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February 14, 2017 | The Problem with the Fiduciary Rule: It Doesn’t Go Far Enough–Yet

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Talk is cheap.  But anyone that is serious about actually remedying conditions adversely effecting working people and families today, will insist on a fiduciary standard from financial ‘advisors’. No exceptions or excuses.

The incoming fiduciary rule standard (presently being questioned, yet again, under Trump), is solely with regard to retirement accounts.  This is a start, but not far enough, as it does not cover non-registered investment savings accounts. Imagine how ludicrous where an adviser can say to clients:   “I have to put your best interests first on the registered accounts, but not on your other accounts, now here is what I recommend with your money.”

Even so, the financial business and Trump’s cabinet (many of whom hail from the financial sales business), are insisting that it is not possible to put the clients’ best interests first. That’s like “putting only healthy food on the menu” says ex-Goldman chief Gary Cohn, now Trump’s chief economic advisor (yes, believe it…a direct quote).

When you cut through the BS, the argument is that we have to allow financial advisors to abuse trust and put their own best interests ahead of the clients, or else the financial business (one of the most profitable in the world) will not make as much money.  The arguments are circular, mad, self-serving and indefensible.  For a good discussion see:  The fiduciary rule’s real shortcoming, that Trump should fix

Let’s tackle this by invoking Charles Munger’s idea — invert the fiduciary rule to see what would happen. This would mean brokers could take undisclosed kickbacks to push certain products, and place their interests ahead of their customers — recommending mutual funds and other products that earned them the highest fees, rather than served the interests of clients…

President Trump’s has asked for 180-day review of the Department of Labor’s fiduciary rule. It is, of course, reasonable to assume that this is the prelude to the new administration’s effort to kill the regulation.

If there is an actual shortcoming to the rule, it is this: The fiduciary rule shouldn’t apply just to retirement accounts; it should apply to all investment accounts, no matter the size and type. It’s probably doubtful that Trump’s review will come to this conclusion.

Yet this is what the SEC staff who reviewed this issue recommended in 2011.

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February 14th, 2017

Posted In: Juggling Dynamite

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