Warren Tackles Trump’s Fiduciary Rule Rollback

She is really not happy.
She is really not happy.

Senator Elizabeth Warren reacted to President Trump’s rollback of the fiduciary rule Friday, releasing a statement that angrily took the chief executive to task for making it easier for “investment advisers to cheat you.”

“Donald Trump talked a big game about Wall Street during his campaign—but as President, we’re finding out whose side he’s really on,” the Massachusetts Democrat wrote. “Today, after literally standing alongside big bank and hedge fund CEOs, he announced two new orders—one that will make it easier for investment advisors to cheat you out of your retirement savings, and another that will put two former Goldman Sachs executives in charge of gutting the rules that protect you from financial fraud and another economic meltdown.”

“The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis” she continued, “and they will not forget what happened today.”

Warren also released a report Friday, provocatively titled “Villas, Castles and Vacations” detailing what she says are the kinds of “prizes and kickbacks currently offered to retirement advisers for selling certain financial products, regardless of whether those products are in the best interest of consumers.”

Noting the new rule was to take effect to supposedly prevent conflicts of interest, she lamented Trump delay in its implementation.

“The Labor Department’s Conflict of Interest Rule will end the kinds of kickbacks and incentives that put families’ retirement savings at risk,” she wrote upon the release of the report. “The DOL rule protects consumers and creates a level playing field in the market for financial advisers who want to do right by their clients. Instead of doing favors for the big bank CEOs he invited to the West Wing this morning, President Trump should stand with working families by protecting this critical rule.”

The report allegedly shows that “kickbacks in the financial industry, particularly in the annuities industry, remain widespread, and that the DOL Conflicts-of-Interest Rule will eliminate the worst of these industry kickbacks.”

John Sullivan
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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.

6 comments
  1. Senator Warren’s comments are not surprising. Another overreaction of the liberal left. Many advisors in the financial industry take their client’s best interest as the primary goal of their practice. It is true, like any industry, that there are some who work with the commission as their motivation. But for the majority we take our clients best interest as well as what is important to them in accomplishing their financial goals. The DOL regs are not really bringing anything new to our industry with the compliance rules we all work under as well as our personal commitment to our clients and our practices. These regulations do nothing but to put more on those who already play by the rules. It will do nothing to those advisors who place their own interests above those they are supposed to serve. Clients should always ask questions of their advisors. Developing the long term relationships is paramount to the advisors success and the client’s trust and confidence they develop with their advisor. Placing doubts and issues that for the most part are unwarranted only dampens the relationship not to mention the litigious vultures that lay in the wings desperately looking for anything they could attack as a conflict…such as Senator Warren’s comments, “investment advisors to cheat you”….a general statement that is irresponsible and insulting to the many advisors who take their responsibilities seriously. More regulations is not the answer!

  2. A politician, whose salary is extracted by force from tax-paying individuals, proclaims to be concerned about investment advisors cheating the public. That’s pretty rich… even when you consider the source. Ms Warren could do everyone a favor and just leave government and start an advisory firm that meets her definition of “good.” I’m sure it would be an overwhelming success and everyone would be happy.

  3. Academics and most residents in the 02138 zip code cannot be expected to have even a casual notion of reality and Sen. Warren (sadly my senior senator) is both. Any advisor who recklessly abuses clients by running up huge commissions to the detriment of client returns will ultimately lose their clients and possibly be convicted of malfeasance. Sen. Warren is a big devotee of “transparency”. Would it not be better to offer the investing public a choice of flat-fee based or commission based advisors as long as the source of advisor income is disclosed? There is a real risk that smaller investors will be denied help from advisors because their accounts can’t generate enough advisor income to justify the relationship. Does Sen. Warren put her Harvard students before her own interests when she collects $350k teaching one class? This is someone who self-identifies as providing the “intellectual foundation for Occupy Wall Street”.

  4. I completely agree with Gary Lambs comments and insight. To say that Elizabeth Warren has not even a remote clue as to what she is talking about would be generous. As a practicing fiduciary advisor who uses all tools at my disposal to solve clients retirement and income challenges I find her lack of knowledge and her broad brush stroke painting of an entire industry as repulsive as I do sad. I am not surprised however because she is above all a politician who’s only job is to get elected during the next voting cycle. It is so obvious that the entire scope of her rantings are politically based. They are designed to promote political legacies and have little or nothing to do with “the little guy” she is pounding the pulpit about. The numbers that I have seen illustrating how much money investment advisors are “cheating consumers out of” seem to be fabricated out of thin air. They certainly have no basis in real world calculations. The very fabric of her argument is ridiculous in that she argues that anything associated with a commission is evil and is not in the clients best interest. Anyone in this industry understands that if profits are the main motive then having a client in a fee based recurring fee account is much more profitable than selling a one time commission annuity. The math is easy Elizabeth, even for someone at your level. Most commissions on annuities range from 2% to 6% on a one time payment basis. That compensation is typically taken from the insurance companies operating or marketing budget and does not come from the consumers deposit funds. For that compensation the advisor has committed to servicing that client for a time frame ranging from 5 years to 10 years in length. That works out to somewhere between .40% and .60% annually. Conversely the fees on managed accounts would range from 1% to 1.5% annually and that fee is paid directly from the consumers pocket. Over the same 5 to 10 year period that consumer has paid, and the advisor has collected between 5% and 15% for the honor of having Elizabeth Warren pander for a vote. The gross dollars generated on the fee based account for the advisor are over 100% more than what would have been realized with a commissioned annuity sale. My percentage illustrations are overly simplistic but the point is very easy to grasp. From an economic standpoint it is obviously much more lucrative for an advisor to work on a fee based platform and conversely much more expensive for the consumer to participate in that world. This simple illustration doesn’t even touch on what the clients objectives are (stability and income versus stock market risk). Nor does it present the verified data available comparing the average consumers rate of return (net of advisory expenses) in the stock market over the last 16 years versus a good fixed or fixed index annuity. Do the research yourself and you will find out the reason why true fiduciary advisors who are working in their clients best interest do not limit themselves to narrow bands of thought and opinions that “only one thing” can be in their clients best interest and serve their needs. I am the first to argue that there are people professing themselves to be “financial advisors” who have no business being in this industry. There are indeed hack salesman who will say or do anything to make a sale. There are already laws and regulations in place at State and Federal levels to deal with those people but you rarely see them referenced or enforced. We don’t need more regulation, we need enforcement of the regulations that we already have! To portray and regulate the entire industry to the lowest common denominator is short sighted, arrogant and foolish. But as I said, this breathless proclamation about serving the needs of “the people” is purely political so it fits the narrative of what those who are saving the world sit around in their enclaves and praise each other for every evening.

  5. Although I support a majority of “The Rule”, Warren should spend more time reading what her underlings give her to spout off about. Her comments about paid vacations and then annuities causing retirement savers to lose their money are only half correct. We all know that annuity carriers give their producers incentives to recommend their products. So do certain MF’s and REITS, and-and, etc. Why doesn’t she list ALL the financial platforms/products that give kickbacks? Also, she should go back to class to learn about what an annuity actually is..An insurance contract btwn buyer and ins. co. Unless she is referring to VA’s (and if she is, she should STATE that) any immediate, fixed, index type annuity has certain guarantees built in that make it to where the client can’t lose principal invested or earnings credited. I’m all for calling out stupid is what stupid does but come on Warren! Learn your facts before publicly ranting.

  6. Once again Warren has demonstrated her total ignorance around the financial services industry. As a 22 year veteran of this industry I have never once been offered an incentive such as the Villas Castles and Vacations she describes for selling a product. We are 100% product neutral and earn all of our revenue from fees we charge our clients for advice and guidance.

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