by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
Drip. Drip. Roar! Erosion of the land and erosion of consumer protections can be slow and steady or episodic. Episodic, like a debris flow, gets the most attention, but slow and steady can be just as damaging.
You might stifle a yawn hearing that Bank of America Corp. is considering reinstating broker commissions on some retirement accounts after a two-year hiatus. This drip signals an industry retrenchment that could affect your lifetime savings — even if not held at BofA.
“Now that the regulatory environment has shifted,” a BofA spokesperson wrote, “we’re taking a look at our policies, especially as they might affect policies and procedures for individual retirement accounts, to ensure we keep our clients’ best interest front and center.”
The shift to which the bank refers is the striking down of the Department of Labor’s fiduciary duty rule. Years in the making and under fire from the U.S. Chamber of Commerce and 21 industry groups, the DOL’s fiduciary duty rule was nixed by the appeals court. The DOL declined to appeal the demise of its own rule. It was set to be implemented a couple of months ago.
The rule was a simple one. It required financial advisers to put client goals ahead of their own when offering investment guidance. Sounds pretty commonsense, especially considering a 2015 report by the White House Council of Economic Advisers documenting that hidden fees and conflicts of interest cost investors $17 billion annually.
Most major investment houses fought the fiduciary duty rule, claiming it would be cumbersome to apply. One exception, the Certified Financial Planners Board (I am a member), has always maintained that all financial planners holding the CFP holding should be held to this fiduciary standard. The board and others, including the State of California, believe that this commonsense standard helps shield retirement investors from hidden fees and counteracts broker conflicts of interest that push investors to inappropriate high-fee investments.
I recognize that one person’s protection is another’s regulation. This begs the question: When is it appropriate to move beyond “caveat emptor” to protections? For me, it has to do with how arcane the product is and how intractable the consequences of misguided advice.
Investments purchased for retirement income are arcane and have profound consequences when done poorly. Hiding incentive and other fees in transactions of stock, stock funds, bonds, CDs, annuities and whole life insurance is easy. Investors can be intimidated or may not have the wherewithal to tease out the real cost of a financial product. Now add to that the fact than an investor may believe they are speaking with an unbiased adviser — the typical investor is at a strong disadvantage.
The official reason the rule was struck down was that this type of rule should be under the Securities and Exchange Commission’s purview rather than the Department of Labor’s.
The SEC’s watered-down version of the fiduciary duty rule is taking public comment until Aug. 8. Click here for detailed information about the rule as well as a chance to make your own public comment on the SEC website. See if you can find my contribution!
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.