A Really Awful Understanding of the 401k Fiduciary Rule

Beware oversimplification of complex topics

All signs point to complexity.All signs point to complexity.

She’s kidding, right?

“The fiduciary rule is simple. It says anyone selling investment products to people with money in retirement accounts must put the client’s interest first …”

The first sentence belies the second.

Advisor and industry personality Terry Savage proffered important consumer advice in the Chicago Tribune, aptly titled “Why the fiduciary rule matters.” We’ll be clear and state we are absolutely for a fiduciary standard, but recognize the inherent complexities in its implementation, something too many proponents fail to mention.

And so it is with Savage. She conveniently ignores its central question, which is how, exactly, advisors put clients first? We get it in theory, but Savage is arguing specifically for the fiduciary rule, which has real-world (read legal) consequences.

The fiduciary rule is so “simple” that the Department of Labor is counting on the courts, through litigation, to sort it all out. It’s almost as if she’s never heard of Jerome Schlichter or the multitude of court cases now swirling, in part based (depending?) on the confusion it engenders.

Questions discussed ad nauseam at this point include whether acting in the client’s best interest means providing the cheapest investment product or strategy, as many interpret the rule to require. Apparently she thinks so as well, quoting high-fee fighter and industry elder statesman John Bogle.

But when does cheaper always mean better? For the umpteenth time, what happens if a slightly more expensive product is more appropriate for the investor or plan participant but, thanks to the rule, the advisor’s hands are tied? Who knows, since Savage is silent.

It’s symptomatic of larger, equally complex issues facing the country, and the attempt by some to reduce it all to black and white, good and bad. It’s a sophomoric attitude under the banner of “our cause is just;” simply label it evil and shout it down. It’s distressing to those who seek understanding and rational discourse, as modern-day Elmer Gantrys thunder and grandstand with pious might, all the while harming those they claim to help.

But we digress.

At the end of the day, any person of goodwill wants the best possible outcomes for those they serve; we argue about the means, not the ends. But sanctimoniously claiming moral superiority through “simplicity” when none exists is little more than the tyranny of the self-righteous, and does nothing for clients.

Be the first to comment on "A Really Awful Understanding of the 401k Fiduciary Rule"

Leave a comment

Your email address will not be published.