Subject: IA-BD-Conduct-Standards
From: Jeffrey Anton

June 30, 2017

It is clear to me that the Fiduciary Rule will make it impossible to act in the best interests of my clients.  The Rule is supposed to prevent brokers from steering their clients into a high priced situation which would be more lucrative for the brokers.  Instead, it prevents the broker from finding their clients lower fees and the best possible deal.  And it can add 50 to 100 percent more to the fees in unintended and hidden income taxes.  Finally times and tax laws change out of the control of the SEC and the DOL.  Only investors and their advisors are able to act in their own best interests when this happens.  You cannot rely on rulemaking such as this to be flexible and timely enough to be in the clients' best interest.
Here are some examples which support the above statement:

My broker is moving to standardize commissions of all annuities and mutual funds.  This is so that the each broker will not pick a higher priced product for his client.  However, this also prevents the broker from comparison shopping for a lower price and getting his client the best deal.  The rule seems to assume brokers will always act in their own best interest, not in the interest of their clients.  And that the clients are somehow oblivious to fees and expenses and their effect on their investments  .All you have to do is Google "annuity for seniors."  and see " The Great Annuity Rip-Off" on the first page.  People did not accumulate money to invest by being ignorant.  

In taxable investment accounts,  there is a move toward wrap or investment advisory accounts.  Brokerages are forcing their representatives to move from the "dreaded" C shares to these so-called managed accounts.  The advantage of load mutual funds and their 12b-1 fees is that those fees are all pre-tax.  They are deducted from dividend income on form 1099-Div.  However, fees in investment advisory accounts are miscellaneous itemized deductions.  They are subject to the 2 percent of adjusted gross income floor, and are not deductible under the alternative minimum tax. Many investors are in the AMT during their working years.  So, if you are in a blended 33 percent tax rate federal and state combined,  and you get no tax benefit for a one percent advisory fee, then your cost is one percent after tax.  The equates to a pre-tax cost of one and one-half percent, a fifty percent increase over the one percent C share distribution!  So, if I wish to provide my client with advisory services worth one percent, then I no longer have the choice to use C shares, which would save the client one-third the cost.  At a combined 50 percent rate, the savings increase to one-half the cost.  How can the government say they are somehow protecting investors when I am not allowed to do what is obviously in their best interest?

I propose the "Gas Station Standard."  Agree on a few important cost numbers, and put them in large type in all reporting and advertising for financial products.  That way, you have a way for all investors to have basic information to make informed decisions.

The current DOL standard reduces choice much in the same way the Affordable Care Act reduced the health insurance industry to one basic health insurance option with the only choice being  the timing of deductibles and co-payments. 
I believe the if people have the facts, they will make the right decision about their investments.

Jeffrey Anton
Belmont, CA