Campaign members include the National Association of Personal Financial Advisors, The Committee for the Fiduciary Standard, Alliance of Comprehensive Planners, Garrett Planning Network and XY Planning Network.
The campaign comes on the heels of a meeting Rostad and Institute board members had with SEC Chairman Jay Clayton earlier in June to press their concerns. Institute board members at the meeting included Vanguard Founder Jack Bogle and Phyllis Borzi, former assistant secretary at the US Department of Labor and author of the now-defunct DOL fiduciary rule.
Bogle, who joined the meeting by telephone, told Clayton that investors need a “fair shake” when it comes to understanding who they’re working with and what they’re paying. That fair shake should include the harmonization of a fiduciary sales standard for brokers and advisors, who have become much more alike as significant numbers of brokers migrate from their transaction-based commission model for a more profitable fee-based advice model.
Bogle, whose fund company invests some $5 trillion investor dollars today, told Clayton that he can not let pressure from “those with vested interest in protecting their present business model” supersede investor interests. “Rather than merely requiring disclosure of conflicts, brokers and advisors should provide a mandatory compliance form showing the professionals’ income from all relevant sources. Investors don’t need more fine print, they need hard data and they need a fair shake,” said Bogle, according to a written version of his remarks.
The proposed customer relationship summaries dovetail with the SEC’s “Regulation Best Interest” proposal, which while designed to elevate the responsibilities brokers owe customers, stops short of harmonization or the establishment of a fiduciary duty for brokers. Currently brokers are regulated by a suitability standard that allows them to sell products and accounts that are, in essence, good enough.
Houlihan, in her advisory capacity, regularly acts as an advocate for clients and widows who have trusts and other accounts at broker dealers, even going with them to meetings with their brokers. In one recent meeting, a broker was so “slick” in describing an alternative investment as “like a mutual fund” and downplaying the 2 percent front-end commission and 4 percent back-end commission he’d earn that the client left the meeting saying: “See, he didn’t fee me,” Houlihan said. The broker also held the client’s investments inside a fee-based advisory account that paid him 1.25 percent annually, despite failing to offer fiduciary advice or put the client’s best interests first, she said.
Earlier this month she was asked by a CPA to explain a tax client’s unfortunate high-tax situation in retirement, which was triggered by a broker annuitizing all their investable assets. The broker had put 100% of the middle class couple’s retirement plan rollovers and all their inheritance in annuities, so in retirement they are stuck paying regular income tax for every dollar they withdraw. As troubling, they’d been told by the broker they had a spousal annuity for the wife, when none existed, Houlihan said.
So, what’s the big deal?
Houlihan said if a registered investment advisor had done any of these things they would be in violation of their fiduciary duty and could be sued. In contrast, brokers’ clients are required to waive their legal rights to sue and must instead use arbitration to settle even charges of fraud, unsuitable investments, churning and outright theft.