Orders and Memorandums

It's not very often that national breaking news happens in the financial planning business. But last Friday, as I was attending an industry conference, we did get some breaking news about the long-embattled "fiduciary rule". And it caused quite a stir.

I've previously written about how brokerage firms, insurance companies, and other commission-based salespeople in the industry had been fighting the government's efforts to enhance investor protections. The so-called fiduciary rule had been in the works for nearly seven years within the Department of Labor (DOL) and was specifically talked about by President Obama on several occasions as something important for investors.

The rules had eventually been approved and were going to begin this year on April 10th. From that date forward brokers and others would need to disclose more details about their compensation, conflicts of interest, and would be held to a higher standard of care by the regulators and the courts.

While this led to a lot of rigmarole and handwringing for many in the industry, some cheered the new rules as helping level the playing field for investors. After all, who wouldn't want more clarity when it comes to venturing through the tangled mess of conflicts that is the investment world?

Last Friday it seems we got an answer to this question. The new Trump administration leaked a draft copy of an Executive Order President Trump was to sign later that day. In the draft, as first reported early in the morning by AP, the new rules would be delayed for six months as the DOL conducted yet another review and a cost/benefit analysis. If the rules didn't stand up to the new analysis, then they should be scrapped, per the draft order.

Bear in mind that the new rules weren't hastily drawn up on a cocktail napkin. The rulemaking process was very robust. Again, it took almost seven years to complete, due to aggressive lobbying against the rules by the brokerage and insurance industries. Indeed, their efforts ultimately weakened the final rules. I'm sure the lobbyists cracked an early morning bottle of something to cheer their surprise, come-from-behind victory, as early news reports seemed to indicate defeat of the fiduciary rule.

But by later in the day there was a second round of breaking news. It turns out the version President Trump ended up signing contained different language. The six-month delay was gone and in its place was confusion. Was the rule dead, on life support, or what?

As you can probably imagine, this was a hot topic at the conference. As luck would have it two of the several sessions I attended were talks on the regulatory environment. The timing was perfect.

There was an interesting mix of frustration on the part of investor-advocate-types (like me) and hopeful relief for the brokers at the conference, who would maybe get to delay being more honest with their clients, and perhaps even see an outright dismantling of the new investor protections. This would be a boon to brokers because the burdensome task of being more transparent could be avoided.

We'll see what happens in the next couple months. Is the new administration going to be able to mount a full-throated attack on the new rules before April, or might the rules go into effect as scheduled with some major revisions? Only time will tell. As it stands now, the DOL doesn't even have a long-term boss. The President's nominee for Labor Secretary is having his confirmation held up for who knows how long.

So what does all this mean for you? This issue should serve as a reminder of one of the primary reasons the way we work together is better. The conflicts of interest that plague the rest of the industry, the higher commissions on different products, the opaque higher fees, the incentive vacations, and the myriad other conflicts are resolved with a word: fiduciary.

But does fiduciary guarantee 10% a year from your investments? No. Does it guarantee you a bigger house or a nicer boat in retirement? Of course not. What it does give you is piece of mind that your advisor is on your side and that there aren't any additional reasons why you're getting this or that advice. It also greatly reduces (or even eliminates) the chance you'll be sold a high cost, poor performing investment that ties up your money while filling your broker's pockets.

Many in the industry and government might want to maintain the expensive and convoluted status quo but working with me simplifies all of that. I receive zero additional compensation from anyone. I am not limited in the types of investments I can use, nor am I incentivized in any way to use one product over another. Nobody sends me on all-expenses-paid trips to the Caribbean (darn!). When I go to an industry conference, as I did last week, I pay my own way. That is how it should be.

As an interesting aside, Senator Elizabeth Warren has for the last few years generated an annual conflict review, of sorts, called Villas, Castles, and Vacations. In the 2017 edition, her office details some of the more egregious examples of conflicts in the industry. This is an advocacy piece for sure, but it sheds some light on an otherwise dark corner of the industry. I can tell you, however, that it barely scratches the surface. Here's the link if you're interested:

http://www.warren.senate.gov/files/documents/2017-2-3_Warren_DOL_Rule_Report.pdf

Have questions? Ask me. I can help.