Who is winning with the fiduciary rule?

by on August 13, 2017 at 11:45 am in Economics, Law | Permalink

Remember the fiduciary rule, the one that “requires brokers to act in the best interests of savers and went into partial effect in June”?  Who could be opposed to such a thing?  But of course when a regulation sounds so very good, there is usually some other consideration around the corner, perhaps involving secondary consequences.  And, as some of us had predicted, it is not working out so well:

The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.

But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

“Primarily because of DOL” and market appreciation, assets are growing in fee-based accounts, said Stifel Financial Corp. SF 0.40% Chief Executive Ronald Kruszewski, on a call in July. In an interview, he said such accounts can be twice as costly for clients.

That is from Lisa Beilfuss at the WSJ.  Allison Schraeger is one who saw this coming.

1 derek August 13, 2017 at 12:03 pm

Working as designed.

2 mulp August 13, 2017 at 1:49 pm

Yep, if fixed fees are higher, it’s because customers picked those advisors based on their comparison of advisors and concluded the higher fee advisor was better for them just like they decide high cost artisan bread is better than cheap Wonder Bread.

And higher priced fee based advice that results in investing long term for higher returns instead of cheap fees for asset churn and low net returns is better because it’s more economically efficient.

Why would you want low fees for investment advice driven by the kickback aka commissions for funneling money to the highest commission paying fund of the month?

The past decade seems to be the tipping point with the majority of money passively managed by broad indexes based on the invisible hand theory of markets.

Unless investors are directly buying productive long term assets like people did when I was a kid, buying a duplex and renting half to help pay the mortgage, and then when better off, buying a new home and renting both halves of the duplex, and then buying their parents house and renting that, and their neighbor’s house, ending up with several rentals of debt free houses on retirement, rented to kids of family and close friends at modest returns.

3 Boris_Badenoff August 13, 2017 at 2:56 pm

Assumes facts not in evidence: that fee-based accounts yield more in the long term. I’ve seen no evidence of that, and if it were true, the market would move toward them on its own over time.

4 Albert August 13, 2017 at 5:14 pm

Agreed, this seems like a win-win.

5 y81 August 13, 2017 at 11:19 pm

If the government prohibits sellers from offering Product X (commission-based accounts), and buyers thereafter flock to Product Y (fee-based accounts), because that is the only product offered, that is not exactly like competition among bakeries.

6 adam August 16, 2017 at 12:00 pm

“Why would you want low fees for investment advice driven by the kickback aka commissions for funneling money to the highest commission paying fund of the month?”

Why would you want high fees for investment advice driven by the advisor’s interest in maximizing assets under management? The idea that fee-only advisors are conflict-free is ludicrous.

7 BC August 13, 2017 at 3:43 pm

Regulation reduces supply (of commission-based accounts in this case), increasing costs for consumers? Shocking. Now, we just need to find a way to subsidize demand.

8 JWatts August 14, 2017 at 12:14 pm

“Working as designed.”

The rule allows the Investment industry to lower the commissions it pays to Brokers and keep the money for itself. And the Industry can point to the law and say the Government made us do it.

Broker’s were a somewhat protected class (by their societal and legal niche), but that’s gone. Perhaps, the Lawyers and Doctors are next?

9 Per Kurowski August 13, 2017 at 12:23 pm

The usual question is: will this increase the well behaving more than it will reduce the caveat emptor? Only if “Yes!”, it’s great!

10 Thiago Ribeiro August 13, 2017 at 12:27 pm

If American brokers were not so corrupt and if moneyed interests had not such a grip on American government, such legal measures would not benecessary.

11 Per Kurowski August 13, 2017 at 12:32 pm

If American citizens were told not to trust regulators to help them out, such legal measures would also not be necessary

12 Thiago Ribeiro August 13, 2017 at 12:38 pm

They would stil be backstabed by American brokers and associated moneyed interests.

13 The Other Jim August 13, 2017 at 1:35 pm

Even the Spanish-speaking ones, Thiago?

14 Thiago Ribeiro August 13, 2017 at 2:13 pm

The moneyed interests have no fatherland. That is why President Temer has vouched to vanquish improper moneyed interests.

15 Pshrnk August 13, 2017 at 8:22 pm

@The Other Jim

Spanish?

16 Elephants Never Forget August 13, 2017 at 9:31 pm

@Pshrnk

Yes, last week our local “Brazilian” forgot his national language was Portuguese.

17 Thiago Ribeiro August 13, 2017 at 9:59 pm

Even worse, he forgot there is more than one Spanish-speaking contry in South America. ‘Cause misplacing two words, say, “Portuguese” and “Spanish”? That’s crazy talk! It is sad to see the depths Americans are ready to sink to in order to deny that their regime is not universally loved.

18 JWatts August 14, 2017 at 12:17 pm

“Yes, last week our local “Brazilian” forgot his national language was Portuguese.”

And he has consistently exhibited a deep historical knowledge of Communism, as well as showing support for Russian imperial policies.

Ergo, he’s probably actually Russian.

19 Meets August 13, 2017 at 12:42 pm

Pathetic.

Why doesn’t Trump reverse it?

20 mulp August 13, 2017 at 1:54 pm

He hasn’t figured out how to structure the investment advice policies to ensure money flows to his family deals with lower restrictions than Russian oligarchs money laundering and terms better than the money for his Atlantic City investments. Even investment bankers gambling with worker pension funds feel they got burned by Trump.

21 rayward August 13, 2017 at 1:13 pm

If advisers can’t gouge clients with unnecessary trades generating unnecessary commissions, then advisers can gouge their clients by charging a percentage fee based on the size of the account and place the client’s money in an index fund and do nothing to earn the fee. We’ve already established what many investment advisers are, now we are just haggling over the price.

22 John August 13, 2017 at 1:15 pm

Wouldn’t we need to see a study first comparing costs vs. performance over time to know if this is working or not? It’s certainly possible investor returns will increase enough to justify the fee increase.

23 prior_test3 August 13, 2017 at 1:22 pm

Of course not – as Prof. Cowen himself notes, all you need is this the proper perspective involving the last half year- ‘… as some of us had predicted, it is not working out so well’

Who cares about whether that proves true in 1, 5, 10, or 20 years? The people opposed are opposed, and not concerned about any period that just might show their prediction wrong. After all, they have your interests at heart, even without needing a fiduciary rule to codify their behavior.

24 Al August 13, 2017 at 2:32 pm

I take it that you apply the same reasoning when discussing pro grown policies?

25 prior_test3 August 13, 2017 at 3:27 pm

How could any reasonable person not compare their growth projections at 6 months, 12 months, 24 months, etc. with actual data, and then adjust their actions based on data?

Especially if the projections do not really have any history to back them, it is unwise to say an accurate projection after 6 months is clearly better than an inaccurate projection after 24 months.

26 Rock Lobster August 13, 2017 at 2:08 pm

The basic problem with the whole debate over the fiduciary rule is that if you actually took the rule seriously all these people would have to put themselves out of business, because for ordinary folks Vanguarding is the vastly superior option to whatever high-fee junk these managers are peddling, regardless of how transparent the fees are. Most people are so allergic to stock and bond talk that they are content to just look the other way/not do the math with respect to how badly they’re being ripped off over the course of their working lives.

My company offers 401k options that are almost entirely unconscionable ripoffs, including a 0.76% annual fee on target date retirement funds. 0.76% for a computer to slowly weight you into bonds over X number of years. There is something wrong with that.

27 byomtov August 13, 2017 at 2:54 pm

The basic problem with the whole debate over the fiduciary rule is that if you actually took the rule seriously all these people would have to put themselves out of business, because for ordinary folks Vanguarding is the vastly superior option to whatever high-fee junk these managers are peddling, regardless of how transparent the fees are.

Correct.

28 Nick August 13, 2017 at 2:57 pm

“if you actually took the rule seriously all these people would have to put themselves out of business”

Sounds good to me.

29 "if you" August 13, 2017 at 7:21 pm

“If you outlaw cigarettes you have a moral obligation to support some other cheap pleasure for those who can only afford cheap pleasures”

30 zbicyclist August 13, 2017 at 9:02 pm

If they can give the Nobel prize for Literature to Bob Dylan, it would seem logical to give the Nobel for Economics to John Bogle, long-time head of Vanguard. He’s probably done more for the average person than any of the other winners of the economics prize.

It’s no surprise that the financial services industry has figured out ways around the fiduciary rule. This is like all those campaign financing “reforms”.

31 ʕ•ᴥ•ʔ August 14, 2017 at 9:16 am

Is Tyler supporting an inefficiency?

32 Boris_Badenoff August 13, 2017 at 2:59 pm

The worst part of this rule is it invites litigation. How does a manager know stock X will return more over a given term than stock Y? Yet if he selected stock Y, based on his best judgment, he may be sued.

33 bob August 13, 2017 at 3:51 pm

But let’s use another example. A big Wall Street firm has an inventory of stock left from some dud IPO. The big Wall Street firm gives extra commissions to their brokers to push dud IPO. Do you think this practie should be legal?

34 Joe Torben August 14, 2017 at 10:13 am

But let’s use another example. A big car manufacturer has an inventory of stock left of some dud model. The big car manufacturer gives extra commissions to their retailers to push dud models. Do you think this practie should be legal?

35 libert August 14, 2017 at 11:55 am

Sounds like fraud

36 Ricardo August 14, 2017 at 1:33 pm

Extra commissions = more leeway to negotiate price downward = lower price for consumers = compensating differential for the inferior quality. In other words this is no different than lowering the price in order to move inventory.

37 byomtov August 13, 2017 at 5:13 pm

Why would he invite litigation, unless he selected Y because it was more profitable for him?

Of course, in most instances, he ought not be selecting stocks at all. Trading someone’s account is not usually a good idea.

38 y81 August 13, 2017 at 11:24 pm

Well, as the courts interpret “fiduciary responsibility,” if the manager hires an expensive consultant who recommends stock Y, the manager will be insulated from liability. Maybe he will also need an opinion of counsel that hiring the consultant is consistent with his responsibilities. And a recommendation from a search firm as to which consultant he should hire. That is why fiduciary accounts tend to be more expensive than other kinds of accounts.

39 ʕ•ᴥ•ʔ August 14, 2017 at 9:19 am

I am pretty sure it is not stocks, it is “investment products” which are too far removed from actual stocks and bonds. The rake-off in such products happens whether the underlying investment goes up or down.

40 Nick August 13, 2017 at 2:59 pm

Are they not violating the fiduciary rule by directing clients to asset-based fee options, or did special interests in the financial industry carve out an exception for that?

41 byomtov August 13, 2017 at 2:59 pm

This makes no sense.

Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry.

Really? Why weren’t they doing that before? How exactly does the fiduciary rule force firms to do things that increase their profits at the expense of investors?

Allison Schraeger is one who saw this coming.

No she didn’t. The linked article is nonsense.

I think ideology, or maybe an unthinking contrarian streak, is interfering with common sense here.

42 prior_test3 August 13, 2017 at 3:30 pm

‘Why weren’t they doing that before?’

Clearly because only government intervention can help a company increase profits it had not realized it was missing out on.

There must be a Mercatus Center research paper on that fact, right?

43 BC August 13, 2017 at 3:40 pm

“Really? Why weren’t they doing that before?”

Yes, “pushing customers” is probably the wrong expression. It suggests that firms can control which products customers choose, much like the fallacious notion that firms remove customer choice by “marketing” this product or that product to this customer or that customer. Firms have moved from offering commission-based accounts in favor of more profitable fee-based accounts to comply with the DOL rule, reducing supply of commission-based based accounts for consumers. Firms didn’t do this on their own before the DOL rule because there was no way to force competitors to do the same thing. Discontinuing commission-based accounts unilaterally would have just ceded the market to competitors.

The situation is similar to the ban on incandescent light bulbs. That has been great for light bulb manufacturers because compact fluorescents and LEDs are much more profitable. Before the ban, there was no way for firms to “push customers” towards the more profitable and expensive bulbs. If one firm stopped producing incandescents, customers could just buy incandescents from a different one.

Once one stops thinking of regulations as restricting firms and starts understanding that those same regulations restrict customers, then all of these unintended consequences become much less mysterious. Is it plausible that restricting consumers’ choices on what kind of retirement accounts to choose or what lightbulbs to buy will raise prices? Of course. Presumably, that’s why we have anti-trust laws. Regulations are a form of government-mandated collusion.

44 Thomas Sewell August 14, 2017 at 3:29 am

Exactly right.

Regulations like this one, the one on card fees, minimum wage, usury, anti-payday loans, gouging, other wage/price restrictions, etc… are all justified as the rule-makers knowing more than the people involved about what’s best for them.

Which neglects the fact that they’re removing choices from the people whose preference would be to make that now forbidden choice, based on their actual knowledge of their real situation and needs/desires.

45 ʕ•ᴥ•ʔ August 14, 2017 at 9:24 am

Except most people act as if a fiduciary rule is already in place. They trust their “financial advisor” and a “recommended portfolio” which, when you look at it is good for nothing more than raking off 2% of assets every year.

Bogle showed how high fees hurt, and these are often doubly nested, high fees.

The average saver has no defense.

46 BC August 14, 2017 at 12:41 pm

The average saver’s “defense” is to not trade excessively, regardless of what their broker recommends. You may think that requires knowledge and skepticism on the saver’s part, and it does. But, when government takes away consumers’ choices, that’s when there truly is “no defense”. No matter how knowledgeable or distrustful one is of government, one cannot overrule government’s actions. That’s because the government isn’t merely making a “recommendation”. Saying a saver has no defense against conflicted brokers without noting that the saver has even less defense against government gets it backwards.

47 ʕ•ᴥ•ʔ August 14, 2017 at 12:59 pm

I don’t think it is about trades at all. It is about putting people into high fee funds, and fee based portfolio plans, and then hoping they will stay there for the rest of their lives.

48 Ryan August 13, 2017 at 4:43 pm

Firms have been strongly pushing towards a percentage of assets fee for a long time, but it is hard to charge someone 1.50%/yr when they are currently paying only $500/yr in trades (which might cost $5/yr at a discount brokerage). Media coverage has become overwhelmingly in favor of fee-for-service, and paying a percentage of assets has more or less become normalized so the conversation is much easier than it has been in the past.

I suspect that brokerage firms have been “encouraging” writers to sing praises of fee-for-service, and writers are more than happy to collect a cheque and please regulators at the same time. I also suspect that ETF firms have encouraged investing media to become more positive to increase DIY investor flows.

As far as I’m concerned, such behavior is inevitable as firms have both opportunity and incentive to shape the narrative, but for some reason whenever I bring it up as a possibility people think I’m paranoid.

49 byomtov August 13, 2017 at 5:21 pm

So let’s see.

The rule made commission accounts less attractive to brokers, because it made them more vulnerable to lawsuits. First, that’s not all bad. In case no one has noticed, there are an awful lot of crooks in the investment business, some of them with pretty prestigious names.

So we go to fee based accounts. Why, exactly, absent collusion (chuckle), won’t the market force those fees down to sensible levels? Surely they ought to drop at least to the point where they generate no more money than the old commission accounts did. And aren’t they in fact, easier for consumers to compare, at least as far as the actual percentage being charged?

Where is our faith in the market?

50 byomtov August 13, 2017 at 6:20 pm

Media coverage has become overwhelmingly in favor of fee-for-service

But hasn’t that been in favor of hourly fees for general financial planning services, rather than percentage of assets for brokerage accounts?

I guess percentage of assets has been normalized, as you say, but someone ought to point out that the relevant percentage ought to be closer to .15% than 1.5%. I know, the investment firms won’t make any money. Too bad. They don’t actually deserve to, instead they provide nothing of value to the average, or even significantly wealthier than average, individual. Paying 1.5% of assets means that if you earn 10% you are paying 15% of your gains in fees. Seems like a lot.

51 y81 August 13, 2017 at 11:26 pm

“Why weren’t they doing that before?” Because competition among providers forced them to offer commission-based accounts. Now, with the government threatening massive legal penalties for commission-based accounts, the incentive to offer them is much reduced, and the competitive pressure is gone.

52 bob August 13, 2017 at 3:46 pm

Are customer costs really increasing? Or were there hidden fees that compensated the brokers in other ways but not fully disclosed to the customer?

53 byomtov August 13, 2017 at 6:22 pm

Order flow payments leading to poor executions is one possibility.

54 contrariwise August 13, 2017 at 4:38 pm

This issue has far less to do with brokers treating clients well and more to do with trial lawyers wanting to get around the arbitration clauses contained in broker contracts. The ability to skirt arbitration will allow for class actions against brokers which will cause the cost of seeing a challenge through to a conclusion to skyrocket and thus force more early settlements. The department of labor under Tom Perez came up with this to raise money for the largest donor to the democratic party. Touching altruism and concern for the small investor…if you believe the earth is flat.

55 byomtov August 13, 2017 at 8:18 pm

The arbitration clauses need to be gotten around.

56 Axa August 13, 2017 at 4:55 pm

If the regulation goal is to minimize costs l, regulation is failing. But, what if the the regulation goal is to minimize people getting (even more) screwed by providers of financial services?

A similar situation happens with the accredited investor issue. This regulation prevents lower net worth people from investing in high risk but profitable endeavours. The outcome is lower but closer to average yields for not accredited investors.

In the end, it doesn’t matter. People can still invest in high risk things even if they’re not provided by a bank: real estate, cars, small business, etc.

57 Per Kurowski August 13, 2017 at 4:59 pm

“But, what if the regulation goal is to minimize people getting (even more) screwed by providers of financial services?”
And why do you think regulators are capable of that?

58 John August 14, 2017 at 9:55 am

The stock leverage rules? The reason the dot com bust didn’t end up like the real estate bust is because retail investors can only lever up 2:1 not 40:1. That’s a clear case of regulators protecting investors from their own worst impulses.

59 Axa August 13, 2017 at 5:06 pm

Perhaps the optimal way to deal with this issue is that the regulation considered a way to opt out. Something similar to organ donation in some countries, enabled by default but anyone disagreeing can opt out.

60 Mark Thorson August 13, 2017 at 6:28 pm

I’ve been thinking if I come into my inheritance very soon, I’d put the whole thing into GLD (exchange-traded fund that tracks gold). What kind of financial planner would recommend that? None, and the fiduciary rule would prevent that. There’s lots of stocks I like relative to the market, but my reasoning is the market as a whole looks toppy to me. When we keep setting new highs, what’s the chance we’ll go higher vs. lower? I think we’re overdue for a contraction. After the fall, that will be the time to move from GLD into stocks.

61 Ricardo August 14, 2017 at 1:57 am

How so? If a financial adviser deems it not in your best interest to go 100% into GLD, perhaps you should consider that a warning. Nobody is preventing you from making the investment, though, and it is odd to critique a policy because you think it will not result in you hearing what you think you want to hear.

Investment advisers are not prohibited, as far as I can tell, from offering contrarian advice. They are only required to disclose fees and any potential conflicts of interest up front.

62 John August 14, 2017 at 9:56 am

Another idiot investor thinks he can time the market – film at 11.

63 Boonton August 14, 2017 at 11:48 am

If your doctor advised you to eat Big Macs every day for a year, your health would dramatically decrease. The only thing that might keep you from succeeding in a malpractice suit is such advice would be so stupid perhaps a court wouldn’t believe you actually believed it.

Yet despite this ‘rule’ preventing your doctor from ‘advising’ you to eat crap every day, you are perfectly free to do so. What’s the issue?

64 Boonton August 13, 2017 at 7:11 pm

” as limiting consumer choice”

Here is my test/challenge. Let’s say some set of regulations were limiting ‘consumer choice’. I would predict the market would then consist of a good choice and fewer options for ‘less good choices’. For example, when airlines were more heavily regulated, an elegant, nice trip on an airplane was easy to buy. A crappy trip for much less cost, however, was not. Why would this be? Say many consumers are generally ignorant and will simply select from available choices. The few consumers who are not ignorant, who are ‘connoisseurs’ will insist the ‘best choices’ is among those available by the regulation while they will neglect demanding the ‘freedom’ for crappier versions that might nonetheless fit the needs of consumers who have other motivations than being a connoisseur. For example, a connoisseur of retirement investment choice would insist that low cost index funds are part of any available ‘choice’. A non-connoisseur would want choices based on conspiracy theories, quack financial theories (i.e. staring at charts for patterns, for example), cults of personality (the ‘star’ stock picker or the fund guy who shows up on CNBC screaming every day), or entirely unrealistic beliefs in their own greatness (“You can be a day trader with our fancy graphs beamed directly to your computer on demand!”).

Since this dreaded rule has gone into effect, is there any evidence that the financial industry has started supplying a shortage of stupid investment ideas? I’m not inclined to think that is the case but I’d be happy to hear evidence to the contrary.

Now is charging a fee based on assets under management fun for the investor? No, but it does have a measure of honesty to it. I can compare one places fees to another so there is an element of competition. Earning commissions for selling ‘products’ you do not disclose to investors, on the other hand, creates the impression these services are being provided ‘for free’ to the investor and if advisors not only do not have a duty to disclose their commissions AND have no duty to guide their customers to vehicles that are proper to their needs I’m not really seeing the argument against this rule.

65 reed e hundt August 13, 2017 at 7:56 pm

try Wealthfront if you want a low priced fixed fee astute way to allocate assets.
I think your snarky blog post probably leaves out the various ways RIAs mulct clients. It all depends on what comparisons you are making.

66 Ein Prosit August 13, 2017 at 8:00 pm

Many of the comments here are missing the fundamental objections to the rule.

As a matter of process, the rule bans any form of investment advice and then grants exceptions if you meet certain conditions. Any rule that broadly bans people from doing arms-length business with each other as it starting point is suspect.

The rule also confuses and conflates advice with transactions. I can buy a hammer from a hardware store and pay for that hammer. The store bears no responsibility to make sure I get the right hammer, the cheapest hammer, or otherwise prevent me from buying the hammer of my choice. This rule effectively imposes that obligation on a seller of financial products. Any rule that limits a consumer’s choices – for their own good – as a starting point is suspect. The choice of enforcement mechanism and burden of proof – judged in retrospect – is another matter in itself.

An investment adviser is already a fiduciary for the services it provides by SEC rules. This rule should have no effect on an investment adviser because the adviser is already a fiduciary, but that is not the case. An investment adviser who markets their services must be careful because the rule deems their sales pitch as fiduciary advice. The DOL says that an adviser who pitches their services must act as a fiduciary with respect to the decision of which adviser to hire. An adviser who makes a sales pitch and is hired engages in the exact same conduct as an adviser who makes a sales pitch and is not hired. Because the one that is hired is eventually paid, they are a fiduciary. The other is not because of the absence of compensation. Any rule that fails to recognize a distinction between the selection of a vendor and the services that vendor provides (let alone the wisdom of regulating in spite of the primary regulator of the investment advisers) is suspect.

There is plenty more but the rule has many fatal flaws in its approach and philosophy that have nothing to do with ripping off people in their retirement accounts. It sets dreadful precedents for the regulation of human conduct and commercial interaction in general.

67 Jonathan August 13, 2017 at 11:18 pm

+1 (and I don’t ever +1)

68 msgkings August 14, 2017 at 1:54 am

+1 well said

69 byomtov August 14, 2017 at 7:42 am

The rule also confuses and conflates advice with transactions. I can buy a hammer from a hardware store and pay for that hammer. The store bears no responsibility to make sure I get the right hammer, the cheapest hammer, or otherwise prevent me from buying the hammer of my choice. This rule effectively imposes that obligation on a seller of financial products.

No. It requires that the store tell you if the hammer head is made of tin.

An adviser who makes a sales pitch and is hired engages in the exact same conduct as an adviser who makes a sales pitch and is not hired. Because the one that is hired is eventually paid, they are a fiduciary. The other is not because of the absence of compensation. Any rule that fails to recognize a distinction between the selection of a vendor and the services that vendor provides (let alone the wisdom of regulating in spite of the primary regulator of the investment advisers) is suspect.

What is the objection? If I consider hiring a lawyer, and don’t, the lawyer has no special obligation to me. The lawyer I end up hiring does.

70 Jonathan August 14, 2017 at 9:54 am

“No. It requires that the store tell you if the hammer head is made of tin.”

No. Stores are required to tell you that as were brokerages before the fiduciary rule, through the “suitability” rule. No analogy is perfect, of course, but it is as if you were required to tell the hardware store what your general objectives were and the hardware store were in fact liable for selling you a hammer which was outside of the things suitable for your purposes. Ein Prosit is correct that they weren’t required to sell you the “right hammer” but they couldn’t sell you a jackhammer if you told them you wanted to put pictures up on your wall.

71 Boonton August 14, 2017 at 10:58 am

If you buy a roofing hammer to hang tiny pictures, the store is not responsible for the holes you’ll end up putting your walls. You either will have to live with those holes or spend money and time to fix them…learning from your mistake either way.

Society is not giving you special tax advantaged accounts to buy hammers nor is society trusting that you won’t become a ward of the entitlement system because bad hammer choices ruined your home.

72 DF August 14, 2017 at 11:47 am

Your hardware store analogy is more equivalent to DIY investing via some online brokerage firm (ETrade, Vanguard, Fidelity, Schwab, etc.). You can do whatever stupid thing you want, including buying a sledgehammer to put in picture nails. As a heavily-DIY investor, I never got any sort of pushback on investments I made because of the fiduciary rule (I noticed exactly *zero* change when it started to come into effect).

A better hardware store analogy would be if there was a “DIY help desk” where a handyman told you to buy a $30 sledgehammer to drive in those picture nails over a small $7 hammer because the more expensive hammer got him a better sales commission.

73 byomtov August 16, 2017 at 9:46 am

Yes. That is a better example. When you profess to offer expert advice you have an obligation to consider the interests of the customer. That’s supposedly part of what you get paid for.

Setting yourself up as an expert and then handing out non-expert self-interested advice is, shall we say, not wholly honest, no matter what phony arguments the WSJ comes up with.

74 Evans_KY August 13, 2017 at 9:23 pm

In my mind, the rule is more about ethics and disclosure. Ultimately the consumer makes the choice to pay higher fees. The CFPB should be empowered to police any abuses. If you want to repeal then may I suggest a NASCAR approach where each broker clearly displays the funds he benefits from. Otherwise if we look down the road, many brokers will be replaced by computers. How will the rule apply then? Transparency, proprietary algorithms.

75 Donald Pretari August 13, 2017 at 11:51 pm

“The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice ”

Is there some law prohibiting them from asking the client?

76 Tony Trepanier August 14, 2017 at 11:25 am

I would be less interested to look at what is happening with conventional investment accounts, and more interested to know what is happening in the Variable Annuity industry.

77 JWatts August 14, 2017 at 12:20 pm

+1, if Variable Annuity sales have surged, then this change in rule’s will have been a Net Loss for consumers.

78 James Anderson August 14, 2017 at 12:01 pm

It’s wise that we don’t entirely bank on prediction, as it is sort of thing that could make huge difference to the working. I always keep it relatively simple and straight forward, it’s a lot easier when you join up with companies like OctaFX since they are masters with having small spreads from 0.1 pips for all major pairs, fast execution, over 70 instruments and the best part is their market forecast which is provided by highly qualified team of experts and are deadly accurate!

79 jorod August 14, 2017 at 9:28 pm

Regulation as a substitute for public education.

80 istanbul gezilecek yerler August 16, 2017 at 6:38 am

Are customer costs really increasing? Or were there hidden fees that compensated the brokers in other ways but not fully disclosed to the customer?

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