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The Fiduciary Rule

From time to time I write about the Department of Labor’s Fiduciary Rule. Initially, many brokerage companies, financial advisors, and banks were opposed to this change; then, slowly they began to support it. I wrote about that change here.

It was only a matter of time before firms figured out they could actually charge clients more if they pretended to adopt fiduciary standards. Well, The Journal recently wrote a great piece outlining this in greater detail.

“The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.”

That was the original argument against the rule. It is a paper thin argument but I’ve written about that ad nauseam. The interesting change is that firms realized they could push their commission-based customers to a fee-based account that would generate continuous revenue.

“But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.”

Once institutions realized that they could make more money under the new guidelines, many changed their position.

“Bank of America Corp.’s Merrill Lynch has embraced the rule, even running an ad campaign around the idea of fiduciary advice.”

At least, some of them did. There are still hold out firms that continue to oppose the rule.

“Even some benefiting from it still fault it, including Mr. Kruszewski from Stifel, whose business is largely based on commissions and who has said the rule limits choice.”

Why? There are two possible answers. One, firms resisted the change because even if it would yield additional revenue it would also increase costs, negating the additional revenue. This makes sense because once they realized they couldn’t oppose the rule any longer they could then change positions. They sort of begrudgingly accepted the change once it became inevitable.

The other explanation is that some firms just honestly believe the change is bad. They truly believe the change will hurt their clients.

Personally, I believe both points of view are wrong. A fiduciary approach is what is right for clients, even if it costs more. When people trust you with their life savings you have obligations to them. One of those obligations is to do right by them. When two investments are similar but one pays you more, that is a conflict of interest. There is no room for conflicts in a fiduciary relationship. At the same time, the current fiduciary rule should be opposed because it allows salespeople to call themselves fiduciaries. This is very confusing for consumers.



Anyone that has spent a considerable amount of time near me has been subjected to watching the DuckTales theme song played over the music video to “Single Ladies” by Beyoncé. It’s like my generation’s Dark Side of the Rainbow.

The clip brings me a tremendous amount of pleasure; in no small part, because the DuckTales theme song is the “Catchiest Single Minute of Music.” If you ever wondered about the story behind the song, you can read about it through the preceding link:

“As a piece of music, the DuckTales theme has an extraordinary tendency, as neurologist Oliver Sacks described the phenomenon in his book Musicophilia, to ‘bore its way, like an earwig, into the ear or mind.’”

If that sort of thing appeals to you and you further want to read an almost 3,000 word essay on the song’s origins, as well as analysis on why it’s so catchy, then, you know, you’re welcome.



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