Elections Matter: The Fiduciary Standard Edition
You’ve probably haven’t heard anything about it but the “most, intensive coordinated lobbying effort that Capitol Hill has ever seen is going on right now,” according to lawyer, financial planner and academic Ron Rhoades.
Billions of dollars of inflated fees are at stake, as are the retirement plans of tens of millions of Americans — including you.
The government is about to do something transformative that will move much of our retirement planning away from a culture of sales towards a culture of duty to customers.
That is, unless some of the most powerful people in America can stop it.
In 2011, the Security Exchange Commission staff produced a study that found that all stock brokers and financial planners should be placed under “a uniform fiduciary standard.”
Last year Ritholtz wrote:
Wall Street was none too happy about this. The industry spent tens of millions of dollars lobbying to prevent this standard from becoming the law of the land. Indeed, of all the regulatory reforms that have come out of Dodd-Frank, nothing seems to displease the financial industry more than the proposed fiduciary rules.
And because Wall Street still — in a Democratic Administration! — has massive influence on the SEC, it never adopted the report or the standard. But, because we have a Democratic Administration, the issue didn’t die.
The Department of Labor picked up the issue and determined that, since retirement funds are compensation, it had the power to put the standard in place for anyone who manages retirement funds, including 401ks and IRAs. The rule is being finalized now — and Rhoades feels that Wall Street’s best chance to kill it in December’s budget deal has now passed.
I know even the words “fiduciary standard” may inspire a contagious yawn. But this could decide if the person you employ to help you to retire is obligated by law to actually help you meet your goals or can just treat you like a mark to be fleeced.
It’s geeky stuff. And I have to admit I’ve been geeked about retirement planning since I listened to Ritholtz interview Rhoades earlier this week. If I were 20 when I heard this, I might even have gone into financial planning instead of whatever the fuck I’m doing now. That’s how noble the professor makes his profession sound.
Rhoades estimates that, if it gets put into place, between 40 and 50 percent of all assets in the U.S. will be managed under the standard, which he calls a “tipping point” away from Americans being sold bad “products” with hidden fees and costs that ultimately make the already difficult task of generating financial security even harder.
There’s a moment in this show that reveals why I am a huge fan of Barry Ritholtz and his Masters of Business podcast.
Ritholtz is a Jacob Javits-moderate-Republican-turned-true-independent. But he’s well aware of his own biases and never fails to point out that he didn’t leave the party, the party went crazy.
In the podcast section with Rhoades, Ritholtz admits that he’s sipped “the Kool-Aid.” He believes in the fiduciary standard and doesn’t understand why it hasn’t happened more quickly. But he asks Rhoades to make the argument against the standard, just to make sure it’s heard.
The professor quickly explains the classic divide between the left’s view of government as a parental force to steer us away from self-harm and the right’s individual responsibility ethos. But for him, it’s about how many people have the time and bandwidth to understand the intricacies of financial markets well enough to make proper investment choices.
After decades in the field, his answer is about “1 in a 1,000.”
Seriously. Listen to this show.
The story of the fiduciary standard may be the perfect example of how change happens in the Obama era. It helps explain why the change is often so hard to see, why it’s so unsatisfactory to many and — ultimately — why it’s so significant and worth fighting to preserve.