The Trump administration ordered a review last week of a new federal rule prohibiting conflicted advice to retirement savers, a move that signals its intention to withdraw or defang the regulation. As things stand now, companies have until April 10 to comply with the rule.
What is the White House’s complaint against the so-called fiduciary standard promulgated by the U.S. Department of Labor?
“This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger,” Gary Cohn, director of the National Economic Council, told the Wall Street Journal.
This is the sound of ideology roaring loudly – free markets and consumer choice over paternalistic government regulation. (For anyone with a short memory – or an irony deficiency – Cohn is the former president of Goldman Sachs, which accepted a $10 billion bailout – later repaid – during the financial crisis of 2008-2009.)
Much is at stake. The DoL rule does require anyone advising clients on their retirement accounts to act in the client’s best interest and earn only “reasonable” compensation – and disclose information to clients about fees and conflicts.
Investors can sue advisers who fail to meet those standards. And an Obama administration study found that middle-class families are ripped off to the tune of $17 billion annually due to backdoor payments and hidden fees.
Or, as John Bogle – the legendary founder of Vanguard – put in an op-ed in The New York Times today:
In the debate about the fiduciary rule, one basic fact has been largely ignored. Investment wealth is created by our public corporations and reflected in stock prices. Stock market returns are then allocated between the financial industry (Wall Street) and shareholders (Main Street). So when the consulting firm A. T. Kearney projected that the fiduciary rule would result in as much as $20 billion in lost revenue for the industry by 2020, it meant that net investment returns for investors would increase by $20 billion.
By any definition, that’s a social good.
Increasingly, retirement investors get it. A growing number say they are willing to pay a fee for unbiased advice, and there has been a tectonic shift to low-cost passive index funds and software-driven robo-advisory services.
Nonetheless, it appears some kind of repeal-and-revert to free market-ideology is on the menu. In that case, consumers will at least need reliable, high-quality information to help them make judgments about what is good for them, and what is financial junk food.
Trouble is, investors must sort through a great deal of market noise to figure out who to trust. Many of the financial services giants that have fought the DoL standard tooth and nail pitch their wealth management services with something that sounds an awful lot like a fiduciary promise.
Stephen Colbert, who contributed the brilliant term “truthiness” to the English language, might call it fiduciary-ish. Or, just call it fiduciary lite.
J.P. Morgan Chase: “Our advisors focus on what YOU need.”
Raymond James Financial: “We believe financial advice is about more than just having a plan. It’s about having the right plan for you.”
Voya Financial: “We’ve already done most of the vetting for you. With a Voya retirement consultant, you know you’re getting a qualified professional who is thoroughly familiar with all of our products and services, able to offer good advice and make sound financial decisions on your behalf.”
This week I contacted these companies and three others – Wells Fargo & Co, Edward Jones and Lincoln Financial Group – for comment on the apparent contradiction between this type of language and their opposition to the DoL rule.
I also posed five other questions about transparency they provide to clients to help them understand the cost of their services and competitors’ products; whether they sell only their own proprietary products; how they ensure that client best interests are served when deciding whether to roll over funds from 401(k)s into individual retirement accounts, and how their compensation models have changed to avoid adviser conflicts.
How did these companies respond? Learn more at Reuters Money.