Act As If What You Do Makes A Difference. It Does.

On the eve of the implementation of the Department of Labor’s fiduciary rule, there is a smell of danger combined with real change in the air.  You are not really paying attention if you do not get the sense that this time it just might be different.

More finance types are looking at themselves and not liking what they see. The difference is, they are doing something about it. Some because they want to and others because they have to.

As Luc Besson once said about the fall of the Berlin Wall, It’s always the small people who change things. It’s never the politicians or the big guys. I mean who pulled down The Berlin Wall? It was all the people in the streets. 

Again, most of the politicians and the specialists don’t have a clue. First, the fact that it took this long for this glaring problem to be addressed is mind blowing. Second, these rules only apply to 401(k) plans and individual IRA’s.

Don’t get me wrong, I commend Senator Warren, President Obama and all the others involved  in pushing this rule through despite heated opposition. The problem is they did  not go far enough.

Individuals non-retirement accounts, 529 college saving’s accounts and public 403(b) retirement plans do not seem to be covered by this pending legislation. Unless I am missing something, these groups of investors WILL NOT be protected from conflicted financial advice. The question is, why?

Is the Department of Labor saying that the retirement accounts of teachers, firefighters, police officers and nurses are not as important? The law clearly sends that message by the exclusion of these accounts from the protections this new rule provides.

These public servants are some of the biggest victims of everything the fiduciary rule is trying to prevent.  As Roger Wohlner states in his recent blog,

The fees and expenses associated with the investments suggested will come under scrutiny.

• Annuities in IRA accounts with high internal costs and onerously long surrender charges will (hopefully) become a thing of the past in IRAs.
• Recommendations for products such as proprietary mutual funds with hefty trailers and high expense ratios will also hopefully become rare.

As I have stated here, here, and here,  financial predators have used these products to infect 403(b) platforms nation wide. Billions of dollars are being sucked out of public service retirement accounts. No retirement plan left behind will never be the slogan for this rule in its current state.

This brings me back to the “little guy” changing things. We all know that it is impossible to legislate morality. Wall Street is notorious for watering down financial regulation. Their armies of lobbyists contribute millions of dollars to the political campaigns of both Republicans and Democrats alike. One could make a good argument that this is the central reason why this rule was not enacted sooner.

Transforming our system of influence peddling and crony capitalism will be very difficult. What is changing is many financial advisors are starting to look at their job as something more than just collecting a nice paycheck. Many firms are breaking the mold and creating cultures that center around the fact that giving financial advice is a tremendous responsibility. This will have a much more powerful effect on the ethical treatment of investors than any rule imposed by government.

This is starting to happen. Many brokers are leaving their conflicted masters and setting up their own practices. They are doing this not to make more money but to generally offer their clients better investment options. They want to do the right thing.

Reactionary politicians and organizations that oppose this change are on the wrong side of history. Even the very conservative  Barron’s wrote an editorial supporting this rule. This is kind of funny coming from a publication that routinely publishes best 100 advisor’s lists whose criteria is mainly based on revenue produced from sales commissions and high fee funds. That being said, we welcome their support.

Though armies of insurance company lawyers are arming themselves to the teeth to deploy a full frontal attack on the premise of this rule, the writing is on the wall. In addition, some of the fiduciary rule’s allies are coming from unexpected places.

I received a note the last week that is a symbol of this message of hope. The little guy is forcing major change while politicians squabble.

Wanted to let you know, you and your colleagues work has really motivated me to take action within my practice. I didn’t mention it in my original message to you, but I worked in the 403(b) market for (name withheld) for 4 years. On Friday, I will be resigning. You have certainly affected me and several other advisors who work that market with(name withheld). I am joining an independent RIA to further my career. I can’t tell you how true everything you write is, especially as someone who was on the other side.

I am getting a feeling that this is becoming more and more prevalent. This advisor’s actions and those of his colleagues are more powerful than any regulation could ever be. Making a difference is what this job is supposed to be about. Those advisors who don’t believe this should go out and find some used cars to sell.

I am very excited for the transformation of this industry. It has been a long time in coming. There is still much work to do regarding the clients left behind but this is a positive start. The good news is “the little guys” may just lead the way.

Never doubt that a small group of thoughtful committed citizens can change the world. Indeed, it is the only thing that ever has.- Margaret Mead