Stop Hyperventilating – Trump Isn’t Planning to “Cheat Retirees”

A good friend of mine told me the other day that at the rate he is churning out executive orders, Donald Trump could be done with his work as president by the end of March and then turn over the keys to Mike Pence and return to Trump Tower to preside as king.  While that might make many of his detractors happy, Mr. Trump appears to be enjoying turning the political world on its head too much to fade away so quickly.  The pace he is setting of overturning laws and regulations that are suffocating economic growth and enthroning mindless political correctness is breathtaking.  A politician who is actually doing what he promised – imagine that!

One of the areas in which Mr. Trump is keeping his promises is financial services, where he signed executive orders last week delaying the idiotic fiduciary rule cooked up by Barack Obama’s socialist Labor Department and vowing to undo many of the Dodd-Frank rules that do little to protect investors while saddling financial firms with mindless and useless regulations.

Naturally, the mainstream financial media is in paroxysms over Mr. Trump’s latest executive orders, churning out incendiary headlines like “What Trump Could Do to Your Retirement”, “Three Ways to Protect Your 401(k) If Trump Kills The Fiduciary Rule” and “Donald Trump Just Made It Way Easier for Your Financial Adviser to Rip You Off”. What this all really means is “How dare Donald Trump upset the status quo?”

Of course, this is another progressive meltdown. The fiduciary rule is a bad idea that deserves to be dead and buried.

Here’s why Mr. Trump’s latest plan is actually a good idea (and why your retirement was never in danger).

Trump Is Slashing Useless Regulations, Not Ripping Off The Little Guy

The fiduciary rule was a particularly egregious example of the government infantilizing investors.  Ignoring the fact that any broker worth his salt is supposed to be acting as fiduciaries for his clients and can be sued if he violates that trust, the fiduciary rule redundantly holds brokers and financial advisors who work with tax-free clients (i.e. IRAs, 401Ks) to a fiduciary standard as opposed to the looser suitability standard.  A fiduciary standard requires a person to always act in the best interests of his client and to always prioritize his client’s interests. This is what ethical brokers and advisors are supposed to do already and they can get in big trouble if they don’t.  The suitability standard simply requires all investments to be suitable for the client, a lower standard.

The fiduciary standard is allegedly stricter than the suitability standard by requiring advisors to do what they are already supposed to do and work in the best interest of clients by avoiding conflicts of interest that arise when they recommend products offered by their firms that charge higher fees than other products.  But the rule merely added a redundant layer of regulation that raised costs for financial firms, did nothing to protect investors, and allowed progressives to stick their noses further into people’s business. It also raised the costs of providing investment advice to less affluent clients and was leading many clients to lose access to advisers who couldn’t afford to service them, consigning them to robo-advisers likely to lose them money.

Many firms are lifting their minimum accounts sizes to deal with the rule, forcing less affluent clients to fend for themselves; hopefully this will be reversed if the rule is permanently eliminated.  Other firms are acting more constructively by adding new “T” class shares to mutual funds that allow them to put clients into commission-based funds as long as they don’t charge them higher fees.  These changes will likely survive the rule’s elimination.

Mr. Trump is doing the right thing by delaying and hopefully burying the rule once and for all.  The rule was scheduled to take effect in April and is now delayed indefinitely.  Hopefully it will never see the light of day.

The President also signed a second executive order indirectly addressing the excesses of Dodd-Frank.  Without naming the law (which itself is named after two retired liberal hacks whose policies did enormous damage to America), the order lays out core principles for regulation including empowering American investors and enhancing the competitiveness of American companies.  It gives the Treasury Department the authority to restructure major parts of Dodd-Frank, a law that is too long, too complex and a typical political overreaction to a financial crisis.  Wall Street today is run by compliance officers whose jobs consist of trying to eliminate any risk to their firms without recognizing that investing is an inherently risky business.  Compliance officers are like IRS agents, except they are more humorless and stupider.

Hopefully, these two executive orders will be the first in a long series of blows against bureaucracy, idiocy, and choking over-regulation.

The Outraged Talking Heads Have No Idea How The Financial Industry Works

Liberal Massachusetts Senator Elizabeth Warren reacted to the news with predictable hysteria, saying, “Today, after literally standing alongside big bank and hedge fund CEOs, [Mr. Trump} announced…[an order} that will make it easier for investment advisors to cheat you out of your retirement savings.” Yeah, that’s what financial advisers want to do – cheat their clients out of their retirement savings so that after they steal all their client’s money, there will be nothing left to manage or charge fees on. Mrs. Warren continued:  “The Wall Street bankers and lobbyists whose greed and recklessness nearly destroyed this country may be toasting each other with champagne, but the American people have not forgotten the 2008 financial crisis.”  I’m sure there was a run on champagne on K Street.

As someone who is extremely critical of Wall Street practices (and who received a very complimentary letter from Mrs. Warren about my book The Death of Capital, which proposed sensible regulatory reforms to prevent another financial crisis), I can assure everyone that the fiduciary rule was profoundly misguided and would do more harm than good.  Mrs. Warren needs to start thinking before opening her mouth and issuing mindless shibboleths; even her base can see her insincerity a mile away.

Believe me, I think 90% or more of the financial advisers in the business are unqualified to manage anybody’s money (yeah, that will upset a lot of people but it’s true), but making them do what they are already supposed to do – put their client’s interests first – is not the way to solve the problem. The problem can be solved by better supervision of brokers and advisers and better management of the business by their supervisors (who by and large also have no clue how to manage anybody’s money).  But the solution needs to come from the financial industry, not from government.

We need fewer compliance officers and bureaucrats and more managers capable of teaching brokers and advisers how to help their clients prosper.  Barack Obama and former Labor Secretary Thomas Perez had no idea how the financial industry works, which is how they came up with such a truly useless and redundant rule. Fortunately Mr. Trump is burying it before it rises out of the ground to add another layer of over-regulation to an already over-regulated industry.

Mr. Trump is heading in the right direction in reversing the Obama regulatory state that suffocated initiative and economic growth for eight years while treating people like children. The mainstream media may not be happy about this, but fortunately, they are not the ones calling the shots right now.

Sincerely,

Michael

19 Responses to “Stop Hyperventilating – Trump Isn’t Planning to “Cheat Retirees””

  1. Hi Mochael,
    Couldn’t agree with you more. I have most of our savings in a RIFF now that I’m over 70. The agent is one you described to the “T” he constantly says there is no one more able to have the correct items in my small portfolio than his employer and made the comment that “nothing you hear or see on the internet could be better than their advice” just leave your funds with them and all will be fine. Most interesting opportunities on the internet require that you first of all pay thousands for a “newsletter” that will guide you to the correct opportunity. I can’t afford that so sit and see my investment grow in the single digits, but wonder if the correction you speak of comes, and I think it will, where will I be. Would appreciate any help you might be able to afford me. I am a very small fish.
    Thanks for your time.
    Keith

  2. Please stop referring to statists as “progressives.” It just lets them get away with obfuscating who they really are.

    What are they interested in making progress toward? A smothering, jack booted nanny state. To call that “progress” is nothing short of Orwellian. But you buy into their term by using it..

  3. Excellent article, and I couldn’t agree more, except the very end where a crash is predicted. It looks like a bubble, but when will it crash? It could go on for years, like Japan. In the meantime, it might pay to pick up a few pennies in front of the steamroller. It seems the power to print money is stronger than anticipated.

  4. I usually agree with your commentary, however in this case I think you are looking at the world with rose colored glasses. You say yourself that most advisors can’t do the job. So then taking a little more oversight off them is somehow going to make them better? Come on you can’t possibly beleive this. Since when has the human race when it comes to money policed itself properly? The financial industry will do what it has to to make the most money possible. And that usually means taking advantage of the small and underinformed. This may not be the best rule to help people but it was definitely better than nothing. Saying these companies couldn’t afford to advise people is complete BS. Most advisors spend a few minutes a year with you and take in exhorbitant fees. So please don’t try to tell me they are struggling. It’s just not true. As for Dodd Frank, well I’m no expert on what it all means. But again without oversight we saw what the banks did. They sacrificed all morals to make a few more bucks. They are still making BILLIONS even with increased regulation. So I can’t really feel sorry for them. They didn’t suffer in the least during the meltdown. Main Street did. It’s our money we need protection from them they don’t need a few more million to buy that bigger yacht. I realize you have some deep seated resent for Obama which I beleive is slightly misplaced but stop with the overt gushing of everything Trump says he’s going to do. It’s unbecoming.

  5. It is not 401Ks that most folks should be worried about (except that owning stocks now is like holding a live grenade with a faulty trigger), it is Social Security and Medicare. No matter what happens, the real value of those benefits is going down, a lot.

  6. I don’t mind loosening regulations but not everyone in the financial industry is completely above board there are literally hundreds of shady characters and Corporations what I want is justice against those that break the rules and cheat and steal, I mean hard, fast public justice like proverbial hanging in the street type justice. If Trump can provide that than I am happy.

  7. James Butler, Jr.

    Your comments in Stop Hyperventilating – Trump Isn’t Planning to “Cheat Retirees” may mean to be thoughtful advice however, you have overlooked several important points as well as concerns for the future.
    First, Senator Elizabeth Warren, is a honest, dedicated individual whose experience in reviewing and improving the basis and actions in Federal bankruptcy law before she became Senator, is invaluable.
    She is aiding us on the path of truth and justice in the financial world.
    Secondly, it is important to have client advisors (brokers, bankers & consultants)
    acting with fiduciary responsibility for which they are compensated fairly. However,
    the slightest hint of reducing sensible controls and audits of the products and services
    offered by the financial and investment industry is frightening. Do we investors and taxpayers,
    want to see greater freedom to generate profitable corporate services at the risk of losses by
    individuals and families ? Do we want to to see another type of disaster similar to the mortgage
    breakdown 8 – 9 years ago ? A disaster where individuals lose their assets but the corporations
    are both rescued and obtain profits from the rescue through the Federal Government ? There are certainly both individuals and corporate/institutional organizations that can both create and benefit from safe and practical innovations.

    Why am I taking the time to write the above comments ? Perhaps it is because this former private banker is saddened by the growing loss of individuals and families to earn a decent lifestyle over the
    past 40+ years. My mother’s father grew up on a ranch in Texas during hard conditions, earned his
    Bachelor’s in Engineering, started working with a railroad company and eventually became one of the seven founding partners of Morgan Stanley. I always admired him; it was his suggestion on overseas banking that led me to setting up the first full international private banking office to work with individuals in Southeast Asia. Five years in Singapore, assisting primarily Chinese clients from
    Indonesia and Malaysia, added to previous experience in El Salvador, Panama, Puerto Rico and New York in respect for individual contributions to your world and mine.

    Please take a broader factual and historical view; please don’t let us down.

    James Butler, Jr.
    Greenwich, Ct

  8. JB Jr. I loved this part: “Elizabeth Warren is an honest dedicated individual.” That’s a good one. A gut buster. You should do stand up. But you absolutely slayed me with, “She’s aiding us on the path of truth and justice in the financial world.”

    Truth and justice. Right. HI-larious.

    She wouldn’t be a lying, self-aggrandizing, freedom-crushing, world-improving, political weasel or anything like that. Good to know.

    Here’s a concept you might embrace. Caveat emptor. You can’t keep stupid people from doing stupid things … like trusting bankers. But you can put the burden on them to do their investing due diligence … or suffer the consequences. If there’s fraud involved … and when isn’t there when it comes to the banks … they can turn to the courts. If it’s just a matter of losing money, that’s the price of an education.

  9. The pressure on a Stockbroker (salesman) is to sell not manage an account. Since most accounts are modest in size a salesman has to keep selling, selling, selling not sitting and managing accounts. By selling funds with high commissions the salesman can use the “diversification” argument and the “active management” to justify the cost to the client. Since there are almost no funds that beat the S&P especially when tax and fees are deducted, the hapless client is usually much worse off. Most 401k’s have a ton of hidden fees and offer a very limited number of choices with many having limited ability to move assets in a timely manner. Given all of these restrictions the average small investor is usually at the mercy of the industry so any small step that might improve the outlook for the small investor is a necessary step. The financial industry already has their arbitration regulations that tilt the field so why not give the naive investor some small comfort when they are repeatedly taken to the cleaners by an industry that seems to have forgotten that its main reason for existence is to raise money for businesses not grease their own pockets.

  10. David Savage, CFP

    While it is true that anyone can sue their broker (of course anyone can sue anyone over anything) for violating their trust, Wall Street firms have consistently argued in court that their brokers are not fiduciaries and should not be held to that standard. So, no–brokers do not get in “big trouble” if they violate the fiduciary standard.

  11. Your politics and cheerleading for Trump are nauseating! – Dodd-Frank was supposed to prevent another 2008 crisis, and you think Wall Street will police itself again – Ha Ha, thought you were smarter than that, remember derivatives that brought the “house of cards” down in 2008??, – Dodd-Frank put regulations in place to prevent this, and fiduciary responsibility by advisors should also stay in place for another layer of security for Main St. – You Trump people act like Wall Streeters are getting strangled by regulations, as they the 1% who control about 60%+ of the country continue to rack massive fortunes – Wait until all these regulations are removed, EPA gutted, and Wall Street resumes it’s unchecked ways, it will all fall down again, except this time there will be NO bailout because the USA is broke, then tell me “How America is Great Again” as the country turns to chaos, millions of jobs lost per month. – My how people’s memories are so short and intoxicated by a so called “great business” man who filed bankruptcy 6 times, ran the scam “Trump University”, and was called a “con man” by Michael Bloomberg, has Steve Bannon in security meetings and the Joint Chief of Staff excluded, your short-sided political analysis needs help, so put your cheerleading Tu-Tu and Pom-Poms away because this story all ends in ANOTHER disaster Mr Lewitt – Maybe you like how this pot is being stirred, so you can predict a huge downturn, – well guess what pal, so can I, as this TrumpTanic sets sail – LOL

  12. No wonder Elizabeth Warren is outraged that this rule will allow Wall Street to plunder your retirement. That is the job of congress. Where did our SS excess go since Johnson allowed it to be raided for general funding and replaced with worthless IOUs.

  13. Seriously ? You really think Wall Street is going to be concerned about anything but their bottom line?
    That’s like saying Texas cares more about their constituents than their fossil fuel interest when they banned communities from filing to keep fracking out. THE only thing that keep anyone (from individuals to mega conglomerates legit) are regulations. Deregulation led the US to the Great Depression as well as the Great Recession . Get over your self worth AND Trumps plan to cut his own throat , yeah right ,ROTFLMAO !!!!!

  14. OK. So 90 percent of financial advisors are not competent, and “by and large” their supervisor’s are not better. So far the math according to you stinks. So the debate is to regulate the existing condition or not, and to choose between a diverse financial system with existing State and federal oversights, or seek a stronger unified federal oversight regardless of the financial industry’s discomfort. Hmmmm. Sounds like you have a voice whistling into the wind. Instead of making yourself useful by participating in a fix to a problem most say exists. We will see if you up to the job, or if care as little as your current approach suggests.

  15. Lindell A. Lawrence

    Unfortunately for America, the track record of government officials coming out of Goldman Sachs to run the Treasury Department and the National Economic Council – two favorite haunts of the bank’s former bigwigs – mirrors the unsavory track record of the bank itself.

    It’s not that Goldman Sachs people don’t know how to make money or run the most powerful bank or country in the world… it’s a matter of how they do it that should frighten you.

    There’s a slippery track record of Goldman alums who snaked their way around when they held government positions – that’s how the phrase Government Sachs was born.

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