Fiduciary Rule R.I.P

March 23, 2018

Some of you may have heard that the Department of Labor's Fiduciary Rule hit a big setback last week.¹ The U.S. Court of Appeals for the 5th Circuit decided that the Department of Labor was operating outside its statutory authority. This decision conflicted with a recent 10th Circuit ruling.

Remember when Steve Ballmer, the former CEO of Microsoft, had the fake funeral for the iPhone, complete with hearse and bagpiper (and the priest with the bible, which I have to say was a nice touch). That may be where we are today on this rule unless the Supreme Court intervenes.

This hotly contested rule has already been helpful, in that we see more potential clients asking if we are a fiduciary. By elevating the discussion of fees and conflicts of interest, the public is asking more questions. Being skeptical of financial people is important - believe me, they have earned your skepticism.

There has been a lot of hand-wringing in the industry over it, as brokers and banks feared what would have happen to their bottom lines if they were banned from giving conflicted advice. I have stayed, some might say uncharacteristically, relatively quiet on it. One Day In July already is inside the boundary of what the rule would have wrought, and I'm not an expert on the ins and outs of the proposal.

But I do get nauseous that I am part of an industry that has to have the government tell them to behave at this basic, fair, and obvious level. At some point you have to look at yourself in the mirror and say "Really? Did I get trained with thirteen to twenty years of mathematics education just so I can massage returns for clients? Did I learn anything from the detention I got in third grade for cheating little Suzie out of her brownie at lunch? Am I, in fact, wearing any pants at all?"

There are two things I would do to fix the industry if I were SEC Commissioner. Not that anyone at the SEC is desperately trying to reach me, but here goes:

1. I would make a rule that any fee for any investment product or service had to include a clear, 1-page only summary document, with a mandated minimum font size, no legalese allowed, in a standardized form. (This worked extremely for credit card fee disclosure years ago.)

2. I would require that any financial firm allow a client to move his or her account within 48 hours with a simple, and I stress simple, online or paper form submission. Big firms often are resisting when people try to leave, creating friction so it is difficult for you to get or move your own money. The new term for this is "financial sludge." It needs to end.

These two simple rules would change the industry overnight. They would encourage new ideas and new firms, because the existing behemoths couldn't hold onto accounts using nefarious tactics. And the investor would know exactly what they were paying, giving them accurate information they need to make decisions.

If the average person understood what they were paying for their investments, they probably would not walk away from the traditional industry, they'd run. Or drive. Even if they had to steal a hearse with an iPhone on board to do so.

Dan Cunningham

1. https://obamawhitehouse.archives.gov/sites/default/files/docs/cea_coi_report_final.pdf