Retirement Savings: Fighting a Rule That Protects Investors

Earlier this year, the Obama administration finalized a fiduciary rule requiring financial advisors to act in their clients’ best interests when giving advice on retirement accounts outside of 401(k)s. Investors within company-sponsored retirement plans are already protected by a fiduciary standard, but when funds are rolled into IRAs, that protection is lost. As of April, this new rule extends fiduciary responsibility to advisors managing IRAs as well.

Not everyone is thrilled about this. The U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association (SIFMA), and several other trade groups are preparing to sue in an attempt to block the rule. Their reasoning? The regulation may expose firms to costly litigation.

Two things stand out. First, the irony: suing the government—an inherently expensive move—because you’re worried about the cost of lawsuits. Second, opposing a rule that allows people to sue you for bad behavior… feels like a confession, doesn’t it?

In truth, the financial industry’s fierce resistance to this rule only reinforces why it’s needed. If acting in a client’s best interest is considered a legal risk, it tells you a lot about how the system operates today.

High-Frequency Trading: Pennies Add Up

High-frequency trading (HFT) has come under increasing scrutiny in the courts, and it’s easy to see why. Here’s the basic issue: some firms executing trades have access to two sets of data. First, they get high-speed, real-time market pricing from the exchanges. Second, they provide their clients with slower, somewhat stale data. This creates an opportunity to trade ahead of clients—legally or not—for profit.

Sure, it might only net them pennies per trade, but they execute hundreds of thousands of trades per day. Those pennies stack up.

One recent example: FINRA fined ETrade $900,000 for actions taken between 2011 and 2012. The issue? ETrade wasn’t just routing trades—they were the market maker through a subsidiary, G1X. Their internal “Best Execution Committee” (BEC), which was supposed to ensure fair trade execution, turned out to be more of an “OK Execution Committee.”

G1X allegedly manipulated execution priorities to benefit E*Trade, and the BEC either didn’t notice or didn’t care. Whether this was oversight or intentional misconduct depends on how you interpret the data. Were they streamlining trades for uninformed investors—or putting their own trades ahead of client interests to turn a profit?

Robo-Advisors: The Inevitable Disruption

The rise of robo-advisors has spooked many traditional financial advisors—and with good reason. These platforms automate portfolio management at a fraction of the cost of human advisors. What once required offices, assistants, and commissions now happens through an app, for less than half a percent in fees.

Why is robo-advising cheap? It doesn’t rely on human capital for trading, account setup, or ongoing service. Several startups have scaled this model with great success.

But here’s the looming question: if someone can do it for cheap, can someone else do it for free?

Enter JPMorgan. At a recent investor presentation, CEO Jamie Dimon remarked, “When you talk about robo and investing—well, we can do that and give it away for free if we want.” He even floated the idea of offering five to 10 free trades per month to new Chase account holders.

When the audience didn’t exactly leap to their feet, Dimon shrugged it off: “We’re going to build it anyway, folks, and then we’ll decide how to price it.”

As someone who used to work at Chase, that anecdote hits close to home. It reflects a philosophy I remember well: dominate first, figure out the details later.

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