A Fiduciary, in Name Only

I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm … I couldn’t call myself objective.” JPM Adviser

Disclosure is a very poor substitute for “best interest.”

According to Barbara Roper of the Consumer Federation of America, investment firms are hoping the SEC will usurp the power of the Department of Labor if the fiduciary rule is redesigned.

There is a great incentive for businesses with a sales/commission model to back the SEC. over the Department of Labor, according to Roper.

“All the firm has to do to get straight with the SEC is improve its disclosure and it can go right on steering customers into investments that benefit the firm at customers’ expense. That’s not what most of us mean when we talk about a “best interest” standard.”

This would let firms like J.P. Morgan continue to sell its proprietary funds as long as it disclosed this immense conflict of interests with their clients.

By contrast, according to Ms. Roper, DOL firms “…would require firms to change anti-investor practices, not just disclose them. And that is why financial industry lobbyists oppose DOL rulemaking while supporting SEC action, and why investor advocates have concluded that the SEC is the last place DOL should look for guidance on how to craft a strong, pro-investor rule.”

According to the relentless Ms. Roper, there are other reasons why the big brokers and insurers prefer the SEC.

According to Roper, “Here are just a few of the things that wouldn’t be covered by an SEC standard: advice about insurance, advice about fixed index annuities, advice about other non-securities investments, such as gold and artwork, where some of the most abusive sales practices are seen, and advice to small business owners seeking help in setting up workplace retirement plans.”

Personally, I find this most egregious. Anyone with a pulse realizes some of the biggest cases of investor abuse center around insurance products. If the SEC were to take over the implementation of this rule it would have no effect upon these annuities of mass destruction.

We continue to see the Wild West atmosphere of investment advice that plagues the world of public servants like K-12 teachers and other non-profit employees.

If the new SEC standard does not apply to this cesspool of investment products, what is the point?

There is another huge reason why conflicted financial firms want the SEC to take over; they will probably never get around to doing anything!

According to Ms. Roper, “The above concerns pre-suppose that the SEC will actually get around to adopting an industry-supported fiduciary rule. But the SEC has failed to act on a “uniform” fiduciary standard under leadership that is far friendlier to regulation than the current Administration. There’s no reason to believe it will do so now.”

This deception of broker dealers and insurers saying they want a want a fiduciary standard and their actual behavior is a gap wider than the Grand Canyon.

They do not want this rule in any way that resembles its current form.

They fear the bad publicity of opposing it, so they back a sham of a replacement.

At some point, brokers and insurers need to come clean and realize they cannot have it both ways.

Don’t hold your breath.





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