Part II. – Erecting and Removing Roadblocks: Regulating Traffic (Commentary Summary)
The Obama administration thinks individuals are pretty stupid when it comes to investing for retirement, and that those who advise them are out to rob them blind. (They think there’s a robber on every corner of every side street, that we shouldn’t drive down those streets, and that we don’t listen to them. So, they’re going to do something about that for our own good. – The nanny state at work with hyperbolic hogwash.)
They issued a new “Fiduciary Rule” to protect us, so they claim. (All that they will succeed in doing is to block off the side streets [small broker-dealers] and change the main street [major brokerage firms] into a thoroughfare with HOV only lanes – no individual / small investors permitted. Ah, the collective mindset at its finest.)
The Clinton administration had previously issued their statement, a DOL Bulletin, saying that using private retirement money in government programs was okay. In 2008 the Bush administration disagreed, saying that it wasn’t quite as safe and issued their own statement. The Obama administration threw out the Bush statement and re-released the Clinton statement, adding that things have improved. (Clinton erected an “Enter” sign, Bush took it down and erected a “Caution” sign, and Obama took that sign down putting the “Enter” sign back up again, adding neon lights to attract attention. They should put up a “Road Closed” or “Do Not Enter” sign because the road drops off into a ravine at the end.)
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Part II. – Erecting and Removing Roadblocks: Regulating Traffic
“Stupid is as stupid does, sir.”
Continuing with this narrower focus . . . and contempt . . ., last year, the DOL issued a proposed regulation which effectively stated that individuals, including small business owners with 401(k) plans, are too stupid to manage their retirement assets and that their advisors are robbing them blind. Following is the wording from that regulation, with emphasis added:
Today, individual retirement investors have much greater responsibility for directing their own investments, but they seldom have the training or specialized expertise necessary to prudently manage retirement assets on their own. As a result, they often depend on investment advice for guidance on how to manage their savings to achieve a secure retirement. In the current marketplace for retirement investment advice, however, advisers commonly have direct and substantial conflicts of interest, which encourage investment recommendations that generate higher fees for the advisers at the expense of their customers and often result in lower returns for customers even before fees.
This is nothing more than a scare tactic, a modus operandi, by creating a classic victim/villain scenario with a sweeping indictment by use of the words “seldom” and “commonly”. It is not the reason but a mere pretext used by those on the Left to seek a transfer of power . . . and money . . . from the individual to a centralized state.
This is but a “conviction” of individuals, small business owners, and their advisors. Their “sentence” will involve their retirement accounts.
Unfortunately, this one did pass, as presented below …
“Yes, and when you’re slapped you’ll take it and like it.”
Earlier this year, the DOL issued a final regulation, which is referred to as the “Fiduciary Rule”. This rule require brokers who handle retirement accounts to act in the clients’ best interests. Upon hearing this news Sen. Elizabeth Warren cried out, “Woo-hoo!”
Inasmuch as ERISA clearly defines who is a fiduciary, which includes “a person who renders investment advice for a fee or other compensation, direct or indirect …”, and further defines what their duties are, this new regulation is an example of finding a solution for a problem that doesn’t exist. It also “muddies the waters” as further explained in this article.
[For the wonks reading this post, this publication provides a excellent summary of the final regulation.]
This regulation expose brokers to potential lawsuits and will add hundreds of millions in compliance costs for each brokerage firm. These costs will be passed on to the clients. From an article in Barron’s entitled “Why Your Advisor Doesn’t Like the Fiduciary Rule” comes this response [Note: If the link doesn’t get past the pay wall, copy and paste the title in Google and then click.]:
Harman also argues that the rules could cause brokers to turn away smaller would-be retirement investors. Fear of lawsuits, along with increased costs, could lead many to decide that only large accounts are worth the trouble, he says. “It’s really going to affect smaller investors,” Harman says. “[Brokers] might not work with people under a certain amount of money.
This sentiment has been expressed by Senate Majority Leader, Mitch McConnell, R-Ken. as follows:
“Some have estimated that investment fees could more than double under this regulation. Here’s what that could mean: Access to critical retirement advice for those who can afford it, and restricted access to affordable advice — and fewer retirement savings as a result — for too many lower- and middle-class Americans. It reminds some people of Obamacare. Here’s why … Like Obamacare, it threatens to upend an entire industry, threatens to increase costs and decrease access, and threatens to hurt the very people it’s aimed at helping. This regulation could have the effect of discouraging investment advisors from taking on clients with smaller accounts. What that means is that smaller savers — everyday Americans trying to plan for their future — could have less access to sound investment advice … this regulation seems to have always been more about politics than good policy … America’s Middle Class deserves responsible solutions, not far-reaching regulations that could jeopardize the retirement security of the very people it purports to help.”
Also echoing this concern is Michael S. Piwowar, Commissioner, Securities and Exchange Commission
“I am disappointed that the rule announced today seems to ignore the chorus of voices that questioned whether it will restrict middle-class families’ and minority communities’ access to professional financial advice by making retirement advice unaffordable. I am fearful that those concerns, which were widely and bipartisanly held, will prove to be true once the rule becomes effective.”
Ultimately individuals and small businesses may have no affordable access to professional financial advice for their retirement plans.
Note: The provisions of the rule do not apply until April 10, 2017, with transitional relief until January 1, 2018, which are after Obama leaves office. I sense a pattern here.
“They’re back! There’s no choice left.”
During October of last year the DOL released Interpretive Bulletin 2015-01 which relaxes the guidelines with respect to using private retirement funds for “social investing” (ETIs).
[This article provides a brief summary of the Bulletin, while this article offers a different perspective of the earlier Bulletin issued under the Bush administration.]
In a DOL News Release, U.S. Secretary of Labor Thomas E. Perez justified this change by stating,
“Changes in the financial markets since that time, particularly improved metrics and tools allowing for better analyses of investments, make this the right time to clarify our position.”
This is simply flawed logic. Improvements in the metrics and tools DO NOT improve the ETIs. It was a pure political power move.
The Bulletin, quite literally, takes us back to the original interpretation that was first issued during the Clinton administration, and it reopens the door for the government to pursue private retirement funds. Under the “Obama strategy”, and given the premise for the “Fiduciary Rule” with its impending impact, this means that individual IRAs and small business 401(k) plans are more likely to be coerced into ETIs.
