Brokerage Industry Advertising Around Fiduciary Rule is Appalling

I was flipping through my weekly edition of Barron’s on Monday AM when I stumbled across an advertisement from a prominent Wall Street brokerage firm.  The message was along the lines of:


“Starting April 2017 the government is requiring us to adhere to a higher standard in your individual retirement account (IRA).  We have supported the change from the beginning and think it’s a positive for investors.  We will not collect commissions in IRAs and our fee is not contingent upon our recommendations”. 


Sounds good right?  In our humble opinion, this is what they’re actually saying:


  • We have been openly fleecing clients for years with limited recourse.  It was so bad the government needed to step in!  (How ridiculous is that!)

  • Starting April 10, we can no longer sell you products that generate the highest commissions in IRAs.  However, we can continue to offer conflicted advice in your taxable accounts.

  • We are currently working on offering new, complex products that skirt the Fiduciary Rule entirely!  The billions of lost revenue needs to be made up somehow.


They forgot to mention that the barriers to entry for the financial services industry haven’t changed. The requirements to become a “financial advisor” are extremely low with exams that anyone with limited knowledge of investing should be able to pass. Also, the brokerage industry has been greasing lobbyists to the tune of millions of dollars to scrap the rule. 


Those that have followed the Pure Portfolios blog know I do not have a high opinion of the brokerage industry. I take issue with “advisors” that are a walking conflict of interest that actively work against clients for their own benefit.  It’s important for investor advocates to speak freely about the misaligned incentives that exist within wealth management. The goal is to create client awareness and expose bad actors.


As a CFA charter holder and principal of a RIA that adheres to a fiduciary standard, I’m disgusted with the establishment’s opposition to putting investors first.  


My solution?  Raise the barriers to entry.  Make industry participants adhere to the CFA Code of Ethics and require annual continuing education.  Exile bad actors for life.  Remove incentive systems that promote sales/revenue targets over client-based outcomes.  Provide full transparency around fees & compensation.  Disclose potential conflicts of interest. 


This stuff is not rocket science.  If regulators really wanted to enact change to protect investors, the answers are right in front of them.

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