Imagine an astute bargainer at the table for the biggest negotiation of his life.
His counterpart makes the first move—and gives the bargainer 95 percent of what he’d like, plus a 10 percent bonus he never expected!
And that’s the counterparty’s opening position! How should the astute bargainer react?
The more I read into the DOL’s proposed conflict-of-interest (aka “fiduciary”) rule, the more I think the brokerage industry is in the position of this astute bargainer.
Now, don’t get me wrong. I realize the DOL’s re-proposal of its fiduciary rule earlier this year is not its opening bid, but it might just as well be.
As many now believe, under its current language, in exchange for the addition of boilerplate disclosure language in their contracts, brokers will be in a position to continue to utilize that portion of their business model which charges conflict-of-interest fees for advising clients to buy mutual funds that pay 12b-1 fees, commissions, and revenue sharing (see “DOL Fiduciary Rule as Proposed May Not Stop Investor Losses as Claimed,” FiduciaryNews.com October 6, 2015).
About the only thing the current draft actually outlaws are alternative investments of questionable liquidity.
Sure, this might be the bread and butter of some brokers’ business, but, really, IRAs have traditionally prohibited investments that remove assets from the trust in order to invest in non-exchange-listed entities.
That’s why, until very recently, commodities, collectibles, and even real estate represented forbidden IRA investments. That’s the 5 percent of the deal the brokers aren’t getting.
In terms of everything else, including their conflict-of-interest fees, any enterprising brokerage firm will be able to successfully retain those.
The “Best Interests Contract Exemption” (BICE) is the vehicle that permits this.