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.