Thursday, April 7, 2016

Why Doesn't Senator Rounds Like The New Fiduciary Rule? It Seems Sensible Enough. Brokers Should Be Up-Front About Who They Represent.

        It's good to see that the concept of the customer "coming first" has just been added to the rulebook governing brokers and other financial advisors who deal in retirement fund
Conflicts Of Interest?
I Want To Know About Them
The U.S. Department of Labor, which is charged with overseeing the handling of retirement funds by professional money managers, yesterday announced the implementation of the "fiduciary rule," which will force the industry to disclose conflicts of interest when it comes to advising clients.  After the President's Council Of Economic Advisors studied and concluded that $17 billion a year is being lost by many investors to brokers who steer clients to investments that are more suited to the brokers' income than their clients' needs, DOL set in motion and implemented this rule to make brokers disclose any conflicts when advising clients.

     I understand the pushback that the rule is getting from the industry.    Having been a registered broker-dealer with the Securities and Exchange Commission and a registered Commodities Futures Introducing Broker with the Commodity Futures Trading Commission, I spent a couple of decades complying with rules and regulations that seemed onerous and unnecessary and intrusive and damned expensive.  But as things turned out a few years ago, they didn't go far enough.  That's why even though the "fiduciary rule" will hit most brokers with the same force that continually bugged me, it's a good add-on.  As the crash of '08 demonstrated, the industry needs all the transparency that can be forced on it.  That a broker has to demonstrate to a client that the broker might have a compelling personal interest in a suggested investment seems like pretty sensible stuff to me.  
     Why our U.S. Senator Mike Rounds doesn't see it that way makes no sense. Rounds yesterday issued a statement opposing the fiduciary rule, saying it will "have harmful consequences" for retirement savers, that it "will limit the availability of retirement investment advice," especially for "low- and moderate-income Americans." He says that the rule is just another
Invest This
I Know I Can Trust You Now
of the Obama administration's "undue financial burdens on already overtaxed Americans."  I dunno. That sounds like a lot of political hooey to me.  I doubt that brokers will be particularly overburdened by explaining their own financial relationships with the investments they promote to their customers. Seems to me that this should be an essential part of a broker's advice.  

     As to limiting services to "low- and moderate-income Americans," Rounds needs to explain how that would come about because of the fiduciary rule.  A simple and straightforward document prepared by every broker explaining individual and corporate connections to recommended investments can't be that hard to produce. The mega financial advisor-servicing firm LPL (14,000 advisors in the U.S./at least 10 within two hundred miles of the Black Hills) even told the Wall Street Journal that "it was pleased" with DOL's changes to the fiduciary rule. The fact that a raft of other brokers are fighting against this required disclosure makes them look kind of suspect to me.  What are they trying to hide?  And why is Senator Rounds standing with them in their battle against transparency?  


  1. I am an independent Registered Investment Advisor with fiduciary responsibility, and I give lots of advice to low and moderate income people. I don't know what the good senator is talking about either.

    1. Well, then, we both know the drill. When clients come walking into the door they can generally expect to find a rep who will welcome them regardless of income or size of portfolio.

  2. Does the junior senator from SD even know for whom he's shilling nowadays? Meantime, shouldn't he be calling for an investigation of how Trans-Canada does business?

  3. Thanks Jeff, Here is the comment I fired back to the Senator when I got his email last Wednesday: "Depends on. Would this rule have protected me from losing 40% of my retirement savings in 2008 because I was dealing with an unscrupulous broker?"