I’m not one to write much relating to politics.
First off, I don’t often care for voicing an opinion without a conversation. That is an easy way to come off as one of those “holier-than-thou” types that we all hate, unless our views perfectly align.
And in that case, why preach to the choir?
Second, this is an investment newsletter. That’s what you signed up for, and that’s what you’ll get.
But there are times when investing and politics intersect, and I think it is worth bringing up. This is one of those times, as an issue that gets very little attention is ramping up.
And what’s at stake is a whole lot of your money.
Weakening the Rule
Following President Trump’s election, a lot of stuff that President Obama’s administration rushed to get done before leaving office ended up in limbo.
One of those things was a revamp and expansion of rules regarding conflicts of interest in retirement advice from last year.
The Labor Department unveiled rules that told brokers they couldn’t just sell products that were “suitable” — which functionally meant “didn’t defraud their customers” — while collecting greater commissions and kickbacks anymore.
They’d have to actually act in their customers’ best interest. Something they let their customers believe they were doing, and something they never explicitly said they weren’t doing.
Over the years, the brokers who were pocketing money on the side and the registered investment advisers who already have a fiduciary duty to clients drifted together. Now they provide very similar services.
This has muddied the waters, and instead of kicking the brokers out of the game, the new rule forced them to step up to a higher standard of treating the people who were hiring them.
They would have to act as fiduciaries and their retirement advice for customers would have to have the customers’ best interest in mind.
Shortly after the election, the Trump Administration ordered the Labor Department to reevaluate the rule with a strong signal that it wanted it heavily revised, or completely repealed, and delayed the compliance deadline by 18 months.
The first step of the push to bury this rule is coming now, with the Labor Department agreeing with plaintiffs for a half dozen or so cases and bringing an end to anti-arbitration provisions.
Class-action lawsuits aren’t allowed again, and even individuals can’t take disputes to a court of law. Contractual clauses that each and every customer had to agree to are no longer invalidated by the rule, forcing you to meet with the company and an arbiter of its choice behind closed doors.
The teeth of the rule have been yanked out, and the rest of it is poised to go, too.
The Blowback
Needless to say, a lot of people aren’t taking kindly to the news.
Governors in Nevada and Connecticut have already signed bills that expand fiduciary requirements for brokers.
Legislators in New York, New Jersey, and Massachusetts have similar bills in the works. And the industry is keeping a wary eye on the California Senate, which seems to be poised to move as well, depending on what the Labor Department does.
What would have been best addressed at the national level is rapidly turning into a state-by-state battle with varying rules and standards that will make compliance a nightmare.
The companies facing the new rules have long argued that it will raise costs for them, which will get passed on to customers and push out some people who currently get retirement advice.
Too bad it isn’t really working out that way. The changes have actually helped Wall St. firms, with more of them pushing customers into lucrative products that come with annual fees.
But that won’t change their opposition at all. The firms want the best of all worlds.
They want the status quo to remain in place, where they dictate the rules of the game to the government agencies they have control over through lax revolving door policies.
And they want you to keep paying them, only for them to sell you products they get paid by others to sell, while you bear the extra burden of holding investments that consistently underperform.
State opposition, on behalf of their citizens that are having their wealth siphoned off, is a terrible piecemeal solution to something the federal government should stand firmly behind. But at least someone is pushing back.
Stuck Doing It Yourself
We’re stuck in the middle of this fight that now seems destined to play out in courts and state legislatures for years to come.
I personally find it unconscionable to let all of this happen. I’m not a fan of government interventions, if only because the track record is pretty bad. But this is something that needs to happen.
It shouldn’t be contentious that someone or some company you hire to give you advice should have to be told that the advice has to actually be good for you. Or that people should keep the right to sue a person or company in a court when they get screwed over.
But that’s the reality of it, and we just have to do what we can on our own.
There aren’t too many ways to opt out for many, due to the restrictions placed on retirement accounts to make sure you’re playing into the hands of Wall St.
And the ways that are available to us are harder to find than they should be, but they are there, and they can have a profound impact on your finances.
It shouldn’t be surprising that information like this is being suppressed, though. Brokers are well entrenched as market middlemen, and their lobbying power is second to none.
That is exactly why one of the simplest things you can do to boost returns on some of your safest core positions cannot be advertised. It was made illegal decades ago on the federal level.
However, this only applies to the blue-chip companies that offer you a way around the brokers, so we have free reign to talk about it ourselves.
Jimmy Mengel has been bringing this strategy to The Crow’s Nest for years now, and he just released some fresh research for his readers.
Do yourself a favor and check it out. It’s your money that’s at stake, after all.
