Posted on 03/21/2017 6:04:48 AM PDT by gattaca
As with much in the first weeks of the incoming Donald Trump administration, there was a last-second move to delay regulations years in the making.
In this case, the Department of Labor fiduciary rule...
As it stands, retirement savers lose $17 billion a year just in fees paid to advisors and funds. The vast majority of investors then fail to match the stock market indexes because of those same fees.
The fiduciary rule doesn't dictate lower-cost advice. Nor does it remove expensive actively managed funds from the marketplace.
Rather, it requires anyone who sells retirement advice for a living to plainly state their fees upfront and to point out to clients when two funds achieve the same purpose but one is cheaper.
(Excerpt) Read more at marketwatch.com ...
I wish he would push to change the Great Depression era law that started this fixed fee nonsense. There should be no fees, and certainly no fixed fee as a percentage of portfolio size— this gives NO incentive for the investment professional to earn money for their client— just find the rich and ignorant (elderly often) clients and kick back and retire early. They should ONLY get paid when they make money for their client, as before the “Great Crash”. For example, for every percent you can beat inflation and taxes, you get a fixed percentage of the net capital gains. I have yet to meet a financial advisor who would be comfortable with this, they love getting a fixed percentage of your assets regardless of how your portfolio performs; wish my job were like that.
Just saw this about Ezekiel Emaneul-
The "fixed fee" business model for retirement plan advisors was introduced to replace the "commission" model -- where brokers were paid for each and every trade in the client's portfolio even if it was not in the client's best interest to be making any of the trades.
A fixed fee DOES give the advisor a huge incentive to manage the portfolio well. A $10 million portfolio will generate twice as much revenue for the advisor as a $5 million portfolio -- so why wouldn't he do whatever it takes to maximize the performance of the portfolio?
“Rather, it requires anyone who sells retirement advice for a living to plainly state their fees upfront and to point out to clients when two funds achieve the same purpose but one is cheaper.
“Like most Americans you probably think, “Well, isn’t my advisor already doing this for me?” The answer, unfortunately, is almost certainly “No.”
“hat’s why the fiduciary rule is so important. The new regulation requires your advisor to be clear about where he or she stands. Naturally, some of them don’t like that.”
The rule is a good one, like requiring ingredients and the point of origin to be listed on food labels. What would be the motivation of not making this information known to the consumer? The rule should be implemented.
The writer totally misrepresents the facts around the fiduciary rule - the article is garbage.
I say the rule is unnecessary -- because perfectly capable of finding the right advisors and should be capable of managing their own affairs without the help of the Administrative State.
I say the rule is unnecessary -- because people are perfectly capable of finding the right advisors and should be capable of managing their own affairs without the help of the Administrative State.
“There should be no fees, and certainly no fixed fee as a percentage of portfolio size— this gives NO incentive for the investment professional to earn money for their client”
This is false.
If your having ncome depends on the growth of a portfolio, you have incentive to not lose money and promote growth.
I don’t understand the problem with the intent of the rule. Advisers should be fiduciaries—otherwise they are predators.
However, I wonder how much of a hassle and expense it is to PROVE compliance with the rule. Is that the problem?
Further, if an adviser really abuses a client, there’s always the court system. How does the regulatory system fit in here, except to give the adviser’s auditors more to complain about?
The devil is in the details.
That’s why I posted this. I wasn’t sure why there would be a delay and wanted FR’s input.
“Most financial advisors I know don’t really care about the Department of Labor rule ... because they were already conducting business that way before the rule was adopted.”
Good. Then the rule should have no additional impact on them.
Obviously, the rule is most needed for the bad apples.
But.. but...
How will our “lawyers” be able to whip up “Cla$$ Action Law$uits” if they can’t simply use fake statistics to “prove” that every money manager they target is a vile toad?
Current laws require fact-based “proof” of wrong-doing. I guess that legal standard is too difficult for the swarm of blood-sucking ambulance-chasers that afflicts us now.
Isn’t this just another case of “lawyers” creating “regulations” to enrich their brother “lawyers”?
It is demonstrably not false; the financial advisors I know (and I know quite a few) all adapt the same strategy— get leads to find wealthiest clients and hook in as many as possible to gain wealth— NOT grow portfolios. If you are telling me you honestly believe that financial advisors make money by building wealth and not by marketing and expanding client base I’ve got a bridge to sell you. When you have 50 clients like me with assets at or over $1M and you are getting 1%+; you get at least $500k per year if you never make them another penny. My personal advisor is managing a bit more than that, and she gets very disturbed when I bring this up— I would prefer an arrangement where she is incentivized and is forced to gain wealth by making money on every portfolio, instead of just by expanding client base and coasting. That would force her to do actual analysis, take risk, and be accountable for decisions instead of just parking money in different places. She is the best I have found, because she is like family and absolutely trust her to treat my money like her own, but I want someone who wants to get rich, not treat my money like their own.
Because you then don’t need to grow the portfolio to make money; it is far easier to spend time marketing and networking to increase you client base, targeting high net worth individuals. Every financial advisor I have ever known does this, including my own. Surely you realize this, right?
You are correct. I went to a finantial advisor. I learned that they got 1% of my total investment whether I made any money or not.
If I made the average of about 7% a year, they got 15% of my income for their advise! If I made 1% a year, they got it all!
If I made 10%, they got 10% of my income from the investment.
I ditched that. Much better off with an index fund, and very low fees.
An advisor who made say, 5% of income from a portfolio would have real incentive to grow the portfolio.
They don’t need to do anything. Nada, zilch. No requirements for fees or disclosures. Adults can decide how to best handle their money without government oversight and meddling. If you don’t like your arrangement then change it. But if I wish a flat percentage for services then I should be free to do so. If I wish to let the villag idiot manage my money I should be able to do so.
We agree. But then we usually do. Too many here wish to judge a law based on how good or effective it is or they agree with it or not. But we should first ask if there should be a law. In most instances there should not be a law. Why do adults need a law to govern a private contract?
“The rule is a good one, like requiring ingredients and the point of origin to be listed on food labels. What would be the motivation of not making this information known to the consumer?”
EVERY fund I’ve invested in over the last 30+ years has stated fees up front. NONE have concealed them. And no two funds “achieve the same purpose”. If they have different managers, then they are DIFFERENT - and it is up to ME to decide what I am willing to pay.
Anyone too dumb to do that shouldn’t invest, or should only do so thru index funds.
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