Abandoning the fiduciary rule was a mistake | Hacker News Reader

Abandoning the fiduciary rule was a mistake

bloomberg.com

108 pointspetethomas48 comments

Estimated cost to the financial advice market (by the financial advice market) of having to abide by the fiduciary rule - $2.4 billion

https://www.investmentnews.com/article/20151230/FREE/1512399...

Estimated cost over the next 30 years for retirees (by the Economic Policy Institute), just from the fiduciary rule being delayed for 18 months - $10.9 billion

https://www.epi.org/publication/another-fiduciary-rule-delay...

This isn't even capitalism. This is like some John Frum cargo-cult version, being acted out by people who have heard the word 'economics' but have at best only absorbed that it is something to do with people who like money and dressing in suits.

Pretty much every neutral observer called that one, and quite a few non-neutral ones too. There’s no rational way to justify allowing wealth managers to sell their clients products that are contrary to the clients’ interests, least of all under the laughable excuse of “customer choice”.

The only question is, exactly how corrupt was this? Was it “the boss is an idiot and doesn’t understand”, or “they bought enough over priced hotel rooms”?

I really don't think it's the ol' "boss is an idiot" thing.

Most other industries are allowed to sell products that are contrary to their clients' interests. I don't see why wealth management should be any different. If my mechanic can try to sell me a bunch of services I don't really need every time I go in for an oil change, I have no problem with the financial industry doing the same.

Because weath managers don't clearly differentiate between their advisory and sales roles and exploit ignorant people. If the result was fee only advisors were the only ones left that would be a good thing

I view this more as the mechanic being paid by a supplier to say that your clutch has failed when it hasn't.

The difference is that your mechanic isn’t acting as your agent with regards to all things automotive, they represent the shop they work for. That differentiation of who’s responsible for what makes a huge difference.

A financial advisor is much more akin to a lawyer, you pay them to represent your interests. And it is absolutely against the rules for your lawyer to not protect your best interests to the upmost extent of the law.

Agreed. Standard lawyer jokes aside, I used to routinely advise clients against filing lawsuits which would have benfitted me and my firm financially. In many cases, it would have been a waste of time and money for the client. I'm surprised that financial advisors think it's acceptable to advise against a client's interests. Not surprised that they would do it, but surprised that they publically state that there is nothing wrong with it.

I think high finance has deluded itself into thinking that they’re irreplaceable, and therefore they don’t have to pay an ounce of attention to their public image. In minor cases they might be right, but I think they’re underestimating the risks of mass scale legislation or reorganization directly caused by their malfeasance.

It’s a mistake if you believe that the government acts or should act in the interests of its citizens.

If however you think the governments purpose is to further the interests of corporations, then it’s the opposite of a mistake.

>It’s a mistake if you believe that the government ... should act in the interests of its citizens.

I disagree here.

I think a government should act in the interests of its citizens, and there are countries where this still occurs.

The argument you are making is whether the US still does this is fair, but they absolutely SHOULD be doing it.

They're saying the subject of the headline is a mistake. Not that the mistake is believing that's the purpose of government.

What exactly is the purpose of government?

I'm pretty sure it has something to do with caves. Someone wrote a book about it once.

http://classics.mit.edu/Plato/republic.html

(Less sarcastically, the Republic transitions pretty quickly from a discussing of "what's a good life" to "how can we structure society (and government) to help people live well?" It's a good book, even if the conclusions are a bit suspect.)

Corporations are owned by citizens, so it's not necessarily a mistake either way you slice it.

Only if they're incorporated in the citizen's country. Many (many) are not

Which category is bigger? 1. Citizens who want to invest their money 2. Citizens who work in the financial services industry

It's #1, by several orders of magnitude. I would still argue that it's not a mistake, but that's because a mistake would mean they didn't intend to help category #2.

I once asked a friend, who works for a lesser known government agency, what his agency does. He said that like any good bureaucracy, its first job was to perpetuate itself. I found that statement both amusing and insightful.

Is also why large bureaucracies are seemingly able to run in the air for ages after they leave the cliff edge. Bureaucratic inertia, especially once it reaches the scale of a country, should not be underestimated lightly.

You should definitively watch "Yes Minister" It is one of the funniest political (timeless wisdom) shows that people have forgotten.

Or more likely, never familiar with in the first place.

The Thick of It is more recent (Blair era), but it can be thought of as a spiritual successor, and it has no laugh track.

Incidentally, this is also what helps sustain societies through times of failing leadership.

Personally, I'm rather grateful for the inertia of the civil service in recent years.

I think your friend was truthful.

Among the tricks of the trade is for government management to always ensure each year's allotment of money is fully spent. That way, the budget will remain at least the same and probably more the next year. (Too bad for the taxpayers.)

Corporations use a lot of banking services and they're victims who could be helped by this rule too, just like consumers.

They may have bigger pockets, but when Goldman steals millions from some company by violating their fiduciary duty... that company suffers. That's money they could use to lower prices, hire more people, etc. It makes it harder for them to compete.

So let's not overstate it. It's the financial industry that benefits from removing it. I doubt non-financial companies are in favor of letting banks take advantage of them.

I wonder if there was a recent case where companies lost a significant amount of savings or liquidity due to some banking closing down or something similar beyond the limits of FDIC

Mistake for who? The gutting of the consumer protection served the function and constituency it was designed to.

This.

The article makes the assumption that the law was intended to help the masses. I'm just not certain that's the case in reality.

The rule was overturned by a federal court for overstepping the DOL’s statutory authority. What “constituency” are those unelected, life-tenured judges serving, exactly?

Maybe the rule is a good idea, or maybe it isn’t. But the Obama administration tried to promulgate a massive new financial regulation through aggressive interpretation of existing statutory authority. A federal court didn’t buy it. That sometimes happens when you try to create new laws through executive bureaucracy rather than Congress. (Ironically, exactly the same thing has repeatedly happened to Trump.)

The Trump adminstration has abandoned the fiduciary rule by not appealing the federal court's ruling.

And Congress has abandoned the fiduciary rule by deciding not to pass a new bill that would be acceptable to the courts.

The government won at trial, defended the win on appeal, and lost. There is no “appeal” from that. The decision of the court of appeals typically is the final word. The only avenues are petitions for discretionary review, reserved for special cases: rehearing (asking the appeals court to change its mind), or Supreme Court review. Such review is rarely granted (a few percent of cases), and generally only for a question of exceptional importance to the law, or where different courts of appeals reach conflicting decisions. Neither was true here.

It was overturned in court because the current administration refused to defend it.

It’s possible that even if they had genuinely defended the rule in court it would have been overturned, but that’s not what happened and while technically you are right, in reality, the decision was a political and not a judicial decision.

That is absolutely false. You can hear the hour long argument where the government defended the rule here: http://www.ca5.uscourts.gov/OralArgRecordings/17/17-10238_7-.... The Fifth Circuit then rendered a decision on the merits. The government didn’t file for rehearing or petition for Supreme Court review. But those are discretionary forms of review, reserved for special circumstances, and rarely result in overturning the appeals court decision.

CFPB was also part of the handiwork of a true "enemy" of decent people-who-for-a-living in the United States, namely Mr. Mick Mulvaney.

The current "interim" (wink wink) chief of staff at the White House which on its face is absolutely horrifying for a superpower but that's another issue for another day

Pardon the businessinsider, this article summarizes pretty well Mr. Mulvaney's extracurricular activities there : https://static1.businessinsider.com/mick-mulvaney-turned-the...

To be clear, you can have a good faith disagreement about how responsible people should be or how much government regulation you like but in this case specifically, this isn't a gee-golly difference of opinion on the scope/reach of government. Just speaking personally, I don't much want any gov regulation or intervention anywhere-- especially these days with who is charge-- but it was sure nice for about 15 minutes for there to be a public institution that provided some assurance that scumbag financial institutions who provably & very much regularly screwed over "little people" in little ways could be held to account in some measure.

For the guv'mint is too big crowd, the CFPB was the agency which help expose Wells Fargo bank’s fake account scams. (If unfamiliar, these are some of the gory details: https://www.washingtonpost.com/news/business/wp/2016/09/08/w...)

Another meat-and-potatoes example: pre-paid credit cards (a $65 billion industry in 2012 according to Pew.)

Before the CFPB, prepaid credit card offers were dense and confusing legal documents , but this is what those offers must look like now: https://www.creditcards.com/credit-card-news/wp-content/uplo...

They've even has a catchy line: “know before you owe!”

Regular are getting hurt and when the next crisis comes we're going in a worse position to the efforts of these ridiculous characters like Mr. Mulvaney

Well, Trump administration is trying their best to muck things up as good as they can. Then they can be blamed for the next major depression type recession & costing the american public the welfare state of FDR.

It’s going to take generations to fix what the Trump administration and republicans like Mitch McConnell have done to this country. Never forget or forgive these assholes.

Never forgetting or forgiving seems like an ineffective response. My entire being yearns for more.

Yeah. Except that impacts of global climate change will likely be huge before that. So the US is very likely screwed. Irrevocably, at this point.

> It’s going to take generations to fix what the Trump administration and republicans like Mitch McConnell have done to this country

You remember reading in history about a society that was on top, then lost its way, and then a few generations later got a second chance?

As a sidenote, anyone else noticed the heavy amount of browser fingerprinting on Bloomberg sites? I have a few extensions that block browser fingerprinting and whenever I go on Bloomberg sites, I get a bunch of warnings about canvas, fonts etc fingerprinting. Then, I'm immediately redirected to a page where I have to enter a recaptcha to view the page [0]. That page also states that they've "detected unusual activity from your network" winch is a total lie because if I disable those, I don't get a warning and get a paywall instead.

[0] https://i.imgur.com/EEIcwK2.jpg

The whole of the internet is a patchwork of ad blockers and ad block mitigations which come in the form of both aggressive JavaScript and the much-more-insidious passive aggressive "sponsored content". Possible that this fingerprinting is all in service of trying desperately to monetize. Unfortunately we only have ourselves to blame.

The very first sentence is quite misleading:

> Last year, the Trump administration abandoned a regulation designed to protect U.S. savers from conflicted investment advice.

That suggests that the Trump administration repealed the rule. What actually happened is that a federal appeals court vacated the rule because it overstepped the DOL’s statutory authority: https://images.thinkadvisor.com/contrib/content/uploads/docu.... (Among other things, the DOL departed from its own long-standing interpretation of a key statutory term.)

When the article says the Trump administration “abandoned” the rule, it means that the administration declined to seek rehearing—basically, asking the appeals court to change its mind—or Supreme Court review. Of course, both of those options are long shots. A federal court of appeals decision in a case is almost always the last word. Further review is discretionary, and rare. That is especially true in a case like this one. The prerequisite for rehearing or Supreme Court review is typically a case of “exceptional importance” or where there are conflicting decisions among the courts of appeals for the different circuits. An esoteric financial regulation doesn’t fit either criteria.

I'll play a bit of devil's advocate here: Was it though? Financial advisors were always mostly a ripoff for people with basic financial literacy who aren't trying to do crazy tax stuff or laddering CDs or something. If anything, this should just accelerate the switch to index funds.

Even if financial advisors were always an inferior option than index funds, why should they be allowed to make financial decisions for their clients that are contrary to the best interests of their clients?

A lot of people aren't smart enough to know better though. The government should protect them from people scamming out of their money

> To be clear, there are upstanding insurers and agents who sell indexed annuities only when appropriate.

There were. Now investors simply cannot tell the difference so for all intents and purposes, there are not. If you're investing through a third party at this point, you're a fool and you'll be taken advantage of. There is no protection other than the law. This article and others should make that clear. Investors need to become experts themselves and learn about what they invest in as well as how to invest. It's a tall order but that's what it takes to not get ripped off now. That's what this administration wanted and that's what they got: a clear path to ripping people off on their retirement savings. What else would one expect from them?

If you advertise you're a fiduciary, you still have a fiduciary duty to customers. Most "retirement planners" or "advisors" (e.g., Edward Jones' franchises) do not advertise a fiduciary duty.

As a consumer, you may have to pay more up front to find a fiduciary-duty adviser, but that is money well spent and quickly pays for itself.

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