“With or without regulation by the federal government, the principle of ‘clients first’ is here to stay.” – Jack Bogle
When I read the Department of Labor was wading into financial regulation, my first inclination was dread. I didn’t trust President Obama and thought that the DOL was certainly guilty of regulatory over reach. Dodd-Frank was an utter disaster. It wouldn’t have been the first time a regulatory agency in the Obama administration crossed the line. I was glad Trump signed an executive order requiring regulators to eliminate two regulations for every new one they established. The first time I had any sort of meaningful discussion about it was when I was having coffee with Aaron Klein. Aaron is the CEO of Riskalyze. I am an investor.
The regulation seemed really stupid to me. Who wouldn’t have the principle of “clients first”? Of course, if you read Josh Brown’s blog with any regularity, you’d have heard a few tales about decrepit financial advisors who were nothing more than glorified salespeople. Josh had a good link up yesterday.
A great salesperson always puts clients first. But, not every salesperson is great.
The other really big problem with financial regulation is most of the American public doesn’t understand finance at all. Financial professionals have made it intimidating. There is math involved. Most Americans choose to ignore it and simply hate the banks. They assume everyone associated with finance is greedy and will do anything for a profit. The more they get regulated, the better.
As soon as the Dept of Labor put the regulation on the books, Wall Street started scrambling. Merrill Lynch altered their fee structure.
“Merrill decided that the best way for it to provide retirement-related investment advice that meets the fiduciary standard is through its existing, fee-based investment advisory program, called Merrill Lynch One. Under the program, clients pay a fixed yearly fee that’s a percentage of their assets under management.”
My headline is a bit of a clickbait headline. Trump’s executive order asked the DOL to review the law and possibly rescind it. The wealth management industry was able to pivot-the insurance industry was not. Hence, the insurance industry filed suit and on February 8th they lost. There are other court cases to come.
However, I think you should read what Aaron wrote about the Department of Labor law. He asks the question, “Why did it take 1000 pages to solve this problem?” Read Jack Bogle’s quote at the top of this page. Isn’t that the principle that everyone in finance should be following?
Aaron’s product Riskalyze takes away people’s fear when they invest money. If your wealth manager isn’t using it, I’d shop for a new wealth manager. Aaron says, “Here’s the core principle we should actually care about: investors have a right to know if the financial professional who is recommending a solution is either a fiduciary acting in their best interests, or is a salesperson who sells financial products.”
Isn’t that what you are paying for when you engage with a wealth manager? Someone who is recommending a solution for you acting in your best interest, not theirs?
It just seems like basic blocking and tackling to me. I don’t know why we need a regulation around it-but if we are going to have one, I like Aaron’s idea of trying to keep it to one page.