Phyllis Borzi blames pressure from politicians and a heated lobbying campaign on the part of big companies with a vested interest. How did a simple thing like protecting investors and helping small businesses get to the point where it became a political issue?
Yes, we acknowledge and congratulate the success of the industry's lobbying effort. It goes without saying a few big firms can organize themselves more easily than thousands of small businesses. It also goes without saying the lobbying budget of big business almost always dramatically trumps the amount of dollars small businesses can spend on political causes.
But that's not what killed the DOL's fiduciary rule.
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And, of course we must concede an almost perfect political storm has evolved to thwart any effort one can tie to one of the worst performing Presidential administrations since at least Jimmy Carter, if not Herbert Hoover. While the work on the fiduciary standard hasn't been a leading policy initiative of the current president and in fact derives from the Pension Protection Act of 2006 (that would be a Republican president and a Republican Congress), it has blossomed under President Obama's term. Right now, given Obama's low poll numbers, you don't want to bet on a policy he can be linked to.
Worse, by including the fiduciary language in the partisan and poorly crafted Dodd Graham "Financial Reform Act," political opportunists had an opportunity to reframe the argument from that Tea Party favorite anti-big business statement to that other Tea Party favorite anti-big government statement.
Which brings us back to the lobbying effort. It's a lot easier to conduct a political campaign when one has ready cash. The big businesses opposed to the fiduciary standard had the money to run this campaign. The small businesses and investors who would benefit from the fiduciary standard did not have the money to run an effective counter campaign.
But, again, that's not what killed the DOL's fiduciary rule.
The DOL has already admitted the proposed rule may have been too broad in that it would have created a fiduciary condition in certain traditional non-fiduciary transactions. Everyone realized this, and everyone realized the real purpose of the proposed fiduciary rule was to discourage conflicts-of-interest in the area of ERISA investment advice. Certainly, the DOL could have easily narrowed the proposed definition to focus only on traditional investment adviser matters. If this had been done, brokers could still continue to provide advice and receive commissions. Big business didn't like this rule because their individual brokers would have to suffer the embarrassment of disclosing to their clients such conflicts-of-interest might not be in the best interest of said clients.
But that's not what killed the DOL's fiduciary rule.
What really killed the DOL's efforts was the botched strategy a tone deaf SEC has pursued since early this year. A simple review of the major media news articles on the action of the SEC (see "Time for SEC's Schapiro to Resign?" Fiduciary News, September 15, 2011) shows the SEC may have foolishly placed itself in the same position as that of the kidnappers in O. Henry's The Ransom of Red Chief. As you might recall from that classic story, the kidnappers, rather than getting paid to return the boy, actually had to pay the boy's parents to get them to take the boy back. In a similar fashion, the SEC's Mary Schapiro tweaked the nose of a newly emboldened Tea Party Congress by threatening to hold the fiduciary standard hostage in hopes of convincing Congress to increase the SEC's budget.
How big can you write the word "FAIL"? Schapiro must not have been paying attention to last November's election results. If she wasn't inattentive, then she was arrogant. She seemed more intent on squeezing more money from Congress than actually doing anything to help investors.
That arrogance gave the opponents of the fiduciary standard an opening to connect the dots between the fiduciary standard, big government in terms of both excessive spending and excessive regulation and a president whose poll numbers are the only thing performing worse than this summer's stock market. This allowed those against the fiduciary rule to reframe the argument from an anti-big business measure to an anti-big government effort.
Either issue would have appealed to the Tea Party crowd and a more able administrator would have painted the fiduciary standard in a way to appeal to the prevailing Tea Party sentiment. In fact, the SEC just did this exact thing when all SEC Commissioners (that's both Republican and Democrat flavors) recently voted unanimously to propose a rule to abolish self-dealing conflicts-of-interest within (primarily) big banks and brokers. Isn't this precisely the purpose of the fiduciary standard? If the SEC was able to unite to eliminate one form of conflict-of-interest you'd think it should unit to eliminate a similar form of conflict-of-interest.
The SEC failed to do this, and, ultimately, that's what killed the DOL's fiduciary rule.
This Sunday's "Day of Rage" protest was meant to unite those against both big business and big government (apparently, the organizers must have not been paying attention to last year's Tea Party rallies which already did the same thing). Ironically, the day after the "Day of Rage" failed to amount to anything, big government and big business won a major victory with the capitulation of the DOL on the matter of the fiduciary rule.
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