San Francisco Chronicle
By Leland H. Faust
Donald Trump ran on a populist platform. That is, when he was not ranting about immigrants bringing in drugs or raving about his TV ratings. As for government, he promised to drain the swamp in Washington. We’ll see. But what about the swamp on Wall Street? Not so much. Exhibit A: administration plans to derail the fiduciary rule for retirement plans. Apparently, the noxious greed of the nation’s financial establishment is safe from Trump’s dredging, in this case, at the expense of retirees, many who voted for him.
To review: Right now, the fiduciary rule requires registered investment advisers to make conflict-of-interest disclosures and to protect investors from higher-than-necessary fees and unnecessary buy-sell activity. In other words, registered investment advisers are bound by law to act in the client’s best interest — not really a radical idea.
Presently, advisers working as brokers, agents or sales representatives in banks, insurance companies and brokerage houses are not bound to meet any such standard. Thus, beneficiaries can be subject to high commissions and conflicted advice. Broadening the scope of the fiduciary rule, as adopted by the Department of Labor to take effect in April, would provide consumer protection for retirement-plan beneficiaries from the grabby hands on Wall Street.
So why doesn’t Trump want to extend fiduciary protection to beneficiaries of IRAs and 401(k)s instead of directing the Department of Labor to overturn the new rule? Beats me. Workers’ nest-eggs and our nation’s financial health are at stake. According to the White House Council of Economic Advisers, retirement plans not subject to the fiduciary rule cost beneficiaries about $17 billion annually. The value of accounts is thus diminished along with potential pay-outs. In other words, retirees get less money per month or run out of money sooner, or both. And who then might pick up the pieces if old folks end up down and out? The taxpayers perhaps?
Trump and his allies want to preserve the status quo. People like Anthony Scaramucci, who served as a key financial adviser to Trump during the campaign and the transition period, extol the capacity of free markets to weed out bad apples. No regulation needed. But don’t get the wrong idea: This is not some high-minded libertarian view. These guys just want their ill-gotten gains to keep on coming.
Scaramucci, known as “Scary” at our house, is the very one who months ago compared imposition of a broadened fiduciary rule to the Dred Scott Supreme Court decision of 1857. Rationale: Stock brokers would face discrimination, much like fugitive slaves.
Can you just see three-piece suits being returned to their masters in the South? My imagination doesn’t go that far. Furthermore, the fiduciary rule would not discriminate against brokers. Rather, it would merely make them subject to the same standards required of other advisers to retirement funds.
The fact is that the free market doesn’t adequately protect beneficiaries of retirement accounts. That’s because the free market doesn’t work in the face of unequal knowledge. The big financial institutions have special knowledge of a system they created. Wall Street insiders understand complex fees and performance reports. Retirement plan beneficiaries are out of their league. The fiduciary rule promotes a level of trust and fairness in the face of unequal knowledge. Without the rule, Wall Street has a license to steal.
Certainly overregulation is a drag on businesses and on the economy in general. When it comes to the fiduciary rule, the proposals contained about a thousand pages of rules and regs. That seems like onerous overkill. Still, the basic idea is sound and will aid workers. And don’t worry about the investment advisers’ livelihoods. To date, the fiduciary rule does not mean that registered advisers are denied their due. Many are millionaires.
By derailing the fiduciary rule about to cover advisers to retirement plans, Trump is screwing the very people who voted for him. Retirement beneficiaries deserve a legal guarantee that their interests come before those of investment advisers to their retirement plans. The fiduciary rule provides a firewall against inherent conflicts of interest on Wall Street. By law, it deems client first, no excuses. No argument from me on that.