After six years of effort, the Labor Department has finally issued new rules governing the behavior of financial advisers who handle retirement accounts. The rules require all financial professionals working on 401(k) or IRA accounts to act as fiduciaries, which means they are supposed to put their clients' interests first. They cannot, for example, recommend a mutual fund they know is worse for their clients because that fund pays them a higher commission for recommending it. Most Americans assume that this is already true, but it is not, and all you need to know about the financial services industry is that they have fought this tooth and nail for decades.
The consumer side of the financial services industry makes its money by mystification. Or, in technical terms, by exploiting the information gap between average investors and insiders. Most people know nothing about stocks and bonds and don't care to, and many of them are paralyzed by anxiety over having to manage their investments. What they want is for someone they think they can trust to handle all that for them, and they are willing to pay handsomely for that sense of safety. I don't see anything wrong with that as long as the adviser is trying hard to fulfill that obligation, but all too often this is not true. Every industry spokesman who has ever appeared in the press says that the "vast majority" of advisers really work for their clients, but if that is so, why did they fight the new rules so hard?.
The new rules do not protect anyone from stupid financial advisers, however, just nakedly crooked ones. But they will severely crimp the game by which insiders set up plausible-sounding mutual funds and then raised money by paying shady brokers high fees to sell them to unwitting clients. That has to count as progress.
Any and all positions of public trust should be held to the highest possible standards. If you want to make a living by having people entrust their wellbeing to you, you need to be held absolutely and utterly accountable for willing breach of that trust.
ReplyDeleteThis needs to apply to everything, from finances, to medicine, to policing, and beyond. Anyone who balks at being asked to put the wellbeing of the public they ostensibly serve before their own interests should be deemed unfit for a position of public trust.
My Grandmother, one of the first Stockbrokers, always said "Never trust a Customer's Man". That's what they called the salesmen that are called Brokers now. They are salesmen. They don't have your interest in mind. They make money, above their stipend, when they convince you to buy or sell. Their stipend is figured on total the value of the portfolios that their customers hold, so, in the aggregate, they want to increase that. But... when your 'Broker' needs cash, he will 'churn' those accounts, based on some in-house analyst's assessment of what to buy or sell. Then you get a call to either sell or buy. Some of these are valid, but if you don't do your homework you don't know which. I could give you horror stories. My sister, who knows better now, lost her entire savings when she was a young single mother due to a 'trusted' broker who talked her into buying on the margin (borrowing to buy more stock with the expectation that it will increase in price).
ReplyDeleteReal Estate laws mandate that agents have fiduciary obligations. However, some still act as agent for both buyer and seller, and other ways that are in conflict with fiduciary responsibilities.
Sorry for the rant, LOL!