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June 29, 2016 at 09:58 AM
Last month the CFA Institute opened its ‘Putting Investors First’ campaign with an open letter in the Wall Street Journal. Noting how much economic damage from “the global financial crisis has been repaired,” the global group of over 130,000 investment professionals still did not pop the champagne. Instead, the second sentence of the letter struck the right tone for assessing finance, and by implication, the role of the fiduciary standard, “Yet the reputation of the financial services sector remains at a critical low, leaving our stakeholders … understandably ambivalent about their futures.”
This month marks seven years since the Treasury Department urged that broker advice be fiduciary advice, and on July 4th the Department of Labor’s fiduciary rule is almost three months old. By all means enjoy the barbecue, and also vow to speak out and help lead the advisory industry. Help ensure that industry lobbyists don’t become the public face of fiduciary advisors. A quick look at recent past events tell the story.
In 2009, Industry Lobbyists Ardently Opposed Fiduciary Advice
The Securities Industry and Financial Markets Association, under the leadership of John Taft, testified to Congress in October 2009 and set out its views of fiduciary in a comment letter to the Securities and Exchange Commission in July 2011. The SIFMA testimony revealed a complete misunderstanding of fiduciary by asserting SIFMA supports a standard that is stronger and “more pro-investor” than any one “we have heard advanced” and then in 2011 set out a brokerage-sales disclosure standard.
Meanwhile, the Financial Services Institute asserted in testimony before the House Financial Services Committee, as noted by Bob Keane in Investment Advisor on October 7, 2009: “Imposing the so-called ‘fiduciary standard’ will have the unintended consequence of limiting middle class investor access to financial advice, products, and services by increasing costs and raising other barriers to entry.”
In 2016, Industry Lobbyists Ardently Oppose Fiduciary Advice
FSI proudly explains its support of the lawsuit spearheaded by the U.S. Chamber of Commerce opposing the DOL rule. It asserts the DOL rule is “unworkable” and “Will only harm smaller investors.” Meanwhile, SIFMA president Ken Bentsen asserted again earlier this month, “The DOL has overreached” in this “costly, complex and very proscriptive rule.”
In 2016, the DOL Walked the Walk, DOL Rule Opponents Agreed
Labor Secretary Tom Perez said in releasing the rule, “We listened, we learned, we adjusted.” Key DOL rule foes (yes, foes) agreed. “We are pleased … (DOL) address(es) many of the practical terms raised during the comment period,” said Merrill’s John Thiel. “We are encouraged by the increased time frame for implementation, the ability to easily enter the best interest contract with existing clients and the freedom to recommend any assets,” according to LPL Financial. “It appears the Rule includes modifications that indicates the DOL has has considered some of the industry’s concerns,” according to Cetera Financial president Adam Antoniades.
In 2016, Many Firms and Lobbyists Seek to Kill DOL Rule
Business, brokerage and insurance groups started filing suits June 2 to kill the rule. Why? The rule requiring advisors serve their clients best interest, according to plaintiffs is, among other things, “arbitrary, capricious and violate … the First Amendment.”
SIFMA, the largest lobbyist for brokerage firms, was not reported to have debated whether it should support the DOL rule. No, instead, SIFMA had a robust debate with itself over whether to support the lawsuit to kill the rule, Bloomberg reports. Firms such as Raymond James Financial, Ameriprise and Robert W, Baird advocated and prevailed on SIFMA to support the lawsuit. Larger SIFMA member firms, such as Bank of America, Wells Fargo and others, again from Bloomberg’s report–SIFMA Roiled by Split Over DOL Fiduciary Suit by Wirehouses, Smaller Firms–argued against supporting the lawsuit. There have been no sightings of reports of SIFMA member firms urging the brokerage lobbying group to support the DOL rule.
Based on the loudest voice of brokerages anyway, investors are left to choose between brokerages who merely oppose the DOL rule and the best interest standard and brokerages who seek to kill it in court.
