Interesting concept - Fiduciary Standard for Brokers

[harley]

I saw this article in the Christian Science Monitor today - How Obama wants to help protect retirement investors - CSMonitor.com. It seems the President is proposing that brokers who advise clients on retirement investments follow a fiduciary standard of putting the client's financial well being ahead of their own. Revolutionary!

My favorite part is the response from industry -

"This re-proposal could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers," said Ken Bentsen, president of the Securities Industry and Financial Markets Association, which represents banks and assets managers.

In my opinion this is something that should have been required all along, and I don't expect too much argument from the denizens of this forum. But since this is a political plan I'm sure there are catches there somewhere. It would be interesting to hear what the legitimate (non-greed driven) reasons there might be to oppose it.

 

[REWahoo]

So you think government can pass laws requiring leopards to change their spots?

 

[harley]

So you think government can pass laws requiring leopards to change their spots?

No, I'm sure this will never happen, or if it does there will be loopholes big enough to drive a Brinks armored truck through. But that's my assumption on any government action. I just think it's interesting that they are even paying enough attention to it to even do any political grandstanding with it. I'm actually more interested in whether there is any legitimate reason not to do it, other than self interest in the financial industry. Would it truly stop potential retirees from being able to take part in certain investment classes? Or would it just stop the brokers from offering them because they wouldn't be raking in the fees any more?

As anti-government involvement as I am in most areas, I can't see this change coming from anywhere other than regulation. It's a shame, because I do think that fiduciary standards should be required of people who advise investments.

 

[MichaelB]

Here's a link to the DOL FAQ on the proposed change http://www.dol.gov/featured/ProtectYourSavings/faqs.htm

 

[Accidental Retiree]

So you think government can pass laws requiring leopards to change their spots?

 

[target2019]

After reading the DOL FAQ, I believe the DOL is saying that the rules are aimed at surfacing all of the compensation that an advisor receives based on his/her recommendations to the client.

 

[Mulligan]

My favorite "justification" from the brokers in protesting this is there may be less investment options available for people. It truly would be the end of the world if 5% load funds became extinct and more low cost index funds were then forced down investors throats!


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[2B]

My favorite "justification" from the brokers in protesting this is there may be less investment options available for people. It truly would be the end of the world if 5% load funds became extinct and more low cost index funds were then forced down investors throats!

Think of the negative impact to the luxury housing and automobile market when the brokers are forced to not sell products that pay them the highest commissions.

 

[travelover]

Outrageous government over reach. I'm still mad that the government now makes employers reveal 401(k) fees to employees.

 

[Sunset]

Must have been some high up gov't official finally realized how he/she lost 5% on his millions in "campaign contributions" by investing it

 

[ArkTinkerer]

Outrageous government over reach. I'm still mad that the government now makes employers reveal 401(k) fees to employees.

I think Megacorp's response to this was to make the fees explicit by making it a line item charge on our 401K. At least it was a % of assets!

 

[Texas Proud]

I will have to read it to see what it might mean....

IOW, if I call up Vanguard or FIDO and talk to someone on the phone do they have a fiduciary responsibility to me


Back when I worked in a trust dept., a fiduciary level of responsibility was much higher than due care (or whatever it is called)....

I just hope that it does not increase fees on what I do....

 

[audreyh1]

I think a lot of naive investors think that financial advisors already have a fiduciary duty towards them and really have a hard time believing otherwise.

Just like they believe a lawyer has a professional responsibility towards their client and a doctor has a professional responsibility towards their patient.

 

[Texas Proud]

I think a lot of naive investors think that financial advisors already have a fiduciary duty towards them and really have a hard time believing otherwise.

Just like they believe a lawyer has a professional responsibility towards their client and a doctor has a professional responsibility towards their patient.

Do not know about lawyers.... but one of my sisters is a nurse and she does have professional responsibilities to her patients... so I would assume that the docs do also...

 

[audreyh1]

Do not know about lawyers.... but one of my sisters is a nurse and she does have professional responsibilities to her patients... so I would assume that the docs do also...

Yes they do, and lawyers do too such as attorney-client privilege and I expect several other things.

And docs supposedly have taken the Hippocratic oath, although when your hear about some things some (some!) doctors push to CYA or worse, you wonder what that is worth.

But a financial advisor? No obligation to put the client's interest first anove they're own sales incentives.

 

[unclemick]

So you think government can pass laws requiring leopards to change their spots?

I think the old Pres should invite John C Bogle(St. Jack) to come in from the wilderness and they can have a beer or at least a good laugh together.



heh heh heh - I think he even wrote some books and has an opinion on the meaning of 'fiduciary'.

By the by - I'm old enough to remember why paying up front sales loads(in addition to expense fees) to brokers for mutual funds were good for me.

 

[ChrisC]

As anti-government involvement as I am in most areas, I can't see this change coming from anywhere other than regulation. It's a shame, because I do think that fiduciary standards should be required of people who advise investments.

Actually, I think it is already the law that investment advisers subject to the Investment Advisers Act of 1940, by SEC regulation, must comply with fiduciary standards when advising clients about investments. Financial advisors, also known as brokers, account executives, or registered representatives, who handle retail brokerage accounts can also be subject to fiduciary standards for "discretionary accounts," namely, accounts where the client/customers has essentially turned over total management of the investment portfolio to the financial advisor.

Most of us don't have such discretionary accounts with our retail brokers, but have "non-discretionary accounts," where the financial advisor handles your account and makes recommendations to the client to buy or sell securities, with the client ultimately approving the transactions. Nonetheless, financial advisors are required under FINRA regulations (Rule 2111) to make recommendations to the client, and place the client, in investments that are "suitable" for the client, given the client's risk profile which is generally documented by a standard risk tolerance form that the broker has you sign before you open up an account and is periodically re-submitted by the client.

Notwithstanding the President's initiative, a lot of this is already covered under existing laws and regulations, but it is quite a murky area and the President's approach might promote create greater clarity especially for retirement accounts.

 

[photoguy]

On the surface it seems like a no-brainer to make sure that a financial advisor is held to a fiduciary standard.

However, I was listening to NPR and surprised to see that the SEC has come out against the proposal. See speech by the SEC commissioner here: SEC.gov | Remarks at The SEC Speaks in 2015 (see section 2)

After the criticism of the SEC by Markopolos, I'm not inclined to view the SEC in a positive light. I would be curious to see any forum interpretation of the SEC comments.

I was surprised that the commissioner didn't bother to refute one of the primary motivations of the proposal ( “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”) The DOL link provided by MichaelB claims that studies have found that conflicts of interest result in 1% lower returns annually -- this is huge.

 

[travelover]

On the surface it seems like a no-brainer to make sure that a financial advisor is held to a fiduciary standard.

However, I was listening to NPR and surprised to see that the SEC has come out against the proposal. See speech by the SEC commissioner here: SEC.gov | Remarks at The SEC Speaks in 2015 (see section 2)

After the criticism of the SEC by Markopolos, I'm not inclined to view the SEC in a positive light. I would be curious to see any forum interpretation of the SEC comments.

I was surprised that the commissioner didn't bother to refute one of the primary motivations of the proposal ( “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”) The DOL link provided by MichaelB claims that studies have found that conflicts of interest result in 1% lower returns annually -- this is huge.

Interesting. I didn't read every word, but the tone is of one in serious denial.

 

[target2019]

SEC.gov | Current SEC Commissioners

There are five comissioners, and no more than three can come from one political party. Sounds like Gallagher is practicing for his next appointment somewhere.

 

[meierlde]

On the surface it seems like a no-brainer to make sure that a financial advisor is held to a fiduciary standard.

However, I was listening to NPR and surprised to see that the SEC has come out against the proposal. See speech by the SEC commissioner here: SEC.gov | Remarks at The SEC Speaks in 2015 (see section 2)

After the criticism of the SEC by Markopolos, I'm not inclined to view the SEC in a positive light. I would be curious to see any forum interpretation of the SEC comments.

I was surprised that the commissioner didn't bother to refute one of the primary motivations of the proposal ( “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”) The DOL link provided by MichaelB claims that studies have found that conflicts of interest result in 1% lower returns annually -- this is huge.

Markopolos said it because the Department of Labor was entering onto the SEC's turf, and so its just another in the infinte series of turf wars. The piece says that the SEC is doing a good job so why Dept of Labor are you cutting in on my turf.
Today is better than the old days as you can find brokerages etc that don't dispense any advice directly i.e. no broker calls with hot stock tip etc.

 

[GTFan]

The SEC is a revolving door for financial industry types so it's no surprise that they would want to 'let us manage it, stay the course' instead of doing what's right here. I think the proposal is a no-brainer personally, but siding with the consumer against this industry usually means it won't get traction.

 

[photoguy]

There are five comissioners, and no more than three can come from one political party. Sounds like Gallagher is practicing for his next appointment somewhere.

I learned something new today -- I had no idea the SEC was structured in this manner and that the commissioners were highly linked to political parties.

Markopolos said it because the Department of Labor was entering onto the SEC's turf, and so its just another in the infinte series of turf wars.

Yeah it does seem like a turf war and the announcement implies that the SEC is not doing a good job.

 

[meierlde]

Yes they do, and lawyers do too such as attorney-client privilege and I expect several other things.

And docs supposedly have taken the Hippocratic oath, although when your hear about some things some (some!) doctors push to CYA or worse, you wonder what that is worth.

But a financial advisor? No obligation to put the client's interest first anove they're own sales incentives.

Specifically Lawyers in addition are responsible for handling client funds they are holding correctly . It turns out that is true in most countries and one of the easiest ways to get disbarred is to take funds from client accounts.

 

[meierlde]

SEC.gov | Current SEC Commissioners

There are five comissioners, and no more than three can come from one political party. Sounds like Gallagher is practicing for his next appointment somewhere.

Actually that is true of most federal regulatory agencies one example where it is going on right now is the FCC and net neutrality, The republican commissioners don't like the proposal the dem chairman is proposing so it will be a 3 to 2 vote at the end.