Monday, February 23, 2015

Obama directs Labor Department to move ahead on fiduciary rule

Earlier today, the white house put out a press release stating that the president plans to direct the Department of Labor to move ahead with a proposal that would raise investment-advice standards for brokers handling retirement accounts, arguing that conflicted advice is costing Americans billions.

It is the opinion of this author that the government doesn't understand that the cost of distribution is the main reason for the high costs of financial products in the retail channel, and that registered reps steer people into products whose expenses cover the cost of distribution--not necessarily because they want Americans to pay excessively for those products.

Professionally, in my experience, most of the financial service professionals (registered reps, financial advisers, financial consultants, RIAs, etc.) all genuinely try to give good advice or good counsel to their clients and prospects.  No one works for free, and thus when working with a client often times the mechanics of payment force this financial professional to choose between embedding their fees into the products (mutual fund 12b-1's for example) or working with clients on a fee-only arrangement where the client is invoiced.  

Strictly from the perspective of ease, it is often easier to have the investments foot the bill of the professional.  That is what the government is using as its primary factor in stating that the industry costs clients billions.  Not that the advice is bad, but rather that the investments are more expensive and thus intentionally harmful when really, they are more expensive due to the fees paid for the advice received.  

A good old American exchange of fees for services rendered.  

Don't get me wrong, I'm all for the idea that financial consultants must be required to always act in the client's sole interest when giving advice, however this rule will paint all financial professionals as fiduciary advice givers when many of them really aren't doing that or are even qualified to do so.  It's a poorly written rule from where I sit and think it needs to go back to the drawing board.

The link to the press release here:


See the above link.  Apparently, SEC Commissioner Gallagher agrees with my opinion.  Within this speech is some pretty harsh criticism of the DOL's rule making calling it a "runaway train" and goes on to really pick apart the White House's internal memo.  Worth the read.

- Jason Grantz

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