extending fiduciary protection to all financial consumers.
You might remember that the DOL’s proposal, to extend the ERISA fiduciary standard to financial advisors involved in pension plans and IRAs, met with vehement opposition from the securities industry, sending Borzi scurrying back to the drawing board. Borzi, apparently reenergized by continued support from the White House, now plans to release a revised proposal in early 2013. The cornerstone of the new proposal is expected to be a “substantial economic analysis” to counter what has become the securities industry’s key argument in opposition to a fiduciary standard for brokers: the economic impact it would have on the brokerage industry.
As I’ve written before, this seems to be at least on a macro level a curious argument: That putting the interests of their clients ahead of their own would serious compromise their brokerage businesses. But apparently the obvious implications of this claim have escaped the attention of the mainstream media, and therefore, seem to be a non-issue in Washington. Consequently, the battle over the reregulation of brokers—in Congress, at the SEC, and at the DOL—seems to revolve around how much a fiduciary standard for brokers will cost the brokerage firms which employ them.
Historically, this issue has been the issue for independent financial advisors: it is way more lucrative to sell heavily loaded proprietary products to clients (as all those big buildings on Wall Street and in Hartford attest). But as most independent advisors became independent to better serve their clients (at least in the old days, back in the ‘70s and ‘80s), they continually faced financial conundrums in the form of heavily loaded life insurance, limited partnerships, variable annuities, and wrap accounts.