Clearing Up DOL Fiduciary Rule Confusion In One Sentence (Failure #451)

Many believe that the Department of Labor’s Fiduciary Rule is simply being promoted to ‘provide protection’ to consumers of financial advice, but that simple story doesn’t cover the following players and their motivations,

  • Financial advisors, their associations, and intellectuals who work in the space have wanted government regulation on financial advice to show that it is a legitimate ‘profession’, (though, none of these really has any idea of what relation over advice would look like, and it is only the fact that consumers voluntarily choose their services that make them legitimate),

  • Many financial advisors and their associations believe that the public is not smart enough to make good decisions on financial advisors, and, even if true, they would prefer to legislate their morality onto others rather to win clients in the market (this is known to the kids today as ‘virtue signaling’),

  • Credentialing organizations want to write rules to apply to advisors to control their selection of investments and to apply future regulations onto advisors (they don’t realize that regulations simply stop transactions, and often those transactions would be in new, more innovative, and useful products and services, but as long as they have control, they don’t seem to mind),

  • Low-cost robo-advisors want to virtue-signal and pretend they are fiduciaries, when all they provide is a mutual fund trading service that costs more than equivalent mutual funds (and, they are conflicted, I’ll maybe write next about the robo I worked for which wanted me to charge a woman $650 who made less than that per week for ‘advice’ I would give away for free… how virtuous and ‘unconflicted’ these firms are!),

  • Mutual fund firms want to charge more clients for ‘advice’ that they used to provide for free (and, they by definition can not be ‘unconflicted’ since they make the funds they are now charging to recommend the very product they manufacture… I can’t think of another business that gets away with that!),

  • 401(k) and 403(b) providers want to make it more difficult for advisors and clients to rollover money from their holding to IRAs which leaves their own management, and so they (some of these firms work with independent advisors to provide a complete service to their clients, and I often don’t rollover funds from firms that do things right, but most just want the monopoly 401(k) system to continue to all them to charge more and offer less),

  • Some of the above mistakenly believe it will lead to more clients for them (these small players think they are recommending regulations that will harm the major Wall Street players and perhaps put them out of business…. Ha!),

  • A few of the financial advisors who know a little economics realize it will put their low-cost competitors out of business (these are the smaller competitors of the mid-sized firms, some of which also think they’ll benefit… Ha again!),

  • The even fewer financial advisors who have a love of economics realize that this temporary benefit will end up destroying the capital value of their own business model in the end (these are the ones you want to work with in your personal economics!),

  • Conflicted annuity companies have an exemption to the law, which will cost them in terms of extra governmental regulatory costs, but they will just pass on these costs to their contract holders in lower returns (which… are much lower than the rates my clients and prospects tell me their annuity guy told them they would get),

  • The Department of Labor, like many government agencies and officials, pretends that they are removing, rather than adding to, what they claim is the cost to the market of ‘conflicted advice’ ($17B they say), but all this number represents is the value of the advice they receive from an advisor (which, Dalbar estimates they just increased by $500-1,000 per client per year, and in my estimation the Fiduciary Rule will double $17B that consumers pay now, which means far fewer will receive the valuable advice they desire),

  • Governments that have been encroaching on the investment and financial advice world for decades, profiting from high-cost and poor-quality investment schemes like 529 accounts while removing free-market benefits to Education Savings Accounts, creating tax deductions for retirement contributions that benefit some groups more than others, removing market competition and creating the monopoly system of 401(k) plans, and generally increasing costs on and confusion to Americans, are now telling the world that the one independent group that helps the public clear up their confusion is the conflicted party, (and it is so sad to see financial advisors going along with that story when the only conflicted party is the government),

  • True fiduciary advisors will be charging more for their services (I still find it sad that financial true fiduciaries would rather be lumped in with robo-advisors and mutual fund firms, rather than continuing to stand above them),

, and all of these participants are supporting higher costs, less access, and they are all conflicted in their support for this rule, in the current fad of virtue signaling to the public about their care for the consumer, while hypocritically ignoring the truth of the matter that while they themselves may voluntarily adhere to a high standard, that they promote government force on others to interfere with the relationship a client has chosen with a competitor that they prefer in order to benefit themselves, and

I suppose it's fair for the public to know about some of the conflicts with those who support this rule.

(Economic lesson: Whether an advisor, academic, or government bureaucrat, everyone always makes decisions in their own economic interest... even when they say they are only acting in the interests of people that haven't been paying for their services in the first place.)


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Detroit, Ann Arbor, and online fee-only, fiduciary financial advisor blog / podcast on retirement, investments, economy, taxes, 401k, 403b, Roth, IRAs