Dodd-Frank: Shaken, Not Stirred

Think your martini’s the only thing on the rocks?

Think again.

Now, thanks to a recent executive action, the unified fiduciary standard might be too.

What does it mean to you?

I know you’ve heard this, but there are financial advisors (like me) who act as fiduciaries and financial advisors who don’t (like most of the Wall Street firms you’ve ever heard of).

The legalese says that fiduciaries put their client’s interests first, and non-fiduciaries don’t.

Yeah, it’s true. There are financial advisors out there who don’t have to offer you the thing that’s actually best for you. That’s basically so they can sell you financial products that pay them a commission, and get paid without telling you.

Here’s a good metaphor for the difference in the standards we are held to at the regulatory level:

You go to a non-fiduciary tailor for a suit. That tailor pulls a hot pink polyester suit off the rack, tells you how great you look, rings you up and sends you on your way. After all, additional alterations cost more, and even then they only take you so far.

And the government says, “Hey, that’s cool, you wanted a suit, that’s exactly what you got.”

The other option, you go to a fiduciary tailor for a suit. Your fiduciary understands that buying the perfect suit isn’t easy because there are many important things to keep in mind, with the fit being most important of all. No two people are exactly alike, so your fiduciary tailor makes you a custom fit suit in a fantastic shade, using high-quality fabric, with a flattering cut for your body – it is the perfect suit, and you feel like James Bond every time you put it on.

Now, that suits you!

See the difference?

So, how did we get here?

The problem all started when Wall Street stockbrokers started calling themselves financial advisors. They liked the cache!

But consumers got confused, and rightfully so, and the industry had a very David and Goliath type internal war. Independent firms, like us, against Wall Street. Imagine!

It took years, and we’ve gained traction. Our basic argument is, “Hey, if you’re not offering advice, you shouldn’t be able to call yourself an advisor.”


Also, of course, those financial products that charge commissions are more expensive and offer lower returns than the savvy investments fiduciaries often select.

So the government finally got it together and proposed a rule that was set to go into effect later this year.

Enter Trump.

Trump wants to relax financial regulations by reviewing the Dodd-Frank Act and the fiduciary rule, thus delaying its expected implementation in April.

But the fiduciary rule was never a slam dunk.

They were only ever going to protect half your savings.

This fiduciary rule was proposed by the Department of Labor, which governs IRAs, but not brokerage accounts.

Sooooo, yeah.

It’s possible that the same Wall Street broker who would be acting as a “fiduciary” on your pre-tax dollars would just be a salesman when you talked to him about your brokerage account.


What’s my take?

Here’s the thing. I’ve watched these Wall Street banks duck and weave so many times on so many topics, I never had any faith that this regulation was going to actually make life better on Main Street.

Just as an example, a few years ago the Department of Labor passed laws requiring the insurance companies and large banks to disclose the actual costs that are baked into company 401(k) plans

Sounds good, right?

But they gave Wall Street years to plan for it. And guess what happened?

Wall Street bankers and insurance companies took closed-door meetings with government officials and created new, backdoor and deceptive ways to hide the very costs they were supposed to disclose.

What they did was take the mutual funds that are available at low cost on the open market, and they made “proprietary” versions of them. Same name, different contents, and now they have no unique identifiers: no ticker symbols and no CUSIPs, so there’s no way to look up the costs.

And the firms that did this strategically offered to share their newfound profits with the employers who offer the plans! So now, lots of people in high places get to share in the spoils of your deception.

Pretty gross.

Ask people what their 401(k) costs them, and most of them say, “nothing”. The truth though was that in some cases those plans were costing 3-5% of your account balance per year.

Is it any wonder I don’t trust more regulations like these?

How to Solve the Problem Yourself?

Just hire a fiduciary advisor. You can be a brand snob when it comes to cars and handbags, but when it comes time to financial advice, choose an independent firm. You don’t need the government to force you to do that, do you?

If you’re not sure if your advisor is a fiduciary, just ask.

And yes, I am, and always have been, a fiduciary.