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My hope this week was to take a break from the non-stop, often confusing news surrounding what’s going on with our new administration, Congress, various cabinet and judicial appointments, etc. and focus on a less divisive issue like the Super Bowl, Groundhog Day or Johnny Depp’s desperate need for good financial planning.

That idea was squelched on Friday when I received the following e-mail (slightly paraphrased) from a client.

I heard a story on the radio this morning about the new administration stopping a regulation that would force financial advisors to put the best interest of their clients above things like their ability to make money on an investment. 

A few questions:

  1. Why do financial advisers need a rule that simply says to do the right thing?
  2. Promise me that you do this for us without needing a rule because you’re a good person.

Let me start by quickly addressing the second question.  The issue at hand is whether or not we at TAAG are required to act as fiduciaries, which means being bound both legally and ethically to act in the best interests of those we serve.  Regardless of what’s been reported recently, the answer to that question is, and will continue to be, yes.  This is due, in part, to our sincere belief that it’s the right thing to do, but also for the following reasons:

  • As investment advisors registered with the Securities and Exchange Commission (SEC), we have a fundamental obligation to act in the best interests of our clients and to provide investment advice in our clients’ best interests. Per language on the SEC website, we also “owe a duty of undivided loyalty and utmost good faith.”  This is something we pride ourselves on and take extremely seriously as advisors.
  • As Certified Financial Planners (CFP®), we are also required to provide financial planning services with the care of a fiduciary. All TAAG advisors have earned their CFP® credential and all future advisors will either hold this designation or have an expectation of working towards it quickly.

Now that we have that out of the way, I want to discuss the origin of her question and why this fiduciary issue is back at center stage.

In April 2016, the Department of Labor (DOL) proposed regulations that would require any financial professional working with retirement plans or providing retirement planning advice to act as a fiduciary.  The rule was quickly approved and set to apply across the industry on April 10, 2017.  This was not without controversy as many attempts by different agencies and other organizations in the past to require similar rules around investment and financial advice had met the full force and deep pockets of Wall Street lobbyists and failed.  The DOL stepped in, at least to the extent it could, as it relates to employer based retirement plans under the ERISA act.  Jeannette wrote an excellent blog on this topic just a few months later, so I won’t rehash the whole history of the rule but do take a minute to go back and read her blog if you’d like a refresher.

Since that time the fight, primarily by large brokerage and insurance firms, to stop the new rule has continued as people found ways to frame this regulation as a bad thing for investors.

This past Friday, it appears that fight may have landed a big blow to the DOL’s rule.  President Trump, under advisement from White House National Economic Director and former Goldman Sachs COO Gary Cohn, issued a memorandum directing the DOL to analyze the rule and effectively begin a new rulemaking process using the existing, but not yet applicable rule.  The DOL could then rescind or revise the rule accordingly once the new analysis is complete using language more in line with the President’s directive in his memorandum.

While not an immediate halt, the acting Secretary of Labor has since stated that the DOL is weighing its legal options to delay the April 10 deadline.

The day before, Cohn was quoted in the Wall Street Journal as saying, “We think it is a bad rule. It is a bad rule for consumers. This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

I’m not interested in getting into the politics behind this battle.  I am generally all in favor of personal liberties, free markets and the ability of people to come to their own conclusions.  But the argument that requiring advisors to act in their client’s best interest somehow limits investment choice, access to an acceptable pool of advice or complicates industry compliance standards to the point where no one could afford to dispense advice rings completely hollow to me.  This isn’t taking away people’s soda and potato chips in favor of a forced diet of kale juice and broccoli.  It’s simply stating that if someone is going to pay a so called professional for advice, that advice should not be fraught with unnecessary conflict and hidden fees.

A video circulated around the industry several years ago that I thought made the point very well.  If I go to the butcher shop, I expect them to sell me a cut of meat.  I don’t expect them to assess my diet or whether or not I’d be better off heading to the seafood shop down the street and mixing in a little fish.  If I go to a Ford dealership, I don’t expect them to tell me that maybe a Chevy would be the right car for me.  But, if I go to a nutritionist who I’m paying for advice on my diet, I expect them to take all of my habits, behaviors and goals into account and work with me to put a plan in place that’s best suited for me to meet those goals.

There is plenty of room for those who give advice and those who sell products in the marketplace.  If an investor truly wants to invest in something that may not make financial sense, they should have every right to do so.  But that’s not what this rule is really about.  Ultimately, investors have the right to know with absolute clarity who they’re paying, how much they’re paying and what potential conflicts or motivations exist for the recommendations made. If we disallow basic rules that help incent trusted professionals from doing the right thing, whose interests are we really serving?