How’s this for a compliance crock? See what marketing expert and author David Weinberger and ERISA expert Jason Roberts has to say.
An advisor in upstate New York organized a charity golf tournament some years ago sponsored by his firm. He naturally wanted the name of his firm and broker-dealer printed on the balls. His compliance department said yes, with the proper disclosure; which meant microscopic type would completely cover the ball and have his name and the name of the broker-dealer lost in the font. The answer to his protestations was that if a person came across a ball in a pond or woods, whether days or years later, it would nonetheless constitute an offer to sell. If only it were an isolated incident…
We’re losing our sense of the common, and this includes with the 401(k) fiduciary rule discussed ad nauseam. The reason relates to self-delusion, specifically outlined in a concept explained by marketing expert and author David Weinberger; accountability has become “accountabalism.” Although one of Harvard Business Review’s “Breakthrough Ideas for 2007,” nothing has changed in the years since.
“Accountability has gone horribly wrong,” according to Weinberger. “It has become ‘accountabalism,’ the practice of eating sacrificial victims in an attempt to magically ward off evil.”
While he’s thankfully writing in the metaphorical, accountabalism rests on four interrelated beliefs and practices:
- One more form, policy, rule or even law is all that is needed to solve a complex problem.
- Accountabalism assumes that if something bad happens, it’s a sign the entire system is broken and in need of radical change.
- It’s blind to human nature. As Weinberger rightly notes, “When such disincentives as the threat of having to wear an orange jumpsuit for eight to ten years didn’t stop the Enron nightmare and other bad things from happening,” what makes us think more forms and policies will?
- While claiming to increase individual responsibility, it actually drives out human judgment through more bureaucracy.
Remember, it wasn’t regulation that exposed Madoff; indeed, it can be argued the SEC acted as enabler.
ERISA expert Jason Roberts warns against the overconfidence of advisors who have always acted in a fiduciary manner, and therefore discount the DOL’s rule, as there is a lot over which they can inadvertently trip. And that’s really the rub. Far from forcing disingenuous and even criminally-inclined advisors to act in an ethical manner, it potentially penalizes otherwise ethical advisors for paperwork and policy mistakes.
American Retirement Association CEO Brian Graff argues the winner in all of this isn’t the 401(k) advisors, regulators, product manufacturers or even clients, but lawyers like Roberts. We agree.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
How do you take a problem that does not exist and turn it into a problem that does? Add more government regulation! The financial arena is already one of the most heavily regulated spaces in existence. We don’t need more rules and regulations …. we need enforcement of the rules that are already in effect. We need government and quasi government agencies (SEC, DOL, FINRA) that actually enforce rules against the bottom dwelling advisers in the industry and drive them from the industry. Rather than enabling the mini Madoff’s of the world how about we make a concerted effort to punish the guilty and reward the honest? The D.O.L. fiduciary ruling is an absolute joke.Albeit a very, very bad one for anyone subject to it. It will have zero … absolutely zero positive effect for consumers. If there are some folks living in an alternate universe that believe this has anything to do with protecting the consumer I hate to burst your bubble. This ruling is 100% complete and total politics. It is a feel good grandstanding effort that is designed to bolster legacies and pander for votes. Nothing more … nothing less. The sad part is that ultimately the consumer will be harmed by not being offered advice and otherwise good advisers who trip up on checking the correct box on a form will have lifetime black marks on their ADV’s. Or worse yet, they will be criminally prosecuted. Oh, and by the way … this opinion is coming from someone who already does and always has had their firm structured under the fiduciary mantle. I do believe that every individual that offers any type of investment advice (up to and including the young lady at the teller window in the bank pitching CD’s) should have to operate under the same fiduciary mantle that I already voluntarily adhere to. That is simply common sense. However, what I do not believe is that anything included in the current ruling will have any positive impact on moving towards that goal. It is ridiculous from the very beginning … IRA’s … yep, have to be a fiduciary for those … the $1,000,000 that is inherited from Grandma’s account in non qualified stocks? Nope … good to go … don’t need to worry about a pesky old fiduciary standard there. Only career politicians and guardians of bureaucracy could dream up something like that and present it with a straight face!
“American Retirement Association CEO Brian Graff argues the winner in all of this isn’t the 401(k) advisors, regulators, product manufacturers or even clients, but lawyers like Roberts. We’re tempted to agree.”
Well, duh.
The laughable part of all of this… it attacks advisors who don’t charge for the advice they give free now on 401(k) plans. People are repeating the government line that there is another 1% fee on IRA rollovers.
There’s about to be another 1.25% fee everyone learns to charge on 401(k) assets.
What is to stop me from charging more to advise on 401(k) accounts due to the increased research, compliance, risk, etc., that I used to do for free?
It is the most brain dead set of rules I’ve ever heard of.
Absolutely on point. There will be two really sad consequences of this rule. 1. Good advisors will be hurt, driven out of the business, and 2. the consumer will hurt rather than helped through fewer advisors and having to pay higher fees. The $5,000 IRA client is better off in a commission structure that a fee structure, long-term (which is what investing is really supposed to be about).