Fiduciary – 1.2

If you haven’t been paying attention to the flurry of executive orders issued by our new president, this past week he ordered a review of the upcoming DOL Fiduciary Rule, which was set to take effect in April.  I won’t go into any more detail here about Fiduciary or its implications, I’ve written in detail why I feel it’s important, but I felt like I should put something in print in response to the new political atmosphere.

First, let me say this upfront:  This is not a place for politics.  I don’t have a partisan bone to pick and won’t make that argument here.  I overwhelmingly feel politicians operate under the default mode of helping themselves first, those that paid for their election second, and their party third….and there is not much else on their list.  We have reached the point where the laws of our land are proposed with that list as table stakes.

It’s within that context that I view Trump’s issue on the DOL proposal:  he is simply operating as politicians do.  To reward himself, his donors, and his party.  Nothing more, nothing less, like each politician before him and each to come.

As expected, this has created the normal response from both sides, praise and scorn.

I encourage anyone  to do something that seems rare these days, yet is probably more important than ever:  do your own thinking.  The increasingly bitter rhetoric spewing from both sides only exacerbates the lack of facts and clear thinking.  Step out of the echo chamber of the news and social media,…and just think.  As it relates to the fiduciary rule, I don’t need to get bogged down in the details of how this will turn out, or how the government will try to regulate whatever is left once it’s been gutted.  Neither do you.  At this point, no one really knows.

If you step aside and pause for some self-reflection, you’ll likely arrive at the conclusion I have – Fiduciary is just common sense.  No person ever surveyed in the history of surveys has answered that they would prefer their financial advisors NOT operate in their best interest.  It’s silly, it’s not rational, and no one would ever sign a contract that explicitly says ‘I won’t act in your best interest.’  Yet our system allows banks and their employees to do this on a daily basis.  Conflicts exist which prevent you from getting the best service.  Returning to our rules above, it’s designed that way because the citizens don’t write the rules, the politicians do.  They’re much more interested in making donors happy than Joe Smith from Omaha because Joe was not in attendance at their $1000/plate fundraising dinner last fall.

I could fill pages and pages of arguments about how our political system is run and why it’s fair or not, but it’s fruitless.  As I’ve said before, the big banks are not your friend.  The media is not your friend.  The politicians are worried about making a good life for themselves and getting reelected.  The system is the system, right or wrong, and once you get past whatever partisan anger you may be carrying, there’s one conclusion:  YOU are responsible for YOU.

I often say if more people would vote with their wallet things would work much smoother.  If a restaurant has poor food and bad service, simply decide the place will not get a share of your wallet anymore and don’t go back.  If enough people decided to vote with their wallet, a service provider would lose enough business to be forced to change, and thus the system regulates itself without a need for government to get involved.

I made a call once to Dimensional Funds, a new and reputable mutual fund provider.  I’d read a lot of their research and was impressed, I was potentially interested in using their funds with our clients.  However, if you want to use their funds you have to fly to Austin and go through their training so they feel you understand their process, a noble concept that they take seriously.  When I called, I was connected to a guy that covered my region, and he asked me where I worked.  When I told him Morgan Stanley, he said ‘ahhh man, I’m sorry, we can’t work with you.’  I knew the answer without asking:  Morgan Stanley demanded that Dimensional pay-to-play and they refused.  Whether you call it pay-to-play, shelf space, a kickback…it’s the same concept and it’s common in the industry.  The large Wall Street institutions demand investment providers pay to be on their platform, or clients can’t buy the product.  A mutual fund could exist that was fantastic, cheap, and promised to make you more money than ever before, but unless the mutual fund company writes a huge check, you can’t get it.  Not only is this common now, it’s going to get worse.  Does that sound like it’s in your best interest?  You’re not alone, but this is just one example of the many conflicts that exist today.

A lot of people will say good advisors don’t need legislation to help their business, and I wholeheartedly agree with that, but if I stayed at Morgan Stanley, wasn’t I implicitly agreeing to a practice with which I didn’t agree?  It was in that moment when I first decided that I would vote with MY wallet.  I would leave Morgan Stanley and start a firm where my clients could receive whatever investments were best for them.  Period.

As you read the headlines, remember to step aside and do some thinking of your own.  Fiduciary is common sense.  You can vote with your wallet to demonstrate that you feel that way.  Demand that your existing provider give you fiduciary service, or reward someone that will, regardless of the final legislation.  You can enact the change you want;  you have more power than you think.

Disclaimer: All written content on this site is for information purposes only. Opinions are solely those of Innovate Wealth unless otherwise specified. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.  

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