The midterm election results are still fresh and Wall Street’s grin, with a friendlier Congress in hand, is still wide. Voters sent a message and both sides agree on this much: the election was a referendum on the president and he lost. Big time. What if an election were held on Wall Street? What message would investors send?
Would the record high Dow form a wave for Big Bank titans? Or would the deluge of reports of Wall Street bad behavior and record-setting fines fuel a counter-insurgency to reform “The Street?”
This is no idle question for armchair quarterbacks. Recent remarks from industry executives serve as terse reminders why.
At Schwab’s annual celebration of RIAs, Schwab executive Bernie Clark noted RIAs need to attract younger investors, and then made a point that bears repeating, “(Younger investors) do not know who you are… they confuse you with Wall Street movies they have been watching.”
Then, last week at a Securities Industry Financial Markets Association (SIFMA) meeting, there was talk of the lobby group’s “election strategy” for defeating fiduciary rulemaking at the Department of Labor. Former SIFMA chairman Jim Rosenthal boasted of its lobbying victories to date, and then offered a peek into what’s ahead. According to Mark Schoeff of Investment News, Rosenthal said “essentially we mobilized thousands when we have the potential to mobilize hundreds of thousands of employees and millions” of customers.
Mobilize for what? According to Schoeff, Rosenthal left nothing to the imagination. “Rosenthal asserted that the rule would force IRAs to be held only in managed accounts that charge investors fees based on assets under management. It would curtail their being offered in brokerage accounts that charge investors on a transaction basis for trades. He said that such an arrangement would prevent brokers from servicing small accounts.”
One problem: the message is not true. The claim is false.
DOL Assistant Secretary Phyllis Borzi has repeatedly said the rule would not prohibit commissions with IRAs. As such, in political parlance, the SIFMA claim, with no basis in fact, is simple fear-mongering. It is intended to galvanize the SIFMA base to write their member of Congress and explain how, in SIFMA’s world, fiduciary practices harm investors and sales practices benefit investors.
Will SIFMA succeed? Will “millions” of investors be misled and then decry fiduciary duties, and demand that Congress stop the DOL? The record suggests they just might. Congress has already heard these arguments and many policymakers seem to believe them. Just imagine what “millions” of emails and letters to the Hill could do.
Keep in mind how audacious the core argument is.