July 25, 2018
Recommendations of the Investor Advisory Committee Broker-Dealer Fiduciary Duty
Response by James Reim, CFA
33 year practitioner, Erie, PA
July 24, 2018
I will start with my conclusions: This idea of a regulatory solution is a waste of time and energy and should be scrapped. I believe that it misses the mark of what is truly needed, which is a more educated investing public and financial advisors alike. The SEC should work harder to educate the public and financial advisors alike about the features and benefits of both guaranteed investments and market investments. The SEC should lead the effort to get the insurance industry and the investment industry to better work together. I personally believe that a modern day financial advisor can only fulfill their fiduciary duty if they are discussing both guaranteed investments and market investments with a client.
When I started in this industry as a stockbroker back in 1984, we were taught that 24% of people were investors and 76% of people were savers. With the advent of 401(k) plans, everyone working became an investor. With the advent of Quantitative Easing and the decline of interest rates paid by banks to 0% the choices for savers was greatly limited. Now we are seeing people approaching retirement and they are both clueless and scared. I now say that they know more about the car they drove into the parking lot than they do about the $500,000 to $1M they have in their 401k.
Because of our work with the American Financial Education Alliance (AFEA) we have had the opportunity to meet with hundreds of couples and individuals to discuss their personal situation. To summarize they are largely unaware of the substantial risk they are taking with their retirement money they have been around long enough to NOT want to experience another market crash they dont know how to make their money last 25-30 years and have many questions about Social Security, Medicare, Retirement Planning, Risk, Estate Planning Basics, Taxes, Health and Long Term Care. These are the issues to focus on.
I further believe that a regulatory solution will have terrible unintended consequences. The only proper way to settle a customer complaint is through arbitration. This way the bad guy, whether advisor or client, is identified and the situation rectified. Also, this way we all avoid Legislating the Masses because of the Asses. The alternative is lawsuits, lawyers, incessant court battles, cost and distraction. Or possibly worse, a proposal to let States or the Federal Government manage all pension assets. The point is the further the action gets away from the parties involved the more chance the situation gets warped. A regulatory solution can only mean an opportunity for violation and then into the legal system it goes. The recent efforts by the nations broker dealers to satisfy the DOL and FINRA are case in point of being distracted from helping the people. Please do not let this be the case.
One final note: education and cooperation between the investment and insurance industries can have a multiplier effect as the people involved seek and provide the best solutions. For example when we were educated about Anti-Money Laundering we quickly learned to recognize the elements and nature of this crime. When we become educated about the true financial needs of retirees and understand the benefits and determine the solutions to best satisfy these needs, then the need for regulation will be minimized. And when there is a crime, those involved will be served, and those of us who are innocent will be left uninvolved.