“They seem to be doubling down on another massive rule-making that is going to harm thousands of low and middle income families. Once again, I find Mrs. Warren and the White House offering a solution in search of a problem, and we are going to push back on behalf of Americans trying to invest their hard earned money and save for their families.” Ann Wagner, House Financial Services Committee
This was the response of a key member of a congressional committee whose responsibility includes protecting individual investors from being raked over the coals. One would assume she was defending the commoners against exorbitant fees and inappropriate investment products. In a shocking turn of events, this passionate speech was in support of the financial services industry! It was directed at the outlandish request by President Obama and Senator Elizabeth Warren that all investment advisors look out for their clients’ best interests by following a fiduciary standard instead of the vague suitability rule.
One would think that this policy would be a no-brainer for an institution like Congress. After all, looking out for their constituents (average middle class investors) is always first and foremost in their decision-making process. (Note: Heavy sarcasm.) In a perfect world, this vote should have resembled the one taken on December 8, 1941, after the Japanese attacked Pearl Harbor. That vote went down 388-1 to declare war on our common enemy. The only dissenter, Jeanette Rankin, was a pacifist and could not support any war based on her moral principles. She would not violate her beliefs no matter how justified the cause.
Is it possible that Representative Wagner is really a modern-day Jeanette Rankin? Is she standing on moral principles opposing investor protection due to some deeply held honorable convictions? In reality, this could not be farther from the truth. According to opensecrets.org, a website devoted to making transparent the seedy world of political campaign contributions, Ms. Wagner’s objections to this investor-friendly common sense standard can be easily explained.
The top two industries that donated funds to her 2013-14 campaign committee were Insurance, and Securities and Investment. Two out of the top three companies that provided these funds were Northwestern Mutual, an insurance company, and Jones Financial Companies. As Gomer Pyle used to say, “Surprise, Surprise, Surprise!!” These companies profit the most from a murky commission-based sales model. In fact, this model is so effective that many investors think they pay nothing for their investments because they receive no bill.
Political contributions by the hugely powerful financial services industry are the main obstacle for real investor protection and serious reform. Unfortunately, most members of Congress are beholden to their corporate paymasters and not their constituents who actually voted for them. In the words of satirist P.J. O’Rourke, “Congress is an incompetent parliament of whores.” Though this description does not apply to every member, far too many fall into this category. The simple fact is the majority of our elected representatives sell themselves to the highest bidder. The consequences of these actions are a major cause of the retirement crisis our country is currently facing.
Until this system of Crony Capitalism is fumigated, I am afraid America’s 90 million middle class investors will continue to be on their own, navigating the wild west of conflict-laden products offered up by many commission-starved brokers. Though Jeanette Rankin was misguided, she was taking a stand on moral principles. This is much more than I can say for the members of Congress who worship the almighty buck over the people who elected them to protect their interests. Ms. Rankin must be rolling over in her grave if she is watching this sad, but all too common spectacle, unfold.