Interview with CBS radio on DOL fiduciary rule

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larryswedroe
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Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Wed Mar 09, 2016 9:15 am

https://player.fm/series/the-tj-show/la ... management

It's just four minutes and thought diehards would enjoy

Everyone who votes against this bill should be tarred and feathered by the voting public and run out of office IMO

And of course it should be expanded to all accounts, not just retirement plans

Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by 6miths » Wed Mar 09, 2016 2:20 pm

I know where we can get all kinds of tar at really low cost!
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain

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Re: Interview with CBS radio on DOL fiduciary rule

Post by RipkenFan08 » Wed Mar 09, 2016 3:57 pm

I have friends in the industry and we talk about this every once in a while. I never really hear any concern about the actual act of putting your clients interest ahead of the firm/advisor. Some of them carry designations with fiduciary standards already though.

I hear all different concerns though. Some seem kind of valid and some just gripe about change in general. One concern that got me thinking was, what is the next step after the fiduciary rule doesn't work? For instance, advisor puts together a plan for a client and its financially sound. The markets then go haywire and persistently negative returns depletes the clients account and the client runs out of money or the advisor has to tell the client to take a pay cut to prevent account depletion. Lets assume the advisor put together a portfolio using all vanguard funds and charged 0.30% for his/her services. So, advisor followed all the rules, acted in the clients best interest and charged a reasonable fee, but it was still a terrible outcome for the client. The government sees this situation unfold and decides to act. What do they do?

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Wed Mar 09, 2016 4:29 pm

Ripken
You are confusing "strategy" with outcome. It's the strategy that must follow the prudent man rule and fiduciary standard of care, making sure advice doesn't cause too much risk taking nor invest in less than optimal vehicles. Outcomes are not controllable
Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by joebh » Wed Mar 09, 2016 4:37 pm

RipkenFan08 wrote:For instance, advisor puts together a plan for a client and its financially sound. The markets then go haywire and persistently negative returns depletes the clients account and the client runs out of money or the advisor has to tell the client to take a pay cut to prevent account depletion. Lets assume the advisor put together a portfolio using all vanguard funds and charged 0.30% for his/her services. So, advisor followed all the rules, acted in the clients best interest and charged a reasonable fee, but it was still a terrible outcome for the client. The government sees this situation unfold and decides to act. What do they do?
Why would the government decide to act?
They don't act now in the same situation, minus the "acted in the clients best interest" part.

Fiduciary standard doesn't mean the market never goes down. And the government won't be guaranteeing returns on investments.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by Bfwolf » Wed Mar 09, 2016 5:51 pm

How can we find out whether our Congressmen support or oppose this legislation? I emailed my Representative and both Senators asking their position...not particularly hopeful I'll hear back.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Wed Mar 09, 2016 6:57 pm

bfwolf
some local papers do report on these things. But calling their offices should get you the answer.

Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by RipkenFan08 » Thu Mar 10, 2016 9:13 am

Appreciate the replies and thanks for clarifying things Larry.

In response to Joebh's statement, I'm going to respectfully disagree. The government would act because they would now be responsible for that investor. Either directly through entitlement programs or indirectly through a massive wave of defaults (like foreclosures in 2008). Taxpayers will notice this and demand a change. That change, whatever it might be, is what concerns some of my friends.

Don't get me wrong, I'm not suggesting this rule is terrible or that it should be nixed because of what could happen down the road. In my opinion, if you want the biggest bang for your buck in protecting investors, raise the education threshold to a little more than just the Series 7. Maybe require a CFP or if you really want to get serious a CFA. That'll eliminate the used car salesman pretty quickly and both designations have a fiduciary standard too. Why the industry hasn't moved to a more educated base blows my mind.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by joebh » Thu Mar 10, 2016 12:41 pm

RipkenFan08 wrote:Appreciate the replies and thanks for clarifying things Larry.

In response to Joebh's statement, I'm going to respectfully disagree. The government would act because they would now be responsible for that investor. Either directly through entitlement programs or indirectly through a massive wave of defaults (like foreclosures in 2008). Taxpayers will notice this and demand a change. That change, whatever it might be, is what concerns some of my friends.
We'll have to agree to disagree.
The government doesn't magically become responsible for investor losses now, and requiring a fiduciary standard wouldn't change that any more than the raising the education threshold to a little more than just the Series would.
Last edited by joebh on Thu Mar 10, 2016 12:43 pm, edited 1 time in total.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by joebh » Thu Mar 10, 2016 12:42 pm

larryswedroe wrote:Everyone who votes against this bill should be tarred and feathered by the voting public and run out of office IMO

And of course it should be expanded to all accounts, not just retirement plans
Thank you Larry - the interview was great, and your conclusions were spot on, IMHO.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by CedarWaxWing » Thu Mar 10, 2016 12:45 pm

RipkenFan08 wrote:Appreciate the replies and thanks for clarifying things Larry.

In response to Joebh's statement, I'm going to respectfully disagree. The government would act because they would now be responsible for that investor. Either directly through entitlement programs or indirectly through a massive wave of defaults (like foreclosures in 2008). Taxpayers will notice this and demand a change. That change, whatever it might be, is what concerns some of my friends.

Don't get me wrong, I'm not suggesting this rule is terrible or that it should be nixed because of what could happen down the road. In my opinion, if you want the biggest bang for your buck in protecting investors, raise the education threshold to a little more than just the Series 7. Maybe require a CFP or if you really want to get serious a CFA. That'll eliminate the used car salesman pretty quickly and both designations have a fiduciary standard too. Why the industry hasn't moved to a more educated base blows my mind.
I have no reason to think that the CFP designation assures a fiduciary standard of service will be practiced. The enforcement of such a standard could easily be very lax and have no real teeth.

M

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Re: Interview with CBS radio on DOL fiduciary rule

Post by afan » Thu Mar 10, 2016 2:25 pm

Yeah, Larry, tell us how you really feel.

A couple of questions. Is there some legal thing reason this applies only to certain retirement accounts? Is this a matter of over what parts of the industry the federal government has authority?

Also- much as I appreciate Vanguard, am I correct that they have opposed the rule? Do you know why?

As for the argument that the fiduciary standard is too expensive and lower balance investors would be left with no advice at all: It takes an amazing set of mental back flips to argue that people will low total balances will suffer if they no longer have access to advisors who do NOT act as fiduciaries. They would be better off on their own than taking advice from the predators.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Interview with CBS radio on DOL fiduciary rule

Post by sport » Thu Mar 10, 2016 2:48 pm

afan wrote:Is there some legal thing reason this applies only to certain retirement accounts? Is this a matter of over what parts of the industry the federal government has authority?
The DOL (Department of Labor) only has authority over some retirement accounts. Presumably, the SEC could do something similar for all accounts.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by Bfwolf » Thu Mar 10, 2016 3:37 pm

larryswedroe wrote:bfwolf
some local papers do report on these things. But calling their offices should get you the answer.

Larry
Senator Durbin of Illinois got back to me and said the following, which was very non-commital:

Thank you for contacting me about the Department of Labor’s (DOL) proposed rule to amend the Employee Retirement Income Security Act’s (ERISA) definition of fiduciary responsibilities. I appreciate hearing from you.

On April 20, 2015, the DOL issued its proposed rule on the definition of fiduciary responsibilities. This new definition would apply to many 401(k) and IRA providers. Under the rule, advisers would be required to acknowledge their fiduciary responsibilities and give advice in the client’s best interest. Advisers could continue to offer in-house products and set their own compensation practices so long as they clearly inform clients of the costs involved and are subject to additional oversight.

Proponents argue this rule would protect millions of American’s retirement savings. Opponents argue that the proposal is too complicated and would unduly limit retiree’s access to necessary investment advice. While I support the purpose of the rule, I also share some of the concerns that many have raised.

ERISA is a federal law that sets minimum standards of conduct for fiduciaries who manage an employee benefit plan and its assets. This law gives DOL the authority to protect American’s retirement savings.

DOL has yet to finalize changes to the ERISA fiduciary definition, but it has pledged to carefully evaluate stakeholder input and make improvements that fairly and appropriately balance the interests and needs of customers and investment advisers and brokers.

I will continue engaging with stakeholders to learn more about the rule’s potential impact on middle-class American’s ability to save for retirement. I appreciate hearing your concerns and will keep them in mind as this process continues.

Thank you again for contacting me. Please feel free to keep in touch.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by bdylan » Thu Mar 10, 2016 4:22 pm

This is highly political.

Also, its not 'legislation' for a member to vote on or not vote -- it is a proposed rule.

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Thu Mar 10, 2016 7:46 pm

bdylan
IMO there is absolutely nothing political about this issue. Nothing about it is political. It's all about what is in the best interest of investors. Period. It has nothing to do with whether someone is Democrat or Republican, liberal or conservative.

As to Durbin, I would write and ask him to listen to my interview and then explain what possible reason there can be to not approve the bill.

Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by gwrvmd » Thu Mar 10, 2016 8:57 pm

Larry...You are right that it should not be a political issue but it is.
A high percentage of 401(k) are from the insurance industry as you have seen by many of the 401(k)
plans posted here on the forum. Insurance agents are on commission and the insurance industry has its own funds. The insurance industry is a powerful lobbying force in Washington DC and they are out in force against this DOL regulation. It is going to be quite a fight. You and most of us on this forum think it is a no brainer but it will be weeks or month and even possibly never before this regulation gets approved. Don't hold your breath.......Gordon
Disciple of John Neff

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Fri Mar 11, 2016 8:58 am

gwrnd
IMO it really isn't political at all. A political issue is one where people can legitimately have different opinions on an issue, with no necessarily right or wrong. Issues such as gun control, abortion rights, etc. are political issues. But this is different as there is literally no reason whatsovever to not support the bill UNLESS it's simply protecting your own wallet at the expense of others. As I explained in the interview all the objections are outright lies meant to scare people, but have no basis in reality.

Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by RipkenFan08 » Fri Mar 11, 2016 8:59 am

The government doesn't magically become responsible for investor losses now
hmm... Fannie, Freddie, Auto Companies, Banks, Money Market Funds, MBS, AIG, and the list goes on. Next on the list is Puerto Rico (or close to next).
I have no reason to think that the CFP designation assures a fiduciary standard of service will be practiced. The enforcement of such a standard could easily be very lax and have no real teeth.
Doctors, Lawyers, Accountants all have this in place. It takes years of study and practice just to have the right to make a living in those industries. If those professionals lost their license, they'd face serious consequences. The finance profession could put similar standards in place. It wouldn't eliminate criminalistic behavior, but it'll put a pretty big dent in it. Right now, a high school education and 30 days locked in an office studying for a very easy series 7 exam is all it takes to become an advisor. Changing that would implement the fiduciary standard rule and deter many sleazy salesman from entering the business. killing 2 birds with 1 stone!

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Fri Mar 11, 2016 10:28 am

Ripken
IMO the higher education standard would not change behavior, smart people are crooks too. It's the fiduciary standard that matters. Now of course a higher standard would be good idea, but investors can make that choice on their own as well. Don't need to legislate it
Larry

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Re: Interview with CBS radio on DOL fiduciary rule

Post by RipkenFan08 » Fri Mar 11, 2016 12:27 pm

It's the fiduciary standard that matters
Are CFAs and CFPs required to give advice in the clients best interest (essentially complying with the fiduciary standard the DOL is trying to implement)?

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Re: Interview with CBS radio on DOL fiduciary rule

Post by larryswedroe » Fri Mar 11, 2016 12:38 pm

The designation doesn't impact the fiduciary standard.

RIAs are REQUIRED to be fiduciaries. So you can have a designation or not but if you work for an RIA you must provide a fiduciary standard of care. On other hand you can work for a B/D or insurance company and have all the designations and still offer a suitability standard.

IMO it's simple if you want to be called a financial advisor you should be required to provide the fiduciary standard. There's simply no reason not to require it. NONE. Now if you don't want to be held to that standard you can be called a salesman who is selling, not providing advice. Then people will know the difference

Larry

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Re: Interview with CBS radio on DOL fiduciary rule

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Re: Interview with CBS radio on DOL fiduciary rule

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