Let's disclose something upfront: I ran and won two political races as a Republican. Of course, the fact that one of those races was a primary should tell you something else.
Earlier this year, the SEC fumbled its report on the Fiduciary standard by allowing it to become a partisan issue within the ranks of the commissioners. Then, at a Congressional hearing and in subsequent press statements, SEC Chairman Mary Shapiro played the political card in an apparent attempt to fend off those newly elected Tea Party-ers seeking to succumb to fiscal responsibility. She threatened to withhold making any major regulatory changes without a promise from Congress to increase SEC funding. Those wily Republicans called Shapiro's bluff and sent a scathing letter to the SEC questioning not only the sacred fiduciary standard, but the very core of Dodd-Frank itself.
Most serious analysts consider Dodd-Frank your average run-of-the-mill big government boondoggle that not only fails to address what it was originally intended to do, but institutionalized the ugly concept of "too big to fail." Therefore, it's consistent with their traditional philosophy – and the creed of the Tea Party – for Republicans to question Dodd-Frank Financial Reform Act. After all, like the infamously unilateral Health Care Reform Act, the Financial Reform Act made no attempt to consider alternative views.
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The weak fiduciary provision of the Dodd-Frank (remember, it allows a "fiduciary" to commit a prohibited transaction) seemed more of an afterthought than a serious attempt to help investors. Still, the SEC jumped in and, as directed by the Act, conducted its study.But a funny thing happened on the way to common sense. Somehow, the Democrats on the SEC forgot to bring along the Republicans. The split vote on the study gave Congressional Republicans the cover they needed to attack Dodd-Frank.
Like I said, it's consistent for the Republicans to attack Dodd-Frank. The problem, though, lies in their attacking the fiduciary standard, too. Talk about throwing out the baby with the bath water!
The Republicans, with some justification, have asked the SEC in their letter to "cost-justify" the entirety of Dodd-Frank. That makes sense. They also asked the SEC to "cost-justify" the fiduciary standard. That doesn't make sense. The Committee for the Fiduciary Standard wrote a letter in response to the Republicans. Now, the Committee said it in a much nicer way ("At what point and on what basis does the Commission determine that adhering to the duties of loyalty and care is 'too costly' for the industry and, in so doing, effectively, decree these fiduciary duties null and void?").
But I won't; the Republicans appear to be asking for the moral equivalent of death panels.
That's right. Just as they despise ObamaCare for creating medical "death panels" (as in, "is it worth the cost to save this person's life"), so, too, are they creating financial "death panels" (as in, "is it worth the cost to save this person's life savings").
This perplexes me. I always thought the Tea Party folks were all for liberty and the rights of the little guy. By tossing out the fiduciary standard along with Dodd-Frank, they're eliminating the only part of Dodd-Frank the Wall Street-Washington complex didn't want in the first place. Do these so-called Republicans even realize that? And if they can't get this right, what does this say about their credibility on other issues?
Since I've already touched the third rail of politics, I may as well go one step further into the breach – the academic research of the fiduciary standard is not like the "science" of global warming. (Yet another disclosure, my formal training and education was in astrophysics.) Science evolves. Morality doesn't. The "science" of global warming is polluted because it's turned into a question of "majority rules" and dissent is punished. Science is at its worst when it devolves from consensus to merely taking votes. Just ask Pluto. It literally got voted out of the Solar System.
The academic research regarding the fiduciary standard is clear. The lack of a fiduciary standard costs investors. Earlier this year Fiduciary News ran an article on a new study the perhaps seals the deal for the fiduciary standard with this quote:
"While the NEBR study barely addresses the fiduciary standard debate, in a nutshell, the paper concludes direct-sold mutual funds (including institutional funds) outperform broker-sold mutual funds by 1%. Professor Reuter agrees 'it is reasonable to conclude' 401k plan sponsors – and the participants of their plans – on average will tend to benefit from hiring a fiduciary charging an asset based fee of less than 1% compared to buying funds through a broker."
Hopefully, the Republicans will come to their senses before they "Pluto" the fiduciary standard.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
