Henry Gondorff (played by Paul Newman) in the 1973 classic movie “The Sting”:
“You have to keep the con even after you take his money; he can’t know you took him.”
As I painfully make my way through the long document that comprises the Department of Labor’s much anticipated (or dreaded) proposed rule changes for brokers that work with clients who have IRAs, the sentence that keeps running through my mind is: “We’ve been had.”
By “we,” I refer to those of us who had hoped the DOL would raise the level of protections for IRA investors to the same fiduciary standard that currently protects participants in 401(k) and other retirement plans. Instead, what we got is a collection of “new” standards” so riddled with exemptions and loopholes that it makes one wonder whether the fix was in from the beginning.
Consider this hypothetical scenario: Suppose you and a group of your competitors derived a substantial portion of your annual profits from the sales of heavily loaded investment products into IRAs, often while helping clients roll over their existing retirement plans.
And, again, hypothetically, suppose your industry and federal regulators were under considerable pressure from consumer and advisor groups, as well as the media, to increase protections of your IRA clients to the level of other retirement plan participants. What would you do?
What Your Peers Are Reading
Would you simply oppose any new consumer protections, and pressure lawmakers into joining you in stonewalling them? You could; but that would make your industry look “anti-investor” and could eventually hurt the business you were trying to protect. And, of course, it would be hard to maintain your block of politicians in the face of increasing public support for the new rules.
Or you could work behind the scenes to pressure the DOL to abandon its efforts. But even if you succeeded, you’d once again end up making yourselves and the DOL look bad.
Instead, suppose you got your high-priced strategists together and devised a better plan: One that quieted the consumer advocates and industry critics, while enabling you to get on with business as usual. What would that look like?
To start, you’d keep caterwauling about how unfair and anti-consumer any new standards would be. You might even get the White House to issue a statement about the need for new regulations, so you could wail about how unfair that was, too.
Meanwhile, behind the scenes, you and your political supporters might pressure the DOL to make “minor” changes to its proposed new regs, which would result in very little changes in the way you currently do business. Then, when those new proposals came out, you’d continue to gnash your collective teeth about how they spelled the end of the brokerage industry, yadda, yadda.