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With (Democratic) Friends Like These…Is It Time to Recast Fiduciary Argument?

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If there was any lingering doubt about which side—investors or Wall Street—congressional Democrats were on, it was erased in Monday’s letter to Secretary of Labor Tom Perez, signed by 30 Democrats who bill themselves as “The New Democrat Coalition.”

While Democrats including the Coalition have made much political hay in recent years from their support of “working Americans” by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act (my italics), it seems that “support” does not extend to actual implementation of those “consumer protections.” Apparently, the old business adage “Agree to anything, but have your lawyer draft the contract” has been redrafted in Washington to read: “Sign anything into law, but have your bureaucrats write the regulations.” 

Toward that end, the Coalition’s letter proudly recounts its role in nixing the first attempt by the Department of Labor, then under Secretary Hilda Solis, to extend fiduciary protections to investors in pension plans: “In this regard, Members of the New Democrat Coalition had written Secretary Solis in 2011 with concerns about the Department’s proposal to redefine the term ‘fiduciary’ [under ERISA]…We were very pleased that Secretary Solis agreed with our recommendation that the rule as initially proposed needed to be withdrawn…”  

Now it seems that the Coalition is reading right out of SIFMA’s playbook by claiming to protect small investors, while citing the dire—but unsubstantiated and illogical—consequences of requiring advisors to put the interests of those investors first. “We certainly want to protect plan participants, IRA owners and plan sponsors from unfair and deceptive practices,” they wrote. “But this should be done in a way that does not restrict access to critical investment assistance.” 

Let’s be clear here, so as not to miss the point: subjecting investors and plan sponsors to “unfair and deceptive practices” would be a bad thing, but stopping those abuses is not nearly as important as “access to critical investment assistance.” Maybe I’m missing something, but doesn’t this raise questions like: How “critical” could investment assistance be if it includes unfair and deceptive practices? Do investors really benefit from unfair and deceptive investment advice? 

But wait, there’s more. Having brought the SEC’s rule making on a fiduciary standard for brokers to a halt by requiring the Commission wait to see what the DOL comes up with, the Coalition again sides with congressional opponents of actually increasing investor protections under Dodd-Frank with another delaying tactic. “Second, we strongly believe that there needs to be coordination with other regulators,” they wrote, “to ensure that all regulatory efforts with respect to fiduciary standards work together in a way that serves retirement savers effectively.” 

So the SEC should wait for the DOL, but the DOL should work with the now-idle SEC to “coordinate their efforts.” It’s actually kind of brilliant, in a Machiavellian sort of way. And all the while claiming: “we’re working to protect the little guy.” I guess it’s good work if you can get it. The Democrats keep getting elected. The Wall Street firms keep making money. And the public seems to keep buying it. 

Yet I can’t help but feel there’s major opportunity here for independent advisors and their organizations: the CFP Board, the FPA, NAPFA and the Investment Adviser Association. The only reason the investing public isn’t in revolt over the lack of a fiduciary standard for brokers and pension advisors is that they don’t understand that they don’t already have fiduciary protections, and they don’t understand the economic consequences of those omissions.  

Who better to educate them than fiduciary advisors? What’s more, SIFMA and its representatives in Washington have made it easy. Boiled down, their argument is just this: If brokers and pension advisors had to put the interests of their clients first, it would cost too much. Why would “access to critical investment assistance” be restricted? Because their higher costs would force brokers to seek wealthier clients, the reasoning goes. (As if they wouldn’t be working with wealthier clients if they could…which raises questions for another time.)

Rather than trying to sell the American public on “financial planning,” maybe it would be more effective to simply point out that “your brokerage firm says it would cost too much to put your interests ahead of their own.” Maybe it’s time fiduciary advisors expanded their client-centered approach from one-client-at-a-time to the national stage. 


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