News & Insights

Old Wall Street’s Creatively Dishonest Attack on the DOL Fiduciary Rule

by Elliot Weissbluth on November 12, 2017

How can you fight against regulation that protects working-class American families from fraud without destroying your own reputation?

That has been the question facing old Wall Street wirehouses as they try to kill the Department of Labor (DOL) fiduciary rule, a new standard for financial advice that could save retirement investors $17 billion per year in unnecessary fees.

The solution they came up with? Twist the narrative to claim the rule would actually somehow hurt “the little guy.”

The DOL rule, opponents say, would limit access to financial advice for small savers. This dubious argument is nothing new. A U.S. Chamber of Commerce study earlier this year found that 13.4 million consumer accounts could lose access to their financial advisor under the DOL rule. But consider the source. The Chamber of Commerce’s function is to look out for business interests, not consumers.

The truth is that even if some advisors do jettison small clients, plenty more capable and trustworthy professionals will be lining up to take their business. HighTower advisors have been servicing accounts both large and small for years in a way that makes economic sense for all parties. We didn’t wait for Dodd-Frank or the DOL. We found an ethical commercial solution to a societal problem.

The crocodile tears gameplan clearly made its way to the swamp. Rep. Ann Wagner (R-Mo.), a favorite of Wall Street lobbying groups, recently introduced the “Protecting Advice for Small Savers (PASS) Act of 2017” – a backwards bill that would repeal the fiduciary rule and actually set a new, lower standard for regulating financial advice.

The shame doesn’t stop there. Some investment brokers may even be bilking investors by exploiting a loophole in the very regulation designed to protect them, according to the Consumer Federation of America (CFA).

The fiduciary rule triggered a large industry shift from commission-based to fee-based compensation models in retirement accounts. In most cases, that shift makes sense for the client. However, some clients would save money by remaining in commission-based accounts. The fiduciary rule’s mandate is clear: do what is best for the client. Brokers maximizing fee income by steering retirement investors toward fee accounts when they’re better off in commission accounts could violate securities laws, according to the CFA.

The DOL rule (if fully implemented) would be a step in the right direction, but it is far from perfect. An ideal fiduciary rule would be uniform, applying to all managed investment accounts, not just retirement assets. It would be clear-cut, mandating that advisors objectively act in clients’ best interests, rather than search for ambiguity. It would be ironclad, not allowing advisors to opt of their fiduciary duty (as the current rule does via the Best Interest Contract Exemption, or BICE).

As a society, it took us a long time to discover that fast food is unhealthy. Now, we accept that a steady diet of Big Mac value meals could lead to diabetes. For decades, big tobacco successfully peddled the lie that smoking is actually good for you because it helps you relax. Today, we agree inhaling cigarette smoke contributes to cancer and heart disease.

Over time, our society will realize the same type of universal truth when it comes to investing: anything less than honest, conflict-free advice is harmful to our financial health and overall wellbeing. Old Wall Street should do the right thing before losing even more of the public trust.

This post originally appeared on LinkedIn.

# Chamber of Commerce Department of Labor Dodd-Frank Fiduciary rule

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