On June 17, 2015, The Hill ran an op-ed written by two lobbyists, Tim Pawlenty and Robert L. Reynolds, "Let's protect investors' ‘best interest’ -- the right way." Their op-ed can be found at: http://thehill.com/blogs/congress-blog/economy-budget/245139-lets-protect-investors-best-interest-the-right-way
I am of the firm belief that those who provide truly objective, independent advice under a bona fide fiduciary standard of conduct - i.e., who truly act in the best interests of their clients - should not permit Wall Street and insurance companies to assert that they act in the "best interests" of the customers, when they don't. As the U.S. Dept. of Labor proposals to eliminate many conflicts of interest proceed, each and every true fiduciary advisor needs to stand up, comment, write letters to the editor, and otherwise do their part to reveal the inaccuracies of Wall Street's assertions.
Following is my reply, posted as a comment to the above op-ed. I urge you, the reader, to add your own comments to The Hill's piece - and to comment anywhere else Wall Street seeks to deceive policy makers and individual investors.
When acting in your "best interests" ... isn't!I find the authors' article disingenuous, as best, for several reasons.
First, the DoL could easily adopt a one-paragraph rule. "All those who provide investment advice to plan sponsors, plan participants, or IRA account owners are fiduciaries who possess broad duties of due care, loyalty, and utmost good faith to their clients, and who are obligated to act in the sole interests of their clients." Yet, why didn't the DoL do this? Because the very INDUSTRY which the authors represent objected - they demanded carve-outs and exceptions, many of which the DoL provided. Of course, providing such carve-outs and exceptions meant a much longer rule - which now the authors complain about!
Second, the authors, as well as others (SIFMA, FSI) state that they will act in the "best interests" of their customers - "the right way." But, looking closely, their definition of "best interests" is wholly different from the understanding of what is required under the fiduciary duty of loyalty (i.e., "acting in the best interests of the client"), and altogether different from what readers of The Hill will understand. In essence, the author's (and Wall Street's) proposed definition of "best interests" permit them to continue to sell expensive products to consumers. In other words, they don't act as fiduciaries, by stepping into the shoes of the clients, as experts, and with a duty of loyalty to the client. Rather, under Wall Street's proposed "best interests" standard brokers and insurance companies act IN THEIR OWN BEST INTERESTS. For individual investors, trying to save and invest properly for retirement, and attempting to navigate this extraordinarily complex financial world, the rule remains "caveat emptor" - let the buyer beware - when it comes to dealing with these purveyors of products.
The new rules will have "consequences both for employees who work for small businesses and for individual retirement savers with lower-balance accounts." Our fellow Americans will receive what they truly desire - trusted advice, from a fiduciary advisor, which is truly in their best interests. Rather than lose 2% to 4% (or more) in fees and costs to "financial advisors" who sell expensive products and extract excessive rents, our friends and neighbors will, instead, receive a much greater proportion of the returns the capital markets have to offer. And there are plenty of true fiduciary advisors who provide truly objective advice, and who will "pick up the slack" if Wall Street follows through with its threat to not serve "small investors" under the new rules. (Wall Street has made this threat before, when other tough rules on its behavior were contemplated, yet never have its threats turned to fruition.)
In essence, what Wall Street is really saying is ... "We can't extract such high rents from small investors - i.e., make huge profits off of them - under these new rules."
The fact of the matter is ... Wall Street wants to eat its cake and have it too. It wants to be perceived as acting in customer's "best interests," but enjoy the freedom to act in its own interests.
I am an independent, fiduciary investment adviser (for nearly 14 years) and an estate planning / tax attorney (for nearly 30 years). I have met with thousands of clients. I have reviewed hundreds and hundreds of portfolios. I have seen the great harm inflicted by conflict-ridden advice, not just in isolation, but in 95% or more of the clients' portfolios where the client receives "advice" from a product purveyor - i.e., from a broker or insurance agent. I have seen the retirement and other financial dreams of hundreds ruined as a result of conflict-ridden sales practices. This harm must not, and should not, continue.
I am also a full-time professor and Director of a Financial Planning baccalaureate degree program at a regional university. As such, I have the privilege of training the next generation of highly-skilled, ethical financial advisors. None of them desire to "sell products" - the business model touted by these authors. Rather, they desire to sit on the same side of the table as the client, as trusted advisors and fiduciaries. They desire to live by the DoL's fiduciary rules. And they know that any intelligent client would, if they knew the distinctions, would always insist upon being advised upon by a bona fide fiduciary advisor who acts as representative of the client (buy-side), rather than as broker/insurance agent and representative of the product manufacturer (sell-side).
The U.S. Department of Labor's proposed rule, to require the elimination of many conflicts of interest in the securities industry, and then PROPERLY manage any remaining conflicts, is a balanced, reasonable approach. The DoL's proposal, if finalized, will positively impact the retirement outcomes of hundreds of millions of our fellow citizens.
In the interim, let us not let Wall Street profess to act in the "best interests" of customers - when any sensible person would conclude that Wall Street's definition of "acting in your best interests" is wholly deceptive. Let us not permit Wall Street to spin the false narrative that "small investors won't be served" ... thousands and thousands of objective, trusted financial advisors already serve this marketplace, and this will continue to do so under the DoL's rules.
Ron A. Rhoades, JD, CFP(r)