Fiduciary Fairytale #288: Fiduciary Isn't Politicizing Personal Financial Advice
The following is a response I posted in response to the following ThinkAdvisor article by Bob Clark. Bob is someone I typically enjoy reading and learn from his articles.
Bob labels himself as a conservative, though makes the case that the Fiduciary Rule is not what he calls a "political issue."
I followed up with an email saying I appreciate Bob's work with a few additional points about Fiduciary being political, including a recent post that an association that believes they will benefit from the rule used that used a title so extreme from a publication run by someone who labels himself a communist that I won't post a link to.
Yes, we now have financial associations using communist arguments to push laws they think will benefit them... and we're told that the discussion "isn't a political issue!"
Indeed, it is Marxism to propose price-controls, heavy penalties for not following vague laws, and controlling what people can own, advise, or recommend.
Increasingly our debates are not liberal and conservative, and Bob's labeling the debate as such makes a complex issue black and white and uses the wrong filter. Conservatives and liberals can be for freedom or for the opposite of freedom. Rand Paul and John McCain both count themselves as conservatives, both are not for small government, both agree with each other less than they each agree in their own ways with liberals!
Clearly, liberal and conservatives joining together tells us nothing about if an issue or argument is big government, small government, right or wrong... but, Bob's argument is he is a conservative agreeing with liberals, and that silences his critics.
Liberals, especially classical liberals, can be for freedom and small government, and not for big government and vague rules that protect large firms. I listen to many who I enjoy their take on issues, as I listen to many conservatives, and even more libertarians!
Bob is a conservative for big government who relates to liberals who are also for that. His use of conservative and liberal tags is an argument that is meant to shut down any meaningful arguments from those who may be more for small government and markets.
In his defense, he is right to address his critics who likewise attach labels like 'liberals' to him to shut down his positions, but, I actually found in his addressing their not addressing his points, he committed the same issue in wiping valid concerns under the table by labeling his opponents as 'political' and wrong.
I do value ThinkAdvisor for its vast opinions and hope Bob will engage with arguments in the debate. I'm all for debate with arguments. It's important though to not shut down debate by labeling people and ideas without addressing the arguments.
[Note, I told Bob I thought this email was very rough before responding to his request to quote it, so I clarified just a few points within brackets].
It's also important to note Bob did address some points below in a follow-up, but, I did not find arguments in those responses and in that response (linked here) starts with praise for his post and continues with minor points from my entire response below that I may address in a future blog.
Never would have thought anyone could call you a liberal Bob! Although, this is the first post I recall disagreeing with.
Fiduciary is without a doubt political. I don’t know what a ‘political issue’ is, but I’ll define it as any issue that the left wants government to solve, and the right knows the market solves better… at least those are the talking points.
The Source Document Is Political
Starting with the assumption there is a problem that the market isn’t solving today in the most efficient way is by the above definition political. If you don’t buy that, then why is it based upon a CEA report that was entirely political? As a libertarian I recall thinking it was so shallow and overtly political that I couldn’t believe even left-leaning journalists would dare use it as a source. Why can’t we base the need for a law on something that isn’t so terribly slanted and just plain wrong?
And, yet, the group in power at the time did just that. Making it political.
“Conflicted advice” is about the most political, nonsensical term I’ve ever heard! It has that aspect of every great political word in that it portrays the recipient (the independent advisor chosen by the client) as the opposite of what they are!
The most conflicted advice today is from the 401(k) industry that stands to now benefit from the attack on advisors who recommend rollovers (and coming soon to conflicted state-run retirement accounts), when in the past it was the ‘conflicted’ plan that stood to lose to the consumer’s choosing to work with an advisor who could provide much better and more personal advice.
Strange Bedfellows Seek Benefits at the Expense of Others
The rule itself is bringing together groups of people who for years have tried to use politics to advance their agendas. Large fee-only RIAs have been complaining for the entire 15 years I’ve been in this business about competition from everyone from brokers, to insurance companies, to even smaller RIAs that are expanding choice and lowering cost. Large 401(k) providers have for years been advancing the idea that rollovers are harmful (yet, have nothing to say about the fact that it is a lack of advice that causes a rollover in the first place). Robos stand to win as rules placed on human advisors increase the costs of serving lower profit clients, yet, robos aren’t advisors and can’t meet a fiduciary standard.
What is it that makes for strange bedfellows?
At What Cost?
"Do this, because I’m right, and that’s all you need to know."
That’s all I took away from a conference talk by a fiduciary rule supporter more than five years ago, and that’s all I still hear when I hear him speak today.
Whenever you are discussing a rule and the argument is, “just because” and does not answer the simple question “at what cost?” you are in a political discussion.
We’re seeing the beginnings of the cost today. Fewer jobs, lower profits, business capital values are decreasing, uncertainty is abound.
Dangerous Future Use
It’s also political because it’s not as shallow, harmless, or defined as your article makes it out to be.
If you have not been reading what many think the law means to advisors, the costs they will bear to attempt to comply (though, there is no hope to comply), the businesses some hope to see shut down, the exemptions (the DOL’s own website said EIAs are an ‘important tool’ and require an exemption – picking winners and losers is politics), and their absolute lack of understanding of how businesses provide value and outcomes to clients, then I would suggest that your understanding of the rule is that it isn’t as harmless as you think if these people succeed in any way – now or in a future administration.
I do find it interesting though how much time, effort, and energy that those advocates and others spend on ideas that limit the choices that clients have for advice and see it as the way to ‘expand the profession.’
It seems very counterintuitive, and I hope advocates aren’t wrong, though the results so far have not spoken to an expansion of advice. I personally think it would be nice to see pushes for regulations that actually expand a consumers access to advice, rather than less and trumpeting its benefits, rather than being concerned about minor costs. If your concern is consumer perception of advisors, I suggest a good start is for associations to get involved in the current tax debate to open up access to 401(k) plans for clients on the HSA model.
“We Need Luxury Laws!”
The only real argument that I see is one that is commonplace for statists of both conservative and liberal minds – we need more laws to stop people from buying things I don’t like!
"Law [can] make personal financial advice a profession!" [is what these people all say.]
To that my response is – Nonsense.
The personal financial advice business came about through a lack of laws [that applied to sales versus advice].
Even the robos today exist only because laws aren’t being applied to their business as they have others. I can’t for the life of me understand how someone with a short-term goal of saving for a mortgage could get a recommendation to invest with them, or how an advisor who once used an inflation number in a presentation incorrectly can be put out of business while robos can market tax strategies that CPAs and professionals don’t believe work for any but the wealthiest.
And, is there any introspection on what have laws done for these “professions” that financial experts look up to?
None of my physician clients would want to have the experience that they provide to their patients. They have more staff just to stay compliant than they do to provide a service! We can’t do the same without crushing our business.
And, what have their associations and laws done for their professions? We have very serious problems with doctors who will prescribe drugs to ‘manage’ pain rather than cure problems. No one wants a 10-minute meeting with their advisor and a prescription.
Accounting? Have we read the tax code? I will admit at least the professional associations of accountants and attorneys promote laws that advance their professions, or at least provide them with job protection. Financial associations that promoted the Fiduciary Rule without any reservation of any part are simply tagging along and will regret it.
We’re not in a position to force people to pay more for our understanding of the latest tax laws. Why? We’re not a necessity!
The above proponents of ‘more laws’ equating to becoming a “profession” also conveniently use examples that are necessities. Going to a doctor is not an option. Proper accounting for your business, not optional.
Personal financial advice can be found many places, but, it’s more in line with a personal chef or travel agent as a profession than a physician. It will improve your life, but it is not required.
I think too many are not treading lightly enough about the consequences of too many laws. One ‘academic’ posted recently that his view of regulation limits the number of investment and insurance product providers.
Imagine that. Your ‘personal shopper’ financial advisor professional has a menu of strategies that is about 1/100th of what they do today. What is the benefit of an independent fiduciary or the insurance salesperson then?
I can’t remember the last personal travel agency store that I saw. I knew a teacher who did it on the side. I know business travel agencies exist. Not many luxury services survive added costs. The Bush Yacht tax wiped out an entire industry of middle-class, US-based jobs by raising the costs. Keep proposing higher costs on financial advice [and we will see obvious consequences of less advice].
While I don’t believe entirely in unintended consequences – most who support Fiduciary are very aware of the damage they are doing to the accessibility of personal financial advice, though they excuse that damage by saying ‘technology’ will provide an answer – I do believe that conservatives have some fundamental flaws that make them more likely to fall victim to some.
The first, is they don’t know when they’re in a fight.
It took me as a libertarian a while to recognize that I was in a fight. I tried to provide rational arguments for why politicizing personal financial advice was wrong.
As I witnessed the election and specifically some of the actions on campus, I became familiar with the ‘social justice’ movement and tactics used not to win arguments, but to silence opposition. To win fights.
Some of those tactics are: don’t respond, respond that the post is breaking a rule or rude, silence opposition through name-calling (yes, this is happening, Google advocate responses to Morgan Stanley dropping Vanguard, as if Vanguard recommends Morgan Stanley funds), and infiltrate groups with your political agenda rather than following the mission statements of these groups.
Finally, I realized when people tell me they are in a fight, they are fighting, even if I’m not. Not 24 hours after the election there were threats by fiduciary advocates to start new associations if their positions were not upheld. There were twitter posts saying, “I’m going to fight you.”
Conservatives[, libertarians, liberals, and everyone else interested in freedom and being able to make the best decisions for themselves] need to realize the ‘you’ isn’t a politician. It’s “you.”
The second issue conservatives have is that they prefer not to fight. “OK, we’ll give you this vague law because you say it will protect investors.” They would rather believe the fairy tale than hear what is being said.
What’s being said is, “we’re acting to put many companies but favored firms out of business.”
Politics of Picking Winners
I’ll keep this simple because it’s been obvious [the winners of Fiduciary are those trumpeting that we 'need' this rule]: technology firms, state-run retirement accounts, [certain mutual fund and] index funds, large RIAs, the current status quo, and 401(k) firms (and, make-believe high-quality Equity-Indexed Annuities).
Losers – the public, advisors seeking to innovate and expand advice, many firms and advisors who spent decades building knowledge and capital in a business that they’ve used to create a profession. What good is knowledge on structuring retirement withdrawals when investors don’t have an option of rolling over their 401(k)?
Advisors that see the change of the last decade in financial services not as an end point that everyone can be regulated into providing that ‘best’ product to all, but believe there are better products out there [that the market will continue to provide IF ALLOWED]. We have far too few opportunities to work with clients. Many wait until that rollover decision to seek advice. With access we would improve outcomes dramatically. [With less access, we lose those opportunities. Fiduciary removes access.]
Yet, conservatives [and small government liberals] who are trusting the wage controls in the Fiduciary Rule – and that they can be applied in the past when a class-action suit comes! – are kidding themselves. Our associations did us no favors by not at least fighting this and the assumption that rollovers are due to ‘conflicted advice.’ The rollovers threat will crush the incomes of any advisors who honestly attempt to comply with it from an income standpoint, and those who take a risk and don’t.
In the end, this is simply another government takeover a ‘profession’ or an industry, and with it will come what we see in all crony capitalistic industries – the large getting larger, providing less quality, less innovation, at higher cost.
Political Silencing of Debate
I would also request that just because you agree with more laws – and even conservatives are allowed to have that opinion –don’t do what’s too common in this argument and in the world today and shut down opposing opinions with slogans, ascribing motive, name calling, etc., just to end the debate. “You’re making us look bad” is little different than “how can anyone be against health care for all?” The conversation is more nuanced than that, and I know you know that.
I respectfully will just end with that I think you’re wrong on fiduciary, but more wrong to call an end to a nuanced discussion without first making the argument. Standing up for what you believe in m[a]y cause you to lose a percent or two in some make-believe poll, but if that’s an argument based on perception and politics [exactly what the article claims not to do], not principle.