American investors now face a changing and increasingly complex financial marketplace, with new products and technologies in the financial planning sector. This panel addresses risks, opportunities, and consequences of these developments. Hosted by the Center on Finance, Law, and Policy (CFLP). Learn more about the conference here.
Transcript:
GOOD MORNING.
WELCOME TO PANEL ON INVESTOR
PROTECTION.
MY NAME IS ANDREW WU.
ASSISTANT PROFESSOR OF
TECHNOLOGY AND OPERATIONS AND
ASSISTANT PROFESSOR OF FINANCE
AND ROSS SCHOOL OF BUSINESS.
AT ROSS AND ALSO IN
COLLABORATION WITH MULTIPLE
SCHOOLS ACROSS CAMPUS, WE HAVE
LUNGED MULTIPLE FINN TECH
INITIATIVE AIMED AT PUTTING US
AT THE FOREFRONT OF EDUCATION.
ACTION BASED LEARNING PROGRAMS
THAT PLACE STUDENTS DIRECTLY IN
FINN TECH START-UP AND
COLLABORATIVE RESEARCH WITH
LEADING PETITIONER.
ON THE CONSUMER SIDE TECHNOLOGY
HAS REALLY BROUGHT A DAZZLING
AND COMPLEX ARRAY OF NEW
PRODUCTS AND TECHNOLOGIES ON ALL
FRONTS OF A CONSUMER'S FINANCIAL
LIFE.
FROM PAYMENT TO CREDIT AND
LENDING TO INVESTMENT AND TO
FINANCIAL PLANNING AND ADVISORY.
FOR INSTANCE, ROBO ADVISORS THE
PRACTICE OF ALGORITHMICALLY
PROVIDING ADVICE BASED ON THE
CLIENT'S FINANCIAL SITUATION AND
RISK TOLERANCE AND AUTOMATICALLY
EXECUTED THE ADVICE FOR A
FRACTION OF THE FEES CHARGED BY
HUMAN ADVISORS.
THAT HAS BECOME 100
BILLION-DOLLAR INDUSTRY LAST
YEAR.
AND IT'S POISED TO BECOME A
TRILLION DOLLAR INDUSTRY IN THE
NEXT FIVE YEARS.
YOU KNOW AFTER THE CRYPTAL
BUBBLE HAS BURST THERE'S NEW
PRODUCTS.
STABLE CRYPTOCURRENCIES POISED
TO FULLY DIGITIZE A CONSUMER'S
FINANCIAL LIFE.
BUT WITH ALL THAT EXCITEMENT IN
THE LAST COUPLE OF YEARS PEOPLE
SEEM TO HAVE STARTED TO FORGET
THE BASIC CORE PRINCIPLES OF
CONSUMER AND INVESTOR
PROTECTION.
AND BECAUSE ALL THESE PRODUCTS
COME WITH A SLEW OF UNFORESEEN
RISK THAT POTENTIALLY HAS HUGE
IMPLICATIONS FOR BOTH THE
INVESTORS THEMSELVES AND ALSO
THE MARKET.
SO TODAY WE HAVE A DISTINGUISHED
PANEL OF EXPERTS ON CONSUMER
INVESTOR PROTECTION AND WE WILL
EXPLORE THE CURRENT REGULATORY
LANDSCAPE AS WELL AS RECENT
DEVELOPMENTS IN CONSUMER
PROTECTION.
AND HOW NEW TECHNOLOGICAL
INNOVATION EFFECT THE DIRECT
RELATIONSHIP BETWEEN THE
CONSUMERS, THE INVESTORS, THE
REGULATORS AND ALSO THE MARKETS.
SO FOR THIS PANEL INSTEAD OF
INDIVIDUAL PRESENTATIONS, WE'RE
GOING TO GO RIGHT INTO A FREE
FLOW DISCUSSION.
I WILL START BY RAISING SOME
QUESTIONS TO THE PANEL.
WE'LL GO FROM THERE.
AND THEN WE'RE GOING TO OPEN UP
TO THE AUDIENCE FOR Q&;A.
I GUESS IN MY FIRST QUESTION FOR
MANY OF YOU ON THE PANEL, WE
HAVE BEEN SEEING FOR YEARS THAT
THE STANDARD OF CONDUCT FOR
FINANCE PROFESSIONALS IS THE
MOST IMPORTANT STEP AND FOR
POLICY MAKERS COULD TAKE TO
IMPROVE PROTECTIONS FOR THE
AVERAGE RETAIL CONSUMERS AND
INVESTORS.
WHY IS THIS SO IMPORTANT?
I WILL JUMP IN.
I'M BARBARA ROPER.
INVESTOR FOR THE CONSUMER
FEDERATION OF AMERICA.
I HAVE BEEN WORKING ON THIS
ISSUE IN ONE FORM OR ANOTHER
SINCE I JOINED CFA IN 1986.
I WROTE MY FIRST LETTER ON THIS
TOPIC TO FCC IN 1999.
AND I'M SURE WE'RE GOING TO GET
IT SOLVED ANY DAY NOW.
IF YOU THINK ABOUT THE
INVESTMENT MARKETPLACE OUT
THERE.
THERE IS AS YOU SAY AN ENORMOUS.
ONE OF THE THINGS WE DO REALLY
WELL IS INNOVATE.
THERE'S A PRODUCT FOR EVERY NEED
YOU MAY HAVE.
SOMETIMES HUNDREDS OR THOUSANDS
OF PRODUCTS FOR YOU TO CHOOSE
FROM TO PROVIDE CAPITAL GROWTH
OR INCOME OR WHATEVER IT IS YOUR
INVESTMENT GOAL IS.
AND WHAT WE KNOW ABOUT MOST
INVESTORS THEY DON'T HAVE THE
FINANCIAL SOPHISTICATION TO LOOK
AT THOSE AVAILABLE INVESTMENTS
AND DETERMINE WHICH ONES ARE THE
BEST FOR THEM.
AND DURING THAT PERIOD
SINCE -- WHEN I STARTED IT CFA
THERE WAS QUITE A SMALL
PERCENTAGE OF THE POPULATION
THAT INVEST.
IT'S NOW THE AWE FUND OUR
RETIREMENT.
IT'S THE WAY WE FUND OUR
CHILDREN'S CHILD EDUCATION.
THE INVESTOR WHOSE ARE OUT IN
THIS MARKETPLACE ARE FINANCIALLY
UNSOPHISTICATED.
THEY TURN TO FNL FINANCIAL
PROFESSIONAL TO MAKE THE
CHOICES.
IF YOU HAVE $100 OR A FEW
MILLION.
IF YOU WANT ONE TIME ADVICE
ABOUT WHAT TO DO ON ROLLOVER OR
COMPREHENSIVE PLANNING.
IF YOU WANT TO PLAY ASSET FEE OR
RETAINER FEE THERE'S A BUSINESS
MODEL OUT THERE WITH YOU IN
MIND.
BUT MOST OF THE PEOPLE OUT THERE
WHO ARE COMPETING FOR YOU
BUSINESS CALL THEMSELVES
FINANCIAL ADVISORS, MARKET THEIR
SERVICES AS LONG-TERM TRUSTED
ADVICE DEDICATED TO ACTING IN
YOUR BEST INTEREST.
THEY ARE EITHER BROKERS OR
INSURANCE AGENTS REGULATED
EXCLUSIVELY AS SALES PEOPLE WITH
NO OBLIGATION TO RECOMMEND TO
YOU THE INVESTMENTS THAT WOULD
ACTUALLY BE THE BEST OPTION FOR
YOU.
AND EVEN IN THE AREA WHERE
TECHNICALLY WE HAVE A FIDUCIARY
DUTY FOR INVESTMENT ADVISOR
WHOSE ARE OUT THERE WHO ARE
SUPPOSED TO APPARENTLY ACT IN
YOUR BEST INTEREST AT ALL TIMES
CANNOT DISCLOSE OR NEGOTIATE
THAT OBLIGATION AWAY, AS
ENFORCED BY THE FCC ALL THEY
HAVE TO DO IS DISCLOSE TO YOU
THE WAYS IN WHICH THEY ARE NOT
GOING TO ACT IN YOUR BEST
INTEREST AND THEY HAVE SATISFIED
THEIR FIDUCIARY OBLIGATION.
WE HAVE A POPULATION THAT'S
VULNERABLE THAT IS USING THE
MARKET FOR VITALLY IMPORTANT
PURPOSES.
RELYING ON FINANCIAL
PROFESSIONAL WHO AREN'T HELD TO
STANDARD OF CONDUCT EVEN
REMOTELY ADEQUATE TO PROVIDE
ADEQUATE PROTECTION.
CAN I JUMP IN.
I'M STEVE HALL.
WE'RE A GROUP IN EXISTENCE SINCE
AND REALLY FOR MUCH OF OUR EARLY
YEARS OF ADVOCACY WE'RE FOCUSED
ON MAKING SURE THE FINANCIAL
SYSTEM WAS TABLE AND COULD AVOID
ANOTHER DEVASTATING FINANCIAL
CRISIS LIKE THE 2008 NIGHTMARE.
BUT, IN FACT, THIS ISSUE, TO
ECHO A LOT OF BARB WAS SAYING
REALLY IN OUR MINDS TOOK ON SUCH
AN IMMENSE IMPORTANT
GRAVITATIONAL PULL THAT WE GOT
HEAVILY ENGAGED IN THE FIDUCIARY
RULE.
AND I THINK TO RECAPITULATE IT'S
ABOUT PROTESTING INVESTORS IN
THE MOST FUNDAMENTAL SENSE
ACROSS A BROAD RANGE OF PRODUCT
SERVICES AND FINANCIAL
PROFESSIONALS.
BUT WE ALSO SEE IMPORTANCE IN
THIS ENDEAVOR BECAUSE THERE'S A
CONNECTION TO FINANCIAL
STABILITY.
IN OTHER WORDS WHEN LARGE
NUMBERS OF INVESTORS ARE
EXPLOITED, THAT TENDS TO REALLY
GENERATE THE RAW MATERIAL THAT
CAN BE PART AND PARCEL OF A
FINANCIAL CRISIS.
IN 2008, WHAT WAS IT?
IT WAS EXPLOITED PREDATORY
BEHAVIOR AMONG MORTGAGE BROKERS
AND MORTGAGE LENDERS.
AND IT'S IMPORTANT TO SEE THAT
THE VALUE OF INVESTOR PROTECTION
IS CRITICAL IN AND OF ITSELF BUT
IT ALSO HAS A KIND OF NEXUS TO
THE REST OF THE FINANCIAL WORLD
AND A FINANCIAL MARKETPLACE.
AND THE OTHER FOOTNOTE I WANTED
TO ADD.
IN A WAY IT'S SORT OF
DISCOURAGING.
BECAUSE WE HAVE A ENOUGH OF A
CHALLENGE FACING US IN TERMS OF
TRYING TO GET THE FCC TO DO A
MUCH BETTER JOB WHAT IS
CURRENTLY A TERRIBLE RULE, WE
THINK IT'S ALL ALSO IMPORTANT
STILL NOT TO LOSE SIGHT OF THE
FACT THAT IN THE END EVEN A VERY
STRONG STANDARD HAS GOT TO BE
ENFORCEABLE IN A MEANINGFUL WAY.
WE MUSTN'T LOSE SIGHT OF THE
FACT THAT THE CHALLENGES
ASSOCIATED WITH MANDATORY
ARBITRATION, LOSS OF ACCESS TO
THE COURT SYSTEM, WE HAVE TO
KEEP THOSE IN MIND AND FIGHT ON
THAT FRONT AS WELL.
LET ME JUMP IN WITH JUST A
LITTLE BIT OF DATA TO TRY TO
BOLSTER WHAT YOU TWO WERE JUST
SAYING.
CONSUMERS I THINK DO RIGHTFULLY
THINK WHEN SOMEONE SAID THEY ARE
GIVING THEM ADVICE, THAT IT'S
ADVICE.
NOT A SALES PITCH.
SOMETIMES PEOPLE WOULD SAY TO ME
LIKE, WHY DO WE NEED TO REGULATE
ADVISORS.
YOU KNOW WHAT YOU ARE GETTING
WHEN YOU GO TO USED CAR DEALER.
IMAGINE IF THEY MARKETED
THEMSELVES AS TRANSPORTATION
ADVISORS.
COME TO ME TO FIGURE OUT THE
BEST BUS ROUTES.
WE SORT OF -- THAT'S A LAUGHABLE
IDEA.
BUT ESSENTIALLY THERE ARE
FINANCIAL ADVISORS THAT, THAT IS
WHAT THEY ARE BASICALLY DOING.
SO WHAT DOES THAT MEAN?
I DIDN'T INTRODUCE MYSELF.
I'M BETSEY STEVENSON ASSOCIATE
PROFESSOR IN THE DEPARTMENT OF
LABOR IN BOTH CAPACITY GETTING
INVOLVED IN THIS RULE.
AND WHEN I WAS AT CEA JANE DOKKO
AND I PUT TOGETHER A ROBERT TO
TRY TO QUANTIFY WHAT WAS GOING
ON IN THE INDUSTRY.
THE THING THAT REALLY STRUCK ME
IS THAT REALLY A LOWER BOUND OF
ESTIMATE RETIREES END UP WITH 5
TO 10% LESS SAVINGS BECAUSE OF
CONFLICTED ADVICE.
AND I SAY THIS AS A LOWER BOUND
ESTIMATE.
IMPERACLE SCHOLARS WE WANT TO
SHOW CAUSAL EFFECTS.
WE'RE NOT TRYING TO FIGURE OUT
THE EXACT MAGNITUDE OF THE
EFFECT.
WE'RE TRYING TO SHOW ALL THE
PLACES IN I WE CAN SAY FOR SURE.
CONFLICTED ADVICE CAUSES THIS
LOSS.
AND SO WE GET THESE ESTIMATES OF
FIVE TO TEN PERCENT.
WHAT DOES THAT MEAN FOR TYPICAL
PERSON INVESTING OVER A 30-YEAR
PERIOD AND DRAW DOWN THEIR
RETIREMENT ASSETS.
THEY WILL RUN OUT OF ASSETS
ABILITY FIVE YEARS EARLIER.
YOU MENTIONED WHAT DOES THIS
MEAN FOR THE FINANCIAL
STABILITY.
WHAT DOES THIS MEAN FOR OVERALL
FINANCIAL STABILITY OF THE
FEDERAL GOVERNMENT.
WHO WILL PICK UP THE SLACK WHEN
PEOPLE RUN OUT OF RETIREMENT
ASSETS.
WHERE IS THE PRESSURE GOING TO
BE WHEN THE BABY BOOMERS RUN OUT
OF MONEY.
SO THEY ARE NOT JUST TAKING
MONEY FROM THE BABY BOOMERS.
THEY ARE TAKING MONEY FROM ALL
OF US BECAUSE I THINK THERE'S A
ENORMOUS PRESSURE FOR THE
FEDERAL GOVERNMENT TO STEP IN
AND HELP THESE FOLKS OUT WHEN
THEY RUN OUT OF MONEY.
WE ALL HAVE A VESTED INTEREST IN
SOLVING THIS PROBLEM.
HI, MY NAME THE JANE DOKKO.
I WANTED TO INTRODUCE MYSELF AND
I ALSO OFFER YOU KNOW A SOMEWHAT
DIFFERENT PERSPECTIVE.
I'M AN ASSISTANT VICE PRESIDENT
OF THE BANK OF CHICAGO.
MY PARTICIPATION IS ON BEHALF OF
MYSELF AS A CONCERNED CITIZEN AND
NOT ONLY BEHALF OF ANYONE ELSE.
I'M GLAD, BETSEY THAT YOU
REMEMBER THE ESTIMATES.
THEY'VE BEEN BURIED SORT OF DEEP
IN MY MIND.
I'VE KIND OF JUST -- KIND OF
JUST FORGOTTEN OR HAVE SORT OF
BURIED A LOT OF THE WORK THAT WE
DID BECAUSE WHERE WE ARE NOW
WITH YOU KNOW THE REGULATION AND
SORT OF THINKING ABOUT INVESTOR
PROTECTIONS IS VERY DIFFERENT
FROM WHERE WE WERE FIVE YEARS
AGO AND SORT OF WHAT'S HAPPENED
TO YOU KNOW SORT OF THE FATE OF
PROTECTING CONSUMERS AND SAFERS
FROM THE CONFLICTS TAKING SORT
OF DEPRESSIONING TOLL.
I'M GLAD THAT YOU REMEMBER THAT.
I GUESS YOU KNOW THE OTHER
PERSPECTIVE THAT I BRING IS AS
SOMEONE THAT WORKED ON HOUSEHOLD
FINANCIAL DECISION MAKING AND
SORT OF STUDIED HOW PEOPLE MAKE
DECISIONS ON BEHALF OF
THEMSELVES, AND IT'S NOT JUST
VULNERABLE POPULATIONS THAT GETS
SWINDLED INTO BAD INVESTMENTS OR
YOU KNOW COMPLEX ANNUITIES,
WHERE THEY SNEEZE AND THEN THEY
LOSE ALL THEIR MONEY.
I MEAN THESE PROBLEMS EXTEND TO
A BROAD SWATH OF SAVERS AND
RESEARCH SHOWS THAT THERE'S A
LOT OF COMPLEXITY IN FINANCIAL
MARKETS.
AND DREW ALLUDED TO THIS EARLIER
WHEN HE DESCRIBED TECH THAT
LOCKCAL INNOVATION THAT CHANGED
THE LANDSCAPE FOR FINANCIAL
ADVICE.
PART OF THE REASON THE IMPACT ON
SAVERS ARE SO LARGE IS THE
MISTAKES THAT PEOPLE CAN MAKE
AND SORT OF THE SET OF
VULNERABLE PEOPLE IS REALLY
LARGE.
FOR THOSE IN THE AUDIENCE WHO
HAS ABOUT DONE KEPT UP WITH THE
REGULATORY UPDATES.
THERE HAS BEEN A SIGNIFICANT
CHANGE IN THE REGULATORY
LANDSCAPE IN THE INVESTMENT
ADVISORY MARKET.
SO BASICALLY IN 2015 THE
DEPARTMENT OF LABOR PROPOSED A
REALLY SWEEPING RULE ON
FIDUCIARY DUTY.
WHICH BASICALLY SAID THAT AS
LONG AS YOU AS A FINANCIAL
ADVISOR.
AS LONG AS YOU HAVE ANYTHING TO
DO WITH FINANCIAL ADVISORY, OR
RETIREMENT PLANNING, THESE TYPE
OF ACTIVITIES YOU ARE
AUTOMATICALLY CONSIDERED A
FIDUCIARY AND THEREFORE HELD
WITH FIDUCIARY DUTY.
YOUR HELD WITH A STANDARD THAT
YOU NEED TO PUT YOUR CLIENTS
INTEREST STRICTLY ABOVE YOURS.
IT DOESN'T MATTER IF YOU'RE A
BROKER PAID ON COMMISSION OR
INSURANCE AGENT OR ADVISOR.
THIS WOULD HAVE TREMENDOUS
IMPACT ON THE COMMISSION-BASED
BROKERS AND ADVISORS WHO ARE
MOSTLY HAS BEEN REGULATED BY
FINRA AND HELD A LOWER STANDARD.
THIS WOULD IMPACT THE COMPLIANCE
STRUCTURE OF THE ENTIRE
FINANCIAL ADVISORY AS A WHOLE.
THE FINANCIAL INDUSTRY REALLY
FOUGHT TOOTH AND NAIL AND AGAIN
THIS AND AFTER REALLY PROTRACTED
SERIES OF LEGAL BATTLES AND THE
RULE WAS ESSENTIALLY VACATE BAD
I THE FIFTH CIRCUIT COURT.
LAST YEAR AND WAS EXPECTED TO BE
REPLACED BY THE FCC'S REGULATION
WHAT'S CALLED THE REGULATION
BEST INTEREST.
WHICH IS ESSENTIALLY A WEAKER
VERSION OF THIS.
AND THAT'S EXPECTED TO BE
RELEASED BY THE FALL.
SEVERAL OF OUR PANELEST ARE
ACTUALLY INSTRUMENTAL IN
CREATING THIS FIDUCIARY RULE.
I WOULD LIKE TO HEAR SOME OF
YOUR INCITES ON THE CREATION OF
THIS RULE AND ITS RATIONALE.
AND ITS RELATION FOR THE -- WITH
CONSUMER PROTECTION
AND -- ESPECIALLY IN THE CURRENT
AGE.
LET ME START AND THEN I WILL
TURN IT TO YOU GUYS.
BUT FIRST OF ALL I'M JUST GOING
TO DISAGREE.
THAT IT WAS A SWEEPING RULE.
I'VE WATCHED WHAT WAS HAPPENING
IN OTHER COUNTRIES UK AND
NETHERLANDS.
THEY ARE SWEEPING WOULD BE
BANNING COMMISSIONS AND WHAT
THIS WAS TRYING TO DO.
YOU CAN TAKE YOUR COMMISSION BUT
YOU STILL HAVE YOUR CLIENT'S
INTEREST FIRST.
YOU NEED TO MEET A BEST INTEREST
STANDARD.
TO REALLY UNDERSTAND WHERE THIS
WAS COMING FROM YOU HAVE TO
UNDERSTAND HOW THE RETIREMENT
LANDSCAPE STARTED CHANGING.
SO IT USED TO BE MOST PEOPLE GOT
A DEFINED PLAN.
WHICH MEANT THEIR EMPLOYER
OFFERED THEM SOME KIND OF
RETIREMENT PLAN AND IT
ESSENTIALLY A PENSION THAT WOULD
PAY THEM SOME FIXED AMOUNT.
THEY DIDN'T HAVE TO WORRY ABOUT
THE RETURNS.
THAT WAS THEIR EMPLOYER'S JOB TO
WORRY ABOUT THE RETURNS.
BECAUSE THEY WERE TOLD WAS THE
BENEFIT THEY WERE GETTING.
IN THE STARTING IN THE 1970'S.
WE STARTED HAVING DEFINED
CONTRIBUTION PLANS 401(K)S AND
THEY ARE STILL TIED TO PEOPLE'S
EMPLOYERS.
AND SO THAT HAS BEEN THE BIG
SHIFT IS TO 401(K)S THAT GET
ROLLED OVER INTO IRA'S.
WHEN YOU ASK YOU KNOW WHERE THIS
CONFLICTED ADVICE COMING FROM.
MY FAVORITE STUDY WAS A GUY WHO
HAD HIS MONEY A SECRET SHOPPER
WHO HAD HIS MONEY IN THE FEDERAL
GOVERNMENT'S THRIFT SAVING PLAN.
THE LOWEST FEE PLAN YOU COULD
POSSIBLY HAVE.
THE GUY CALLS NINE ADVISORS AND
SAID SHOULD I ROLL IT INTO IRA
OR LEAVE IT WHERE IT IS.
EIGHT OF THE NINE SAY YOU NEED
TO ROLL IT.
SO THAT -- THAT'S THE -- THAT IS
THE CHANGING LANDSCAPE.
I THINK DOL -- IF YOU WANT TO
KNOW WHY IT'S OPPOSED SO MUCH BY
INDUSTRY IT COMES BACK TO THAT 5
TO 10% THEY TAKE OUT OF
RETIREMENT SAVERS.
WE ESTIMATED 17 BILLION A YEAR.
PEOPLE ARE GOING TO FIGHT LIKE
HELL OVER 17 BILLION A YEAR.
FINANCIAL INDUSTRY DOESN'T WANT
TO GIVE THAT BACK TO RETIREES.
IT'S A TOUGH REGULATORY NOT TO
CRACK.
BUT DOL DIDN'T GO SWEEPING.
WHAT THEY DID WAS I THOUGHT VERY
SURGICALLY WENT IN AND SAID
HERE'S WHAT WE NEED TO DO TO
GIVE PEOPLE A MINIMUM SET OF
PROTECTIONS THAT WHEN THEY ARE
SEEKING ADVICE THEY KNOW AT
LEAST THEIR BEST INTEREST ARE
GOING TO BE THE FRONT OF
PEOPLE'S MINDS.
JUST TO JUMP IN REALLY
QUICKLY BEFORE BARB, I KNOW YOU
HAVE A LOT OF INTERESTING THINGS
TO SAY ON THIS TOPIC.
I WANT TO PUSH BACK ON THE IDEA
IT WAS SWEEPING.
IT'S NOT SWEEPING.
BECAUSE IT'S IT WAS JUST
TARGETED AT RETIREMENT PRODUCTS.
LOTS OF PEOPLE GET FINANCIAL
ADVICE FOR LOTS OF THINGS THAT
ARE NOT RELATED TO RETIREMENT.
THE RULE DIDN'T TOUCH THAT.
I JUST LIKE TO SAY I THINK
WHAT THE INDUSTRY FOUND SO
THREATENING ABOUT THE DOL RULES
NOT THE WORDS BEST INTEREST BUT
THE DOL MEANT THE WORDS "BEST
INTEREST."
YOU KNOW, WHEN
THEY -- SERIOUSLY.
IT SOUNDS LIKE A JOKE.
BUT IT'S ACTUALLY TRUE.
FINRA DESCRIBES THEIR
SUITABILITY STANDARD AS
REQUIRING BROKERS TO MAKE
RECOMMENDATION CONSISTENT WITH
THE BEST INTEREST OF THEIR
CUSTOMER AND PREVENTING THEM
FROM PLACING THEIR OWN INTEREST
AHEAD OF THE CUSTOMER.
THAT'S HOW THE FCC DESCRIBES THE
FIDUCIARY DUTY.
THAT'S HOW DOL DESCRIBED ITS
FIDUCIARY STANDARD.
AND SO THE WORDS ARE VIRTUALLY
INDISTINGUISHABLE.
WHEN DOL SAID "BEST INTEREST"
THEY MEANT YOU HAVE TO LOOK WHAT
YOU HAVE AVAILABLE THERE AND YOU
HAVE TO DECIDE WHICH ONE OR ONES
YOU THINK ARE THE BEST MATCH FOR
THE INVESTOR.
AND I REMEMBER WHEN I READ -- I
THINK COMMENT FROM FINRA -- THEY
SEEM TO THINK BEST INTEREST
MEANS BEST INTEREST.
YES.
THAT'S BECAUSE OF THE INVESTOR.
THE SECOND PIECE OF WHAT DOL DID
THAT WAS SO IMPORTANT THEY SAID
YES, YOU CAN HAVE YOUR -- YOU
CAN GET YOUR COMMISSIONS.
YOU CAN GET TRANSACTION-BASED
PAYMENTS.
BUT THIS BUSINESS OF SALES
QUOTAS AND SALES CONTEST AND
GETTING PAID 10 TIMES AS MUCH TO
SELL THIS PRODUCT AS THAT
PRODUCT.
YOU GOT TO PUT SOME SERIOUS
POLICIES AND PROCEDURES IN PLACE
TO REIN IN THOSE CONFLICTS.
YOU STARTED TO SEE BEFORE THE
RULES DEMISED REAL CHANGES.
WE WERE AT THE BRINK OF A
REVOLUTION.
IN THE WAY SERVICES WERE GOING
TO BE OFFERED TO THE INVESTING
PUBLIC.
WE HAD SOMETHING CALLED CLEAN
SHARES.
WHICH ALLOWED FOR A TRANSACTION
BASED PURCHASE OF MUTUAL FUNDS
THAT -- WHERE THE FEES SET
BETWEEN THE BROKER AND THE
ADVISOR, YOU KNOW AND THE
CUSTOMER INSTEAD OF BY THE
MUTUAL FUND DECIDING HOW MUCH
THE BROKER WOULD GET PAID TO
SELL ME A MUTUAL FUND.
YOU REALLY STARTED TO SEE SOME
INNOVATIVE CHANGES TAKING PLACE
TO RING OUT SOME OF THESE EXCESS
SIDE CONFLICTS IN THE BROKER
DEALER BUSINESS MODEL.
DISAPPEARED IN A FLASH WHEN THE
RULE WAS OVERTURNED.
AND THE SAME GROUPS THAT WENT
INTO COURT TO SUE -- THE STOP
THE DOL RULE ARE CHOMPING AT THE
BIRTH TO PUSH FCC RULE THROUGH
WHICH USES VIRTUALLY IDENTICAL
WORDS BEST INTEREST CAN'T PLACE
THE BROKER'S INTEREST AHEAD OF
INVESTORS INTEREST BUT DOESN'T
MEAN THAT.
BEST INTEREST CERTAINLY DOESN'T
MEAN YOU HAVE TO RECOMMEND THE
BEST OF THE AVAILABLE PRODUCT.
THE PROHIBITION OF PLACING THE
BROKER'S INTEREST AHEAD OF THE
CUSTOMER DOESN'T MAKE IT INTO
THE SAFE HARBOR.
IT'S THE CHIEF THING THE FCC
USES TO SELL THEIR RULE.
AND IT DOESN'T MAKE INTO THE
SAFE HARBOR.
EVERYTHING IS SO VAGUE AND
UNDEFINED THAT WE I HALTS NO
CONCRETE MEANING AND WE'VE SEEN
HOW THAT ENFORCE SIMILAR CONCEPT
IN THE ADVISORS CONTEXT AND
THERE'S NO THERE THERE.
THAT'S WHY THE RULES AFFLICT ON
THE FCC RULE.
THERE'S AN INTERESTING LEGAL
PERSPECTIVE THAT COMES TO BARE
HERE.
BOTH THE RULE AND THE FCC RULE.
WITH RESPECT TO DOL, THEY WERE
DEALING AGAINST THE BACKDROP OF
ARISA WHICH IS FAMOUSLY A STRONG
STATUE WHICH RECOGNIZES THE
FUNDAMENTAL IMPORTANCE OF CON
FIRING SPECIAL PROTECTION ON
RETIREMENT ASSETS, AND MAKE IT
CLEAR THERE'S ABUNDANT AUTHORITY
TO REQUIRE A BROAD FIDUCIARY
STANDARD.
ONE THING THEY WERE FACING AND
ONE REASON WHY IT WASN'T AS
SWEEPING AS IT COULD HAVE BEEN.
NUMBER ONE A YEAR AFTER ARISA
WAS PASSED IN '74, '75 COMES
ALONG THERE'S INDUSTRY INFLUENCE
THAT COMES TO BARE AND THEY PUT
IN PLACE A RULE WHICH IS
TERRIBLE.
IT HAS A COMPLICATED ARRAY OF
PRECONDITIONS BEFORE THE
FIDUCIARY STATUS ACTUALLY KICKS
IN.
IT SAYS IN EFFECT THE ADVICE HAS
TO BE RENDERED ON A REGULAR
BASIS.
IT HAS TO BE THE PRIMARY BASIS.
REALLY FOR 40 YEARS, WHAT
HAPPENED WAS INDUSTRIES
PRACTICES, AND EXPECTATIONS
BECOME ENTRENCHED.
THE DOL HAD TO FIGHT AGAINST
THAT.
THE SECOND THING THEY WERE UP
AGAINST.
AND I THINK THEY REALLY DESERVE
CREDIT IN PARTICULAR IN THE WAY
THEY HANDLED THIS.
THEY WANTED TO CONFER GREATER
PROTECTION FOR IRA OWNERS.
BECAUSE OF THE WAY ARISAS
STRUCTURED IN TITLE 2 WHICH
DEALT IRA ACCOUNTS THEY DIDN'T
HAVE THE SAME AUTHORITY TO ACT.
THEY TOOK SOME VERY CREATIVE
STEPS I THINK BY ALL ACCOUNTS
TOO CREATIVE ACCORDING TO
INDUSTRY AND THREE-JUDGE PANEL
OF THE FIFTH CIRCUIT TO REALLY
TRY TO FIX THAT GAP.
AND IT WAS AN ADMIRAL EFFORT.
I THINK WE CAN TALK LATER ABOUT
THE LAWSUITS.
A LOT OF INTERESTING
OBSERVATIONS THERE.
ON THE FCC FRONT, QUICKLY.
IT'S DISAPPOINTED BECAUSE IN
DODD FRANK CONGRESS GAVE THE FCC
VERY CLEAR AUTHORITY TO
ESTABLISH A BROAD STRONG AND
UNIFORM FIDUCIARY STANDARD FOR
INVESTMENT ADVISORS AND BROKER
DEALER REPS AND ONE OF THE
REASONS WHY I THINK FROM OUR
PERSPECTIVE.
THEY LASHED ON TO THE WEAKEST
STATUTORY AUTHORITY ON WHICH TO
PREDICATE THEIR RULE.
SO FOLLOWING UP ON THAT,
ABOUT FCC RULE.
YOU KNOW JUST FROM BOTH LEGAL
PERSPECTIVE AND ALSO FROM AN
ECONOMIC PERSPECTIVE.
DO YOU THIS RULE COULD BE
IMPROVED?
YOU KNOW, FROM ON THESE
PERSPECTIVES AND ALSO IF YOU
WERE CHIEF ECONOMIST AT THE FCC
WHAT WOULD YOU DO TO MAKE THIS
RULE BETTER IN TERMS OF INVESTOR
PROTECTION?
YEAH.
TO STEVE'S POINT WE
FUNDAMENTALLY DISAGREE WITH THE
APPROACH THE FCC TOOK IN THE
LEGAL AUTHORITY THEY USED.
BUT WHAT WE INSTEAD OF FIGHTING
THAT FIGHT, ALTHOUGH I THINK
THAT'S MAKES THEM VULNERABLE IN
COURT.
INSTEAD OF FIGHTING THE FIGHT WE
TRIED TO ENGAGE CONSTRUCTIVELY.
YOU WANT TO RAISE THE STANDARD
OF CONDUCT OVER THE SUITABILITY
STANDARD.
YOU SAY YOU WANT TO PREVENT
BROKERS FROM PLACING THEIR
INTEREST AHEAD OF THEIR
CUSTOMERS INTEREST.
HERE ARE THE CHANGES YOU WOULD
NEED TO BE MAKE IN YOUR RULE AN
IMPORTANTLY YOUR TERMS OF THE
RECALL TO ACHIEVE THAT.
THE FIRST ONE IS TO YOU DON'T
NECESSARILY HAVE TO CHANGE THE
LANGUAGE AROUND THE BEST
INTEREST STANDARD.
BUT THE INTERPRETATION OF THAT
STANDARD NEEDS TO MAKE CLEAR
THAT IT -- WHEN THEY SAY YOU
HAVE TO ACT IN THE BEST INTEREST
OF CUSTOMERS IT MEANS YOU HAVE
TO RECOMMEND THE INVESTMENTS YOU
REASONABLY BELIEVE AFTER A
PRUDENT PROCESS REPRESENT THE
BEST OF THE REASONABLY AVAILABLE
INVESTMENTS THE BEST MATCH FOR
YOUR INVESTOR.
IT SHOULD BE -- IF 1,000 MUTUAL
FUNDS SATISFY SUITABILITY BEST
INTEREST SHOULD BE SATISFIED BY
I DON'T KNOW TEN OR 20.
IT'S NEVER GOING TO BE JUST ONE
PERFECT INVESTMENT.
BUT IT OUGHT TO BE A NARROWING
DOWN OF THE INVESTMENTS.
THE SECOND IS IF YOU WANT TO
PREVENT BROKERS FROM PLACING
THEIR INTEREST AHEAD OF THE
CUSTOMERS LET'S GET THAT INTO
THE OPERATIONAL PROVISIONS OF
THE RULE THAT FULLY SATISFIED
COMPLIANCE.
AND THE WAY TO DO THAT IS TO
TAKE WHAT'S ALREADY THE BEST
PROVISION IN THE RULE.
ONE OF THE THINGS THAT IT DOES.
IT SAYS BROKERS HAVE TO HAVE
POLICIES AND PROCEDURES IN PLACE
THAT ARE REASONABLY DESIGNED TO
MITIGATE FINANCIAL CONFLICTS OF
INTEREST.
REASON POLITICAL ZINED TO DO
WHAT.
IT DOESN'T SAY.
REASONABLY DESIGNED TO PUTTING
THE INTEREST OF THE ASSOCIATED
PERSON AHEAD OF THE CUSTOMERS
WOULD BE A REALLY NICE WAY TO
INCORPORATE THAT CONCEPT INTO
THE OPERATIONAL PROVISIONS OF
THE RULE AND TO PUT SOME REAL
MEAT INTO THE MITIGATION
REQUIREMENT.
THEN YOU MIGHT SEE SOME OF THESE
THINGS LIKE THE SALES QUOTAS FOR
THE SAIL OF PROPRIETARY PRODUCTS
OR THE CONTESTS TO ENCOURAGE IF
SALE OR REVENUE SHARING
PAYMENTS.
GETTING PAID MORE TO PUSH THE
PRODUCTS THAT PAY THE FIRM MORE.
WHATEVER.
YOU MAY SEE SOME OF THOSE
CONFLICTS ACTUALLY REINED IN.
INDUSTRY THINKS THEY WILL BE
ABLE TO PAPER OVER THOSE KIND OF
CONFLICTS WITHOUT HAVING TO MAKE
MEANINGFUL CHANGE.
THEN THE THIRD ONE WHICH IS
NECESSARY ACTUALLY TO ENSURE
THAT THIS RULE DOESN'T WEAKEN
EXISTING PROTECTIONS FOR
INVESTORS.
IS THAT BROKERS WHO ARE AN
ONGOING DUTY OF TRUST AND CO
COYFY -- CONFIDENCE NEED TO HAVE
ONGOING DUTY JUST AS COURT FOUND
THEY HAVE UNDER THE STATE COMMON
LAW FIDUCIARY STANDARDS.
BY SAYING THAT BROKER
AUTOMATICALLY ABSOLUTELY AND
EVERY CIRCUMSTANCE HAVE NO
ONGOING DUTY AT THE END OF A
TRANSACTION, THIS RULE ACTUALLY
WEAKENS ONE OF THE FUNDAMENTAL
PROTECTION THAT INVESTORS NOW
GET.
YEAH.
I AGREE COMPLETELY WITH BARB OO
ANALYSIS.
I THINK HAND IN HAND WITH THAT,
THAT THIS PROPOSED RULE RELIES
MUCH TOO MUCH ON DISCLOSURE.
THIS IS AUDIENCE IS VERY SO F
SOPHISTICATED.
IT'S ESPECIALLY TRUE AND THIS
GOES BACK TO THEME WE TALKED
ABOUT AT THE BEGINNING.
YOU KNOW, FINANCIAL ADVICE
TECHNICAL.
IT'S COMPLICATED.
IT'S ALMOST TO EXPECT DISCLOSURE
TO SERVE THE BEST INTEREST OF AN
INVESTOR WHO NEEDS ADVICE IS
LIKE ASKING A PATIENT, RIGHT, TO
BASICALLY TO EDUCATE THEMSELVES
AND THEN MAKE THE DECISIONS
ABOUT WHAT IT IS THAT THEY
SHOULD DO TO LOOK AFTER THEIR
HEALTH.
THE ASYMMETRY THERE IS JUST
ASTONISHING AND PEOPLE DON'T
NECESSARILY THINK OF IT THAT WAY
IN FINANCE BUT IT'S TRUE.
AND THEN ON A YOU KNOW, THERE'S
A WHOLE CLUSTER OF ISSUES AROUND
DISCLOSURE.
IT'S MAINLY EXCESSIVE RELIANCE
ON DISCLOSURE AND SO HAPPENS
DISCLOSURE TESTED THE TESTING IT
HAS BEEN DONE BY INDEPENDENT
ORGANIZATIONS CLEARLY INDICATES
THAT THE DISCLOSURE REGIME IS
WOEFULLY ADEQUATE.
THE FCC DIDN'T DO HOMEWORK
BEFORE THEY PUT OUT THE
PROPOSAL.
IT NEEDS AN ENORMOUS AMOUNT OF
WORK.
IF I COULD PICK UP ON THE
POINT ABOUT DISCLOSURE.
I AGREE WITH YOUR
CHARACTERIZATION OF THE PROBLEMS
WITH DISCLOSURE.
AND I MEAN AS ECONOMIST THE IDEA
YOU WOULD TRY TO ADDRESS
FOUNDATIONAL PROBLEMS WITH
INCENTIVE BY USING FINE PRINT IS
SO BIZARRE TO ME.
AND IN PART IT'S BECAUSE YOU
KNOW THERE'S ALL THIS RESEARCH
THAT SHOWS THAT YOU KNOW
DISCLOSURE OFTEN HAVE UNINTENDED
CONSEQUENCES IF BROKERS
DISCLOSURES THAT THEY ARE
CONFLICTED, YOU KNOW, THAT,
SOMETIMES LEADS THE PEOPLE
RECEIVING THE ADVICE TO TRUST
THEM MORE, NOT LESS.
I MEAN, THERE'S BEEN SORT OF
INDEPENDENT STUDIES OF
DISCLOSURE ON HOW SORT OF LIKE A
PSYCHOLOGICAL LEVEL PEOPLE READ,
HOW MUCH TIME D HEY THEY SPEND
READING THE DOCUMENT.
WHAT INFORMATION DO THEY RETAIN.
VERSES NOT RETAIN.
AND NONE OF THAT IS LIKE
TERRIBLY OPTIMISTIC.
BUT IT WILL CHANGE YOU KNOW
INVESTORS BEHAVIOR.
THAT'S REALLY JUST WHAT IS SO
PROBLEMATIC ABOUT THE DISCLOSURE
REGIME.
THEY AIM TO SOLVE THE PROBLEM BY
CHANGING YOU KNOW THE
INFORMATION THAT INVESTORS GET
AND CHANGING INVESTORS MAYOR
WHEN WE HAVE A LOT OF EVIDENCE,
YOU KNOW BETSEY CITED EARLIER.
THE PROBLEMS ARE NOT AMONG
PEOPLE WHO ARE TRYING TO SAVE
AND WORK TOWARD A SECURER
RETIREMENT.
IT'S ON THE OTHER SIDE.
SO LET ME JUST ADD A LITTLE
BIT TO WHAT JANE WAS SAYING
ABOUT DISCLOSURE.
ALTHOUGH WE'RE ALL IN VEHEMENT
AGREEMENT HERE.
BUT I THINK I THINK MY NATURAL
INCLINATION HAD BEEN FOR FULL
DISCLOSURE.
TURNS OUT THAT'S WRONG.
WHEN WE WERE LOOKING AT THE DOL
RULE, WE SPENT A LOT OF TIME
THINKING ABOUT DISCLOSURE.
WHAT WOULD BE A DISCLOSURE
REGIME THAT WOULD WORK?
I BECOME CONVINCED THAT DISCROW
SHER -- DISCLOSURE WILL NEVER
WORK.
AND BAD DISCLOSURE WILL REALLY,
REALLY HURT.
HOW DOES IT HURT?
STUDIES SHOW THAT PEOPLE HAVE A
LITTLE BIT OF MORAL COMPASS.
THAT MORAL COMPASS PREVENTS THEM
FROM CHEATING PEOPLE COMPLETELY.
BUT WHEN WE GIVE THEM DISCLOSURE
THEIR MORAL COMPASS GETS WORSE
BECAUSE THEY THINK I DISCLOSED.
NOW THEY MORAL COMPASS SAID
DON'T CHEAT THE OLD GUY.
YOU TOLD THE OLD GUY WHAT TO
EXPECT.
THE PROBLEM IS THE BROKER
DEALERS THEMSELVES ARE LESS
CONSTRAINED BY THEIR OWN MORAL
COMPASS.
THEN ON THE FLIP SIDE THE
CONSUMERS WHO ARE GETTING IT ARE
THINKING, AS JANE MENTIONED, OH,
WELL AT LEAST HE TOLD ME.
MAYBE I CAN TRUST HIM MORE.
I JUST WANTED TO CIRCLE BACK TO
THAT, THAT RETIREMENT FOR A LOT
OF PEOPLE IS REALLY STRESSFUL.
I'M PRETTY SOPHISTICATED.
AND I STILL DON'T LIKE TO THINK
ABOUT MY RETIREMENT PLANNING.
AND WHAT PEOPLE WANT IS SOMEONE
THAT THEY CAN TRUST.
THAT WILL GIVE THEM ADVICE THAT
WILL TELL THEM WHAT TO DO SO
THEY CAN STOP THINKING ABOUT
THIS HARD PROBLEM.
THAT TRUST IS A REALLY IMPORTANT
PART OF THE RELATIONSHIP.
AND YOU CAN'T HAVE IT IF THE
PERSON DOESN'T HAVE YOUR BEST
INTEREST AT HEART.
YOU SHOULD NOT TRUST.
AND I THINK THE ONLY DISCLOSURE
I COULD GET MIND THE VERY
BEGINNING LOOKING YOU IN EYE SAY
DO NOT TRUST ME.
NOTHING SAY IS TRUE.
JUST FOLLOW UP ON THE POINT
OF THINKING LIKE AN ECONOMIST.
ECONOMICALLY STUDYING UNDERSTAND
THE NATURE OF THE EXTENT OF SAD
RICERY CONFLICT OF INTEREST.
AND THAT CULMINATED IN AT THE
WHITE HOUSE COUNSEL OF ECONOMIC
ADVISORS REPORT THAT BASICALLY
SAID, WELL THE COST THE
INVESTORS UP TO 17 BILLION A
YEAR.
FCC RECENTLY PUT OUT A SERIES OF
ECONOMIC ANALYSIS IN SUPPORT OF
THE REC-B-I.
IN PARTICULAR GIVEN THERE'S 11
ECONOMIST ON BIPARTISAN BASIS
COME OUT AND WROTE A LETTER THAT
POINTED OUT A SERIES OF FLAWS
WITH THAT ECONOMIC ANALYSIS.
WONDERING WHAT YOUR THOUGHTS ARE
ON THAT.
IT COULD BE IMPROVED.
ALL ECONOMICS ANALYSIS CAN BE
IMPROVED.
THAT'S ALWAYS A GIVEN.
I SPENT TIME READING THROUGH
THEIR ANALYSIS.
I WAS HESITATE TO CALL IT AN
ANALYSIS.
AND BECAUSE THE BASIC STRUCTURE
OF IT WAS LET'S DENY THE PROBLEM
EXISTS, AND THEN CONCLUDE THAT
THE RULE HAS MINIMAL IMPACTS
BECAUSE THERE'S NO PROBLEM.
I'M SORRY IF GLOSSING OVER
NUANCES AND COMPLEXITIES.
THAT WAS SORT OF MY TAKE AWAY
FROM IT.
AND THEN YOU KNOW I STARTED TO
THINK, WELL, WHY WOULD A FEDERAL
AGENCY THAT IS YOU KNOW SORT OF
BOUND BY GUIDELINES AND
REGULATIONS TO PUT FORWARD
BENEFIT COST ANALYSIS WHEN THEY
PATROL MULLGATE NEW REGULATIONS.
THAT CONSIDERS THE SOCIETAL
BENEFIT AND HARMS OF REGULATION.
THE POLITICAL ECONOMY CHALLENGES
YOU KNOW WITHIN THE FCC.
WHEREBY FACTUAL ANALYSIS
COULDN'T INFORM THEIR POLICY
DELIBERATIONS.
THEN I JUST GOT DEPRESSED.
THAT WAS MY TAKE AWAY OF THEIR
ECONOMIC ANALYSIS.
I WILL SPARE YOU THAT.
THIS LETTER THAT ANDREW REFERRED
TO.
DATING BACK TO 1982 SUBMITTED A
LETTER TO AGENCY SAYING YOU
HAVEN'T DEFINED THE REGULATORY
PROBLEM THAT YOU'RE TRYING TO
SOLVE.
AND HERE'S ARE SOME ISSUES YOU
HAVEN'T CONSIDERED.
LIKE THE IMPACT OF CONFLICT OF
INTEREST ON ADVICE.
FOR EXAMPLE, YOU HAVEN'T
CONSIDERED THE AVAILABLE
ECONOMIC EVIDENCE.
I MEAN JANE IS RIGHT.
TO CALL THIS AN ECONOMIC
ANALYSIS APPLIES THAT THERE'S
ANALYSIS.
AND THERE'S NOT.
I THINK WHEN I LOOK FOR THE
EXPLANATION OF WHY IT'S SO
LACKING, I THINK IT'S BECAUSE
THE FCC IS FUND-RAISER AFRAID OF
BEING SUED BY SIFMA AND NOT THE
TRADE ASSOCIATION FOR BROKER
DEALER FIRMS AND NOT AT ALL
AFRAID OF BEING SUED BY CFA.
AND SO IF THEY WERE WRITING A
RULE THAT THEY THOUGHT THE
INDUSTRY WOULD CHALLENGE, THEY
WOULD HAVE HAD TO BE FAR MORE
RIGOROUS.
BUT I THINK THAT ARE COMPLACENT
IN THINKING THAT AS LONG AS THE
BROKERS ARE HAPPY WITH THE RULE
AND BELIEVE ME THEY ARE HAPPY,
THEY DON'T HAVE ANY LEGAL RISK.
I DON'T THINK THEY'VE ADEQUATELY
WEIGHED THE DEGREE BY THE
ADVISORS ARE UNHAPPY WITH THE
RULE.
THERE'S STILL EXPOSURE THERE.
IT'S SORT OF A REALITY OF THE
SYSTEM IS THAT FOR A GROUP LIKE
OURS TO TRY TO GET STANDING TO
SUE TO CHALLENGE A RULE IS
EXTRAORDINARILY DIFFICULT FOR
THE INDUSTRY TO CHALLENGE A RULE
THEY DON'T LIKE IS COSTLY BUT
MUCH EASIER AND THAT'S WHAT WENT
INTO THAT CALCULATION.
YEAH.
ONCE AGAIN TO BRING A LITTLE BIT
OF THE MORE LEGAL PERSPECTIVE.
EVEN TO ISSUE OF ECONOMIC
ANALYSIS.
I LOVE THE WAY JANE PUT IT.
IT'S REALLY SPOT ON.
AND IF YOU LOOK AT HER POINTS
AND THE OTHER POINTS ABOUT THE
SHORTCOMINGS, THEY DON'T PASS
MUSTER UNDER ANY OF THE LEGAL
TEST THAT GOVERN WHAT AN AGENCY
HAS TO DO TO JUSTIFY ITS RULES
ON ECONOMIC GROUNDS.
AND IN THE -- ONE OF THE BEDROCK
PRINCIPLES OF ADMINISTRATIVE LAW
AN AGENCY HAS TO CONSIDER ALL OF
THE RELEVANT FACTORS.
WE'RE STEPPING BEYOND ECONOMIC
ANALYSIS.
WHAT'S THE RELEVANT FACTOR.
THERE'S A PROBLEM HERE.
AND IT'S HUGE.
AND THEY JUST YOU KNOW GLOSSED
OVER THAT SO RIGHT THERE YOU'VE
GOT A LEGAL ISSUE THAT'S SORT OF
CONNECTED TO THE SO-CALL
ECONOMIC ANALYSIS.
EVEN IF YOU DRILL DOWN MORE
TECHNICAL LEVEL THE SECURITIES
LAW ARE EFFECT.
THEY DON'T REQUIRE THE FCC TO
CONDUCT AN DETAILED COST-BENEFIT
ANALYSIS TO QUANTIFY AND MATCH
UP AND BALANCE THEM.
THE STATUTE DO REQUIRE THE FCC
TO DO WHAT WE CAN ECCF ANALYSIS.
TO CONSIDER THE IMPACT OF THE
RULE ON EFFICIENCY, COMPETITION,
CAPITAL FORMATION.
AND EVEN UNDER THAT CLEAR-CUT
STANDARD, THE AGENCY DID A
DISMAL JOB AND THE ONE THAT
STANDS O OUT.
AND WE TALKED ABOUT THIS AT SOME
POINT OR ANOTHER.
THEIR COMPETITION ANALYSIS.
WHAT'S GOING ON WITH THIS RULE.
THERE ARE DESPERATELY PROTECTING
AND PRESERVING TWO DIFFERENT
STANDARDS FOR TWO GROUPS OF THE
ADVISORY INDUSTRY THE BROKER
DEALERS AND THE INVESTMENT
ADVISOR.
IT'S NOT A COHERENT COMPETITIVE
OR LEVEL PLAYING FIELD.
IT JUST FLIES IN THE FACE OF
WHAT MAKES COMPETITIVE SENSE.
FINALLY, YOU KNOW LITTLE KNOWN
FACT IS THAT IN THE VERY SECTION
THAT DETAILING THE FCC'S
OBLIGATION TO DO THIS KIND OF
CONSIDERATION OF ECONOMIC
FACTORS IT SAID CRYSTAL CLEAR
FIRST AND ABOVE ALL ELSE IN
ESSENCE YOU HAVE TO CONSIDER THE
PUBLIC INTEREST.
AND SO NO MATTER WHAT THE FCC
MIGHT TRY TO DO,EN IF IT WERE TO
SORT OF DOT MORE I'S AND TRY TO
MAKE THIS THING PASS MUSTER
UNDER AN ECONOMIC TEST, WHAT
THEY CAN CONTINUE TO GLOSS OVER
IS THE MOUNTAIN OF EVIDENCE THAT
THERE'S IMMENSE HARM BEING DONE
AND UNTIL THEY GET TO THAT POINT
THEY WILL NEVER BE ABLE TO HAVE
THE FOUNDATION FOR A RULE.
I THINK THE ONLY THING I WANT
TO ADD TAKE IT BACK TO WHAT
DID -- WHAT DID WE DO AT CEA.
THAT WAS A REPORT THAT WASN'T
DESIGNED TO BE A COST BENEFIT
ANALYSIS OF A RULE AT ALL.
IT WAS DESIGNED TO REALLY LAYOUT
THE PROBLEM AS THE RESEARCH
COMMUNITY INDEPENDENT
RESEARCHERS HAD STARTED TO
IDENTIFY.
THERE'S A NUMBER OF PAPERS OUT
THAT HAVE FOUND PROBLEMS WITH
CONFLICTS.
AND WHAT WE WERE DOING WAS
PULLING THEM ALL TOGETHER TO BE
ABLE TO SAY, LOOK, THERE IS A
COHERENT PROBLEM HERE.
WHERE DOES IT COME FROM?
WE'VE TALKED ABOUT CONFLICTS.
BUT WE HAVEN'T REALLY PUT NAILED
DOWN WHAT DO WE MEAN.
WE SEE EXCESSIVE CHURNING.
RESEARCH DOCUMENTS THAT BECAUSE
THESE BROKER DEALERS GET PAID
FOR CHURNING, THAT PEOPLE ARE
EXCESSIVELY CHURNED.
WHAT IS EXCESSIVE CHURNING MEAN.
EXCESSIVE FEES FOR THEM AND
THAT'S ONE OF THE THINGS THAT
EATS DOWN PEOPLE'S RETIREMENT
SAVINGS.
THE OTHER THING WE SEE PEOPLE
STEERED INTO OVERLY C
CON -- COMPLEX HARDER TO SEE THE
COST ADVISOR IS GETTING WHEN
IT'S COMPLEX PRODUCT.
YOU CAN LOOK EASILY AT A PASSIVE
INDEX MUTUAL FUND AND SEE WHAT
THE FEES ARE.
IT'S MUCH MORE HARDER TO TEASE
OUT WHAT YOUR PAYING WHEN IT'S A
COMPLEX PRODUCT.
YOU SEE PEOPLE STEERED INTO
INAPPROPRIATE PRODUCTS FOR THEM.
BECAUSE OF THE FACT THAT IT'S
GOING TO GENERATE FEES FOR THE
ADVISOR.
THE COST TO THE PERSON IS NOT
JUST THE FEES.
BUT THE FACT THAT THE PRODUCT IS
INAPPROPRIATE.
IT'S GOING THROUGH SYSTEM
MATTCALLY AND SAYING, LOOK THE
RESEARCH SHOWS, THIS IS WHAT
HAPPENS WHEN PEOPLE GET ACCESS
TO CONFLICTED ADVICE.
AND THERE'S ONE STUDY WHAT
HAPPENED WHEN TAKE CONFLICTED
ADVICE AWAY.
AND RETIREMENT ACCOUNTS WENT UP.
THAT'S NOT THE EVIDENCE AS FCC
IS INTERESTED IN RIGHT NOW.
AND WERE CALLED OUT ON THIS
BY THE 11.
I THINK -- THE CHIEF
ECONOMIMENT.
THEY WEREN'T JUST SENIOR
ECONOMIST.
FORMER SENIOR ECONOMIST.
THEY WERE CHIEF COMMITEST AND
CALLED OUT ON THE FACT THEY
DIDN'T BRING THIS EVIDENCE TO
BARE.
JUST TO BE CLEAR.
THE DOL TOOK THE EXCELLENT
ANALYSIS THAT YOU ALL DID AT CEA
AND FURTHER DEVELOPED IT.
YOU KNOW, IT'S I SAID RECENTLY
THAT COMPARING THE FCC ECONOMIC
ANALYSIS LIKE COMPARING DICK AND
JANE TO PH.D. DISSERTATION.
THEY ARE NIGHT AND DAY.
SPEAKING REPORT.
AFTER YOU RELEASED THE REPORT
THERE'S ALMOST LIKE IMMEDIATE
PUSH BACK ON THAT ANALYSIS.
RIGHT.
YOU KNOW, WHAT WAS YOUR
REACTION?
DID YOU EXPECT IT.
WHAT IS YOUR -- IS THERE
ANYTHING YOU LEARNED FROM THIS
EXPERIENCE WITH ALL THE INDUSTRY
KIND OF FOLLOW UP WITH THAT?
JANE, YOU WANT THE GO FIRST.
I MEAN, I GUESS I THINK YOU
KNOW, FROM THE ADVICE THAT YOU
KNOW, I GOT FROM BETSEY, WHO HAD
SERVED IN GOVERNMENT BEFORE AND
HAD WORKED ON THIS RULE OF THE
YEARS.
I THINK WE EXPECTED PUSH BACK.
I DIDN'T APPRECIATE THE SCALE OF
IT.
I LEARNED I DON'T KNOW AFTER I
LEFT GOVERNMENT THAT THE
FINANCIAL INDUSTRIES SPENT A
HEALTHY 7 FIGURE SUM FUNDING
RESEARCH THAT WOULD UNDERMINE
THE REPORT.
THAT MIND ME FEEL I HAD DONE
SOMETHING RIGHT.
YOU FORGET THINGS IF FINGER
QUOTES.
THAT'S A GREAT WAY TO PUT IT.
I THINK IT'S SIMPLE.
THEY ARE MAKING A LOT OF MONEY
OFF PEOPLE.
THEY WANT TO KEEP MAKING MONEY
OFF OF PEOPLE.
THEY ARE, OF COURSE, WHEN YOU
KNOW YOU RA VEHICLES THE EMPEROR
HAS NO CLOSED.
I THOUGHT THE SCALE OF PUSH BACK
MEANT THAT WE WERE NOT WRONG.
BUT WHEN IN ASSESSING THE SCALE
OF THE PROBLEM.
THAT'S WHY WHEN WE HAD GOOD
EVIDENCE TO COME UP WITH 17
BILLION NUMBER THEY NEEDED TO
FIGHT BACK AND THEY NEEDED TO
TRY TO DISCREDIT OUT.
I DON'T THINK THEY WERE
SUCCESSFUL IN THAT IN ANY WAY.
ONE THING INTERESTING ABOUT
THAT THE REASON WE HAD FOCUS ON
THE ECONOMIC ANALYSIS ON THAT AT
ALL WAS BECAUSE ONE OF THE
INDUSTRIES INITIAL TACTICS TO
DEFEAT THE PROPOSAL THEY HADN'T
ADEQUATELY ASSESSED THE ECONOMIC
IMPACT.
THEY NEEDED MORE DETAILED
ECONOMIC ANALYSIS.
THAT'S ONE OF THEIR INITIAL
ARGUMENTS THAT GOT THE INITIAL
PROPOSAL WITHDRAWN.
I THINK THERE'S AN INTERESTING
IMPLICATION IN THAT FOR
INDUSTRY.
AND WHILE IT -- WHICH IS THAT BY
DEFINITION IF THAT'S THE WAY
THEY WANT TO PLAY THIS GAME,
EVERY ISSUE WILL BE FOUGHT BASED
ON HOW HARMFUL THEIR CONDUCT IS
FOR THEIR CUSTOMERS.
THAT WILL BE THE PUBLIC DEBATE.
IT WILL BE PAINFUL FOR THEM AND
UGLY.
AND THE DOL'S ANALYSIS HELD UP
IN COURT.
AND STEVE CAN TALK ABOUT THAT.
IN COURT AFTER COURT AFTER COURT
UNTIL EXTREME PAN NECESSARILY
ONE COURT OVERTURNED IT.
ONE OF THE REASONS, WE SEE SUCH A
SHODDY ANALYSIS IF THEY DID A
DIE CENT ANALYSIS THAT HAVE TO
PROPOSE A DECENT RULE.
ALL GOOD POINTS.
MY OWN VIEW IS THAT THE INDUSTRY
WAS NEVER SUCCESSFUL IN REALLY
LAYING A GLOVE ON EVEN THAT
MODEST 17 BILLION.
AS A RESULT OF THAT, WHAT THEY
HAD TO DO WAS RESORT TO A COUPLE
OF OTHER DEEPLY MISLEADING
MYTHOLOGIES TO FIGHT BACK
AGAINST THE DOL'S RULE.
IN VARIANCE OF THE SAME ARGUMENT
ARE BEING DEPLOYED AGAINST FCC.
THEY ARE MUCH MORE COMFORTABLE.
THERE'S CONTEXT IS DIFFERENT.
IT'S STRONG BROAD FIDUCIARY
LIMITING ACCESS.
IT'S JUST EXTRAORDINARILY KIND
OF PERVERSE WAY OF LOOKING AT
REGULATION.
WHERE PAYDAY LENDER THE AGENCY
IT SELF SAYING IF WE HAVE STRONG
UNDERWRITING STANDARD IN PLACE
PAYDAY LENDERS WILL GO OUT OF
BUSINESS.
AND PEOPLE WILL LOSE ACCESS TO
CREDIT.
IT'S A LITTLE BIT LIKE SAYING TO
A MALNOURISHED STARVING PERSON
DON'T YOU WANT TOMS OF THIS
ROTTEN POISONOUS FOOT.
IT DOESN'T MAKE SENSE WHEN YOU
TAKE A CLOSE LOOK AT IT.
THE OTHER THING THEY DID IN THE
DOL CONTEXT THAT THE FCC WAS THE
AGENCY THAT HAD THE EXPERTISE
THE JURISDICTIONAL POWER TO DEAL
WITH THIS ISSUE AND THERE'S YOU
KNOW THERE'S HALF AED TO
REASONS WHY THAT IS COMPLETELY
WRONG.
CONGRESS AND ARISA MADE IT CLEAR
THE DOL HAS RESPONSIBILITY FOR
RETIREMENT ACCOUNT.
NOTHING THAT THE DODD FRANK HAD
IT NEGATED THAT.
IN FACT, IT REINFORCED THE NOEGS
BY SAYING TO THE FCC WE WANT TO
GIVE YOU GREATER AUTHORITY TO
PROTECT INVESTORS WITH A
FIGURES DUTY AND AT THE SAME
TIME THEY SAID NOTHING ABOUT
SAILING BACK THE AUTHORITY.
NEITHER OF THOSE ARGUMENT MADE
SENSE.
BUT IN THIS CRAZY WORLD, THEY
GOT TRACTION.
I JUST WANTED TO ADD THE
SMALL SAVER ARGUMENT JUST ALWAYS
DROVE MY CRAZY.
BECAUSE IT'S ESSENTIALLY THE
ARGUMENT THAT IF PEOPLE KNEW HOW
MUCH THEY WERE PAYING US FOR
THIS ADVICE THEY WOULD STOP
PAYING US FOR THIS ADVICE.
OKAY.
MAYBE.
THAT SOUNDS GOOD.
THEY SHOULD STOP PAYING IF THEY
DON'T WANT TO.
ONCE WE HAD DONE OUR ANALYSIS I
THINK IT MADE IT EASIER TO TALK
ABOUT THAT.
IT WAS THE PROBLEM FIRST OF ALL
IS WERE CHARGING THEM TOO MUCH.
PEOPLE WERE ONLY WILLING TO PAY
IT BECAUSE THE FEES WERE JUST SO
HIDDEN.
I LIKE TO THROW IN ONE SIDE
NOTE.
THE INDUSTRY GROUP THAT WENT
INTO COURT TO CHALLENGE THE RULE
THE BASIS FOR THEIR ARGUMENT WAS
WE ARE NOTED A VASORS.
WE NEAR SALES PEOPLE ENGAGED IN
ARM'S LENGTH COMMERCIAL SALES
TRANSACTION, NO DIFFERENT THAN A
CAR DEALER.
AND THE COURT BOUGHT IT.
WHEN THEY ARE NOT IN COURT THEY
ARE BACK TO BEING TRUSTED
ADVISORS.
THEIR ARGUMENT IS LESS
COMPELLING.
IF YOU PASS THIS RULE, YOU'RE
WILL LOSE ACCESS TO BIASSED SELL
RECOMMENDATION FROM A SALES
PERSON WHO HAS INCENTIVE TO
RECOMMEND THE PRODUCTS THAT ARE
MOST PROFITABLE FOR THE FIRM
INSTEAD OF THE ONES THAT ARE
BEST FOR YOU.
OH, NO.
BEYOND THAT AND TO GET INTO AN
ISSUE THAT ANDREW WOULD LIKE TO
TALK ABOUT TECHNOLOGY HAS
FUNDAMENTALLY CHANGED THIS
EQUATION.
NOT JUST THROUGH THE ADVENT OF
ROBO ADVISOR BUT BY ALLOWING FOR
THE AUTOMATION OF ADVICE THAT
WERE ONCE LABOR INTENSIVE.
WE HAVE A VARIETY OF OPTIONS
AVAILABLE IN THE MARKETPLACE NOW
WHERE ADVICE IS AVAILABLE UNDER
A FIDUCIARY STANDARD AT VERY LOW
COST TO VERY ACCOUNTS.
AND SO IN THE UNLIKELY EVENT THE
BROKER DEALERS THEY ALWAYS IF
YOU I'LL TAKE MY BALL AND GO
HOME.
IN THE EVENT THEY WOULD ABOUT
THIS MARKET ENTIRELY IF YOU MADE
THEM ACT IN THEIR CUSTOMER'S
BEST INTEREST THERE IS A VIABLE
ALTERNATIVE OUT THERE AVAILABLE
TO FILL THAT SPACE THAT WOULD
LEAVE INVESTORS MUCH BETTER OFF
THAN THEY ARE TODAY.
WHEN THE FIDUCIARY RULE WAS
FIRST INTRODUCED.
FIRST PROPOSED.
IT TURNS OUT THAT NOT VERY
SURPRISINGLY THE ROBO ADVISORS
WERE THE BIGGEST PROPONENTS
WITHIN THE FINANCIAL SERVICE
INDUSTRY.
THEIR ARGUMENT THAT WELL IF IT
RAISES THE STANDARD THE COST
WILL GO UP.
YOU KNOW I'M JUST WONDERING WHAT
DOES THE PANEL THINK.
IS ROBO ADVISOR THE COST.
AND WHAT GENERAL RULE DOES
TECHNOLOGY HAVE IN PLAYING
THIS -- TO SOLVE THIS PROBLEM?
I THINK THAT THE CHALLENGE IS
THAT PEOPLE LIKE TO THINK THAT
THEY ARE UNIQUE AND THEY WANT TO
HAVE THAT TRUSTED PERSONAL
RELATIONSHIP WHEN IT COMES TO
RETIREMENT.
BUT THE TRUTH IS THE TYPICAL
PERSON HAS TYPICAL RETIREMENT
NEEDS AND THEREFORE IS ACTUALLY
WELL SERVED BY LOW COST ROBO
ADVISING.
ONE OF MY FAVORITE COMMERCIALS I
SAW FOR YOU KNOW ADVISOR SHOWS
THAT A FAMILY ON TV THEY ARE AT
KIDS SOCCER GAME.
GETTING READY FOR WORK.
YOU AREN'T YOU'RE UNIQUE.
YOU NEED UNIQUE ADVICE.
THAT WASN'T UNIQUE.
THAT'S WHAT WE ALL DO.
WE ALL HAVE DINNER AND GO TO
WORK.
WE ALL DO SOMETHINGS WITH OUR
KIDS.
I THINK YOU MAKE THE CASE FOR
ROBO ADVICE THERE.
SO THEY ARE TRYING TO CREATE
THIS IDEA NO, NO; YOU NEED
SOMETHING SPECIAL WHEN IN
REALITY YOU HAVE VERY SIMILAR
NEEDS AND WHAT THEY NEED TO HAVE
AS MUCH MONEY AS POSSIBLE IN
ETIREMENT AND LOW COST ADVISING
CAN DO THAT.
I WOULD LIKE TO SAY JUST FROM
A SLIGHTLY DIFFERENT
PERSPECTIVE.
ONE TO POINT OUT IT WAS ACTUALLY
THE FIDUCIARY ADVISORY COMMUNITY
AS A WHOLE.
THE FINANCIAL PLANNING COMMUNITY
HAS FOR YEARS BEEN ALLIES IN THE
FIGHT TO RAISE THE STANDARD OF
CONDUCT.
AND GROUPS LIKE THE CFP BOARD
WERE STRONG ALLIES.
IN ADDITION TO ROBO.
I THINK WE MADE A TACTICAL ERROR
BY POINTING TO THE ROBO
ADVISORS.
I THINK THEY ARE AN IMPORTANT
PART OF THE SOLUTION.
IT MADE IT VERY EASY.
I JUST SAT IN HEARING IN THE
HOUSE FINANCIAL SERVICES
COMMITTEE LAST WEEK WHERE ONE OF
THE REASONS, I DON'T KNOW ABOUT
YOU.
MY MOM DOESN'T WANT ROBOT TO
GIVE THEM ADVICE AND NEITHER DO
I.
THE ISSUE HERE IS NOT YOU KNOW
ROBO ADVISORS TECHNOLOGY HAS
BEEN HARNESSED BY ALL SORT OF
ADVISOR TO AUTOMATE PORTION OF
THAT THEY DO.
SO THAT YOU KNOW MAYBE THE
FUTURE IS NOT JUST -- MUCH ROBO
ADVISORS AS YOU KNOW CYBORG
ADVISORS.
WHAT YOU SEE IS TECHNOLOGY BEING
INCORPORATED INTO PRACTICES THAT
ARE -- THAT INCLUDE THAT HUMAN
CONTACT THAT PEOPLE WANT.
THE OTHER THING I THINK WHERE
TECHNOLOGY REALLY OFFERED A
SOLUTION ON THIS IS PEOPLE SAY
WELL, HOW AM I SUPPOSED TO
COMPLY WITH BEST INTEREST
STANDARD THAT YOU WANT.
IN THE WAKE OF THE DOL RULE.
WE SAW DOZEN.
MAYBE HUNDREDS OF SERVICES ROLL
OUT.
JOBS CREATED THAT WERE THEN
DESTROYED WHEN THE RULE WAS
DESTROYED.
I DIGRESS.
WERE DESIGNED TO AID ON THIS
COMPLIANCE SIDE.
YOU KNOW NOT JUST ADVISING
ITSELF.
HOW DO YOU COMPARE 401(K) PLAN
MENU TO IRA INVESTMENT AND
DETERMINE WHICH WOULD BE THE
BEST OPTION FOR THE INVESTOR.
HOW DO YOU ANALYZE THAT AND
DOCUMENT THE BASIS FOR YOU
DECISION.
I THINK THERE'S A LOT OF ROLES
FOR TECHNOLOGY TO PLAY IN THIS
AREA.
I THINK THERE'S IN MY MIND
THERE'S LARGER POINT.
I THINK THIS IS ABSOLUTELY
RIGHT.
IT'S AN IMPORTANT COMPONENT OF
SOLUTION.
IT'S NOT THE END-ALL AND BE ALL.
WHAT IT SAYS TO ME EXEMPLIFIES
THE ADAPTABILITY OF THE
FINANCIAL SERVICES INDUSTRY.
WHAT THAT MEANS IS THAT YOU CAN
TRACE THE HISTORY BACK TO THE
GREAT DEPRESSION.
A PATTERN AND PRACTICE OF
REGULATORY REFORM BY SAYING THE
SKY WILL FALL OUR INDUSTRY WILL
COLLAPSE, AND THE PUBLIC WILL
SUFFER IF THE REGULATORY REFORMS
GO INTO PLACE.
WHAT WE SAW WITH THE ADVENT OF
THE DOL RULE, UNFORTUNATELY, FOR
SUCH A SHORT PERIOD OF TIME BUT
STILL EVEN IN THAT SHORT SPAN OF
TIME WE SAW THE LIE BEING PUT TO
THESE HORRIFIC CLAIMS THAT THE
INDUSTRY COULD NEVER ADAPT.
THAT ADVICE WOULD BE TOO
EXPENSIVE.
ET CETERA, ET CETERA.
ROBO ADVISOR, TECHNOLOGY
SOLUTIONS OF SEVERAL DIFFERENT
VARIETIES WERE PART AND PARCEL
OF THAT.
IT REALLY IS LARGER POINT THAT
ALL THE FEAR MONEYING GERING IS
JUST THAT.
IT'S IMPORTANT TO BE AWARE THIS
UNDER GEDS A LOT OF INDUSTRY
RESISTANCE AND IT'S PHONY AT
HEART.
WE HAVE 30 MINUTES.
WE CAN OPEN UP TO THE AWED
BE
-- AUDIENCE FOR Q&;A.
THANK YOU.
THANK YOU.
I HAVE BEEN A FINANCIAL ADVISOR
FOR 20 YEARS.
I'VE SEEN A LOT OF -- I'VE SEEN
CHANGE AND I WAS SO EXCITED WITH
THE FIDUCIARY RULE BECAUSE I'M
IN AN INDUSTRY THAT IS
DOMINATED, AVERAGE AGE OF
FINANCIAL ADVISOR IS ABOUT 55 OR
VARIES AND PREDOMINANTLY WHITE
MALES.
AND WHEN I'M IN TRAININGS OR
JUST OUT AND ABOUT DOING MY
FINANCIAL ADVISOR CHECKUPS.
THE LANGUAGE OH MY GOD I HAVE TO
MEET WITH MY CLIENTS EVERY YEAR.
OH, MY GOODNESS, HOW AM I
SUPPOSED TO LIVE WITHOUT A 7%
COMMISSION THOSE OF US WHO USE
THIS FIDUCIARY STANDARD WERE SO
EXCITED.
AND WE'RE ALSO LETDOWN AS
FINANCIAL ADVISORS THAT THE RULE
WAS KILLED OR YOU KNOW SHIFTING
OVER TO THE FCC LANGUAGE.
I WANT TO SAY THANK YOU.
KEEP UP THE GOOD WORK.
I WAS HOPING THAT A LOT OF THOSE
GUYS WOULD JUST GIVE UP AND
RETIRE.
MANY DID.
MANY DID.
AND THE ONES THAT STUCK IN THERE
HAVE THEY ARE RIGHT BACK TO THE
SAME BATTLE DAYS.
PLEASE THANK YOU.
KEEP UP --
THAT'S AN IMPORTANT POINT
THAT AS I SAID IT WASN'T JUST
THE ROBO SUPPORTIVE OF THIS
RULE.
THERE'S A COMMUNITY OF ADVISORS
OUT THERE WHO EMBRACE THEIR
FISSIONRY OBLIGATIONS, WHO ARGUE
FOR A STRONGER INTERPRETATION OF
THE ADVISERS ACT FIDUCIARY
STANDARD.
WHO TAKE SERIOUSLY THEIR
OBLIGATION TO AVOID CONFLICTS OF
INTEREST TO MANAGE THE REMAINING
CONFLICTS OF INTEREST TO THE
BEST INTEREST IN THE BEST
INTEREST OF THEIR CUSTOMERS.
SO WE GREATLY APPRECIATE THOSE
OF YOU IN THE PROFESSION WHO
LIVE UP TO THAT STANDARD EVERY
DAY.
YOU KNOW, I FEEL FOR YOU.
HAVING TO COMPETE IN AN INDUSTRY
AGAINST A BUNCH OF CHEATERS.
THAT'S WHY IT'S NOT FAIR.
AND I THINK THAT'S WHY IT MAKES
A LOT OF SENSE THAT PEOPLE WHO
ARE TRYING TO DO THE RIGHT
THING, YOU ARE DOING THE RIGHT
THING.
WANT TO HAVE A SET OF RULES SO
EVERYONE IS DOING THE RIGHT
THING.
IT MAKES IT REALLY HARD FOR
FINANCIAL ADVISORS WHO ARE
GIVING GOOD ADVICE AND THEIR
CLIENTS PEST INTEREST AND
CHARGING A FAIR PRICE; TO
COMPETE AGAINST SOMEONE WHO
LYING ABOUT WHAT THEY ARE
CHARGING.
LYING ABOUT WHAT THE PERSON IS
GOING TO PAY.
AND GIVING BACK BAD ADVICE.
WHEN YOU ARE MAKING STUFF UP.
YOU CAN MAKE IT SOUND A LOT
SEXIER THAN WHEN YOU TELL THE
TRUTH.
IS THIS ON?
HELLO.
CAN YOU HEAR ME?
YES.
O OH, GREAT.
I'M ONE OF THOSE PEOPLE SHE WAS
TALKING ABOUT.
I'VE BE IN THE BUSINESS FOR 38
YEARS.
OF COURSE I STARTED WHEN I WAS 2
YEARS OLD.
I WOULD LIKE TO MENTION THAT
WHEN I STARTED OUT --
[INAUDIBLE]
AND DECIDED TO GO AS AN
INDEPENDENT BROKER.
YOU'RE RIGHT ON THAT THE BROKER
DEALERS HAD THE CONTEST AND
QUOTAS.
THEY EVEN WENT TO PROPRIETARY
PRODUCTS SO WE COULD HAVE A
CHOICE OF GOING OUTSIDE OF
METLIGHT OUTSIDE OF EQUITABLE.
THEY STILL HAD YOUR BEST
COMMISSION ON THE PRODUCTS THAT
THEY PUSHED.
EN IF IT WAS FOR LUNCH AND
LEARN.
NOW I WOULD LIKE TO MENTION ALSO
THAT PERSPECTIVES ARE VERY
DIFFICULT FOR PEOPLE TO
UNDERSTAND.
AND THAT'S SOMETHING THAT NEED
TO BE REWRITTEN.
AND ALSO MY QUESTION WHEN YOU
HAD MENTIONED THAT PEOPLE STAY
WITH THE COMPANY, THEY RETIRED.
THAT'S AN ADVANTAGE IN A
DISADVANTAGE.
ESPECIALLY WITH THE CITY OF
DETROIT THAT WENT INTO
BANKRUPTCY IN ALL OF # 03-B
PLANS WENT DOWN THE TUBES.
BUT MY CONCERN IS AND MAYBE YOU
CAN HELP ME WITH THIS.
THE -- I UNDERSTAND THAT IT
WOULD HAVE BEEN MUCH MORE
ARBITRATION WITH THE DOL AS FAR
ASKED AORS WERE CONCERNED THAT
WE COULD HAVE TO ENO COVERAGE.
I'M WONDERING EXACTLY HOW THAT
ARBITRATION THING WOULD WORK.
THANK YOU.
I CAN JUMP IN ON THAT ONE IN
THE DOL RULE SIMPLY AFFIRMED THE
STANDARD ON ARBITRATION THAT
EXISTS UNDER THE SECURITY'S LAW,
WHICH WAS THAT THEY PERMITTED AS
THE FCC PERMIT BROKERS TO
INCLUDE PRE DISPUTE BINDING A
ARBITRATION CLAUSES IN THEIR
CONTRACTS.
I THINK THE ARGUMENT THAT
ARBITRATION WILL GO UP YOU KNOW
THE NUMBER OF CLAIMS WOULD GO UP
WAS UNFOUNDED LIKE MANY OF THE
CLAIMS.
SO FIRST OF ALL, THE PRIMARY
CLAIM BROUGHT IN ASHTATION TODAY
AGAINST BROKER DEALERS IS
VIOLATION OF FIDUCIARY DUTY,
EVEN THOUGH THEORETICALLY
BROKERS DON'T HAVE FIDUCIARY
DUTY.
THEY ARE BEING HELD TO THAT
STANDARD UNDER COMMON LAW
FIGURESY STANDARDS ALREADY.
TO THE DEGREE THAT THE DOL RULE
WAS SUCCESSFUL IN CAUSING FIRMS
TO REIN IN ALL OF THESE TOXICS
INCENTIVE THAT ENCOURAGE AND
REWARD ADVICE THAT IS NOT IN
CUSTOMER'S BEST INTEREST.
THERE WOULD BE A LOT FEWER
INCENTIVE FOR BAD ADVICE.
THERE WOULD BE FEWER OF THE KIND
OF PRACTICES THAT LAND PEOPLE IN
ASH STRAIGS.
I ACTUALLY THINK THE -- THERE'S
A REASONABLE ARGUMENT.
WE WON'T KNOW.
BECAUSE WE DON'T HAVE THE CASE
HISTORY TO SAY.
THERE'S A REASONABLE ARGUMENT
THAT IT WOULD -- HAD IT BEEN
EMBRACED BY INDUSTRY.
IT WOULD HAVE DECREASED THEIR
LIABILITY EXPOSURE RATHER THAN
INCREASED IT.
YEAH.
AND JUST TO BE CLEAR.
THE ARGUMENT ABOUT THE FEAR
MONGERING ABOUT INCREASED
LIABILITY, ARBITRATIONS AND SO
FORTH STEM PARTLY FROM WHAT THE
DOL DID IN TRYING TO CREATE A
REMEDY A MEANINGFUL REMEDY FOR
THE IRA OWNERS AND THE IDEA WAS,
LOOK, IF YOU ARE AN ADVISOR TO
IRA OWNER UNDER THIS RULE AND
YOU WANT TO CHARGE COMMISSIONS,
YOU MAY.
THEN YOU HAVE TO ENTER INTO A
CONTRACT WHICH SAYS I'M A
FIDUCIARY.
I WILL LOOK AFTER YOUR BEST
INTEREST.
AND IF YOU BREACH THAT CONTRACT,
THEN THE IRA ACCOUNT OWNER HAS A
RIGHT AS HE OR SHE SHOULD TO
HOLD THAT ADVISOR ACCOUNTABLE.
THAT IS WHAT IS SPAWNED THIS
NOTION THAT IT WILL BE EXPLOSION
OF CLAIMS IF YOU WILL.
BUT FOR REASONS THAT BARB SAID
THAT UNDERLYING PREMISE WAS
BOGUS.
AND TO THE EXTENT THAT THERE WAS
GOING MORE CLAIMS AND LIABILITY
IT WAS GO ACTUALLY REFORM
PRACTICES AND IT WAS GOING TO
MAKE INJURED INVESTORS WHOLE.
IT WAS A WIN WIN FROM OUR
STANDPOINT.
I WANT TO ADDRESS.
THE YOU ABOUT ROLLING OVER A
UP THE CITY OF DETROIT.
I DON'T THINK THE FEDERAL
GOVERNMENT IS GOING BANKRUPT.
IF IT DOES WE HAVE BIG PROBLEMS
BEYOND RETIREMENT SAVINGS.
AND SO I THOUGHT THAT WAS REALLY
EXCELLENT EXAMPLE OF A SECRET
SHOPPER.
BUT IF YOU WANT BROADER STUDY IN
INVESTIGATION WHERE THEY CALLED
AROUND AND ASKED FOR ADVICE, AND
MOST OF THE CALL CENTERS
RECOMMENDED ROLLOVER WITHOUT
GETTING ANY SPECIFIC INFORMATION
ABOUT THE FEES THEY WERE PAYING.
WHERE THE MONEY WAS AT.
WHAT THEIR CIRCUMSTANCES WERE.
ROUGHLY HALF OF THEM SAID OH,
YES YOU CAN ROLL OVER BECAUSE WE
HAVE FREE IRA.
NO FREES.
FREE AND TALKED ABOUT HAD NO YOU
KNOW WITHOUT CLEARLY EXPLAINING
ANY KIND OF INVESTMENT TRAN
ACTION OR OTHER FEES WHICH STILL
ALIVE.
THEY SIMPLY EMPHASIZE THEIR
IRA'S WERE FREE.
OR HAD NO FEES WITH THEM MINIMUM
BALANCE.
IT'S THAT KIND OF MISLEADING
ADVICE THAT I RUFR TO.
IT'S NOT EVERYBODY SHOULD LEAVE
THEIR 401(K) WHERE IT IS.
THEY SHOULD ROLL OVER MUCH MORE
THAN IS NUN'S BEST INTEREST.
THOSE WANT FLY BY NIGHT
OPERATIONS.
THOSE WERE THE BIG PROVIDER
ENGAGED IN THAT CONDUCT.
SURE.
DANA MUIR FROM THE ROSS SCHOOL.
IT SEEMS SOME STATES ARE WITH
YOU IN BELIEVING THE FCC IS NOT
DOING ENOUGH.
DO YOU THINK STATES WILL MAKE
PROGRESS HERE OR WILL THE FCC
RULE PREEMPT THE STATE'S
EFFORTS.
EXCELLENT QUESTION.
THERE ARE TWO THINGS THAT HAPPEN
READ -- RECENTLY IN THE STATE
ASSOCIATION IN ASSOCIATION OF
STATED REGULATORS.
THIS REFLECTS THE BIPARTISAN
MAKE UP OF THE STATE
GOVERNMENTS.
TO FCC ARGUING THAT UNLESS IT
STRENGTHENED AND CLARIFIED IT'S
PROPOSAL, IT WOULD PERPETUATE
THE PROBLEMS THEY SEE EVERY DAY
AT THE STATE LEVEL.
THEY ARE VERY CONCERNED ABOUT
THE INADEQUACIES OF THE FCC
PROPOSAL.
THERE'S A FEW STATES THAT
DECIDED TO STEP IN AND SEE IF
THEY CAN ADOPT LAWS AT THE STATE
LEVEL THAT WOULD PROVIDE
PROTECTIONS FOR -- THEIR
CITIZENS THEY DON'T BELIEF WOULD
BE PROVIDED.
NEVADA AHEAD.
THERE WAS A LEGISLATIVES SO
LUGUES SESSION THERE.
NEW JERSEY.
THEY HAD HEARING.
WE DON'T KNOW WHAT THEY WILL
PROPOSE.
NEW YORK DID SOMETHING
Targeted AA INSURANCE.
ANNUITIES AND INSURANCE TYPE
INVESTMENTS THAT CURRENTLY IN
COURT.
I THINK THERE ARE TWO THINGS
THAT WILL DETERMINE WHETHER WE
SEE MORE -- AND MARYLAND HAS A
LEGISLATIVE PROPOSAL BUT HASN'T
BEEN ACTED ON.
THERE ARE TWO THINGS I WILL
DETERMINE WHETHER WE SEE MORE OF
THAT.
THE FIRST, WILL THE FCC IMPROVE
ITS RULE?
BECAUSE IF FCC WHERE TO STEP IN
AND FIX SOME OF THESE KEY
SHORTCOMINGS, I THINK THE STATE
WOULD BE HAPPY TO STEP BACK.
AND DEFER TO A STRONG UNIFORM
FEDERAL STANDARD.
THE OTHER THING, WHOEVER GOES
FIRST IS GOING TO GET SUED.
THEY WILL FACE EXACTLY THE SAME
KIND OF LEGAL CHALLENGE THAT DOL
DID.
THE LONG QUESTION IN THIS
SECURITIES ARENA IS THE NATIONAL
SECURITY IMPROVEMENT ACT.
WHICH INCLUDES SOME PRESUMPTION
OF STATE AUTHORITY BUT IT'S
QUITE NARROWLY DRAWN.
IT'S MOSTLY TO DEAL WITH THOSE
KINDS OF THINGS LIKE CAPITAL
STANDARDS, AND WHATNOT.
BETTER LOGICALLY SET BEST SET AS
UNIFORM FEDERAL LEVEL.
AND SPECIFICALLY AND PRESERVE
STATE AUTHORITY TO REGULATE
BROKER DEALER CONDUCT.
ONE AREA THAT IS PREEMPTED IS
STATE ARE PREEMPTED FROM
CREATING BOOKS AND RECORDS
REQUIREMENTS THAT ARE NOT
REQUIRED UNDER FEDERAL LAW.
SO THE INDUSTRY WOULD ARGUE,
WILL ARGUE THAT THEY
CAN'T -- EVEN IF THE STATE
DOESN'T EXPLICITLY IMPOSE BOOKS
AND RECORDS REQUIREMENTS.
AND THEY WON'T.
THEY ARE SMART ENOUGH TO AVOID
THAT.
THE INDUSTRY WILL ARGUE IT'S
IMPLIED THAT IN ORDER TO COMPLY
WITH THE LAW THEY HAVE TO CREATE
THESE BOOKS AND RECORDS.
I THINK THERE'S FLAWS IN THAT
ARGUMENT.
ONE THERE'S FAIRLY EXTENSIVE
DOCUMENTATION REQUIREMENT UNDER
KNOW YOUR CUSTOMER AND
SUITABILITY RULES.
THE OTHER IS THERE'S NO END TO
THAT ARGUMENT LIKE IF YOU CAN
ARGUE THAT ANYTHING THAT YOU
MIGHT DO TO COMPLY IS BY
DEFINITION REASON TO PRE PREEMPT
THE LAW.
IT�S OVERWHELMING THE ARGUMENT.
THIS HASN'T PREVIOUSLY BEEN
LITIGATED.
AND I THINK THE DOL HAD A REALLY
STRONG DEFENSE AND WE -- SO
WE'VE SEEN WHAT CAN HAPPEN IN
THE COURT SYSTEM.
BUT I THINK THOSE WILL -- IF A
STATE PERSEVERES, GETS
CHALLENGED AND WINS A GOOD
DECISION IN COURT, THEN I THINK
YOU WILL SEE MORE STATES STEP
IN, IF THE FCC DOESN'T ADOPT A
STRONGER STANDARD.
THAT'S ABOUT -- SPOT ON
GOOD MORNING.
MY QUESTION IS ABOUT THE
REGULATORY FLOOR.
SO YOU'VE MENTIONED TECHNOLOGY A
BIT AND I THINK TECHNOLOGY
INCREASINGLY CREATES MORE
COMPLEX TOOLS FOR WEALTH
ACCUMULATION.
AND PENSIONS 401(K), RETIREMENT
PLANNING.
ARE SOME OPPORTUNITIES FOR
WEALTH COMMUNICATION THAT ARE
TOO OFTEN AVAILABLE TO YOU KNOW
MOST PEOPLE THAT LIVE IN THE
COUNTRY.
IT'S A SERVICE THAT'S NOT WIDELY
ACCESSIBLE.
AND WITH ADDED TECHNOLOGY, IT
RELIES ON INSTITUTIONS TO
GENERATE THAT WEALTH THAT MOSTLY
ENSCONCED TO THE ACCOUNTS OF
WHITE WEALTHY INVESTORS AND CAN
CONTRIBUTE TO THE RACIAL WEALTHY
DIVIDE WE SEE THAT'S EXPANDING.
THIS PANEL AND THE PANEL EARLIER
YOU KNOW HAVE BEEN TALKING ABOUT
THE REGULAR FLOOR.
AND I'M INTERESTED FROM YOUR
PERSPECTIVES HOW THAT FLOOR CAN
REALLY BE CEMENTED.
YOU KNOW HOPEFULLY NOT JUST
THINKING ABOUT THE BARE MINIMUM.
YOU KNOW REALLY LIKE A STEP
ABOVE A FLOOR THAT THE REALLY
SOLID AND STABLE.
AND IS EXPANDED SO THAT MORE
PEOPLE ARE STANDING ON IT.
I WILL JUMP IN FIRST.
BEFORE I CAME TO CFA.
MANY YEARS AGO ON THE BOARD
OF THE DENVER FOOD BANK
COALITION.
THEN I WENT TO CFA TO WORK ON
HOW TO MAKE RICH PEOPLE RICHER
BY PROTECTING THEM FROM ABUSIVE
PRACTICES.
BECAUSE WHEN I STARTED IN '86
THIS WAS NOT A MIDDLE INCOME
ISSUE.
WORKING ON INVESTOR PROTECTION
ISSUES AT MOST YOUR DEALING WITH
ABOUT HALF THE POPULATION.
ISN'T THE MEDIAN AMOUNT PEOPLE
HAVE SAVED FOR RETIREMENT ZERO.
I CAN'T PROTECT SOMEONE WITH NO
RETIREMENT SAVING FROM ABUSIVE
PRACTICES AND THE RETIREMENT
MARKET.
I THINK THERE'S A WHOLE SET OF
THINGS WE NEED TO BE DOING TO
RETHINK THE WAY WE FUND PEOPLE'S
RETIREMENT.
THAT SHOULDN'T EXPOSE THEM TO
THESE ABUSIVE PRACTICES.
AND IT'S NOT EL IT'S NOT MY AREA
OF EXPERTISE.
BUT I THINK IT'S -- AND I HAVE
LIKE YOU PROBABLY NOTICE.
I SPEAK WITH A FAIR AMOUNT OF
PASSION.
I HAVE DEVOTED 30 YEARS TO IT.
IT IS A FAR MORE IMPRESSING
PROBLEM TO FIGURE HOW WE LET
PEOPLE LIVE DECENT STANDARD LIFE
IN RETIREMENT MAKING SURE RICH
PEOPLE DON'T GET RIPPED OFF.
THIS IS INCREASINGLY MIDDLE
CLASS PROBLEM.
IT'S NOT A LOW INCOME PROBLEM.
IT IS INCREASINGLY A MIDDLE
CLASS PROBLEM.
BECAUSE THIS THE NOW HOW WE FUND
RETIREMENT ACCOUNTS.
WE'RE INCREASINGLY SEEING PEOPLE
WITH YOU KNOW MUCH MORE MODEST
MEANS BEING BROUGHT INTO THIS
SYSTEM.
I DON'T FEEL LIKE EYE ANSWERED
YOUR QUESTION.
THAT'S THE PERSPECTIVE THAT I
BRING TO THOSE ISSUES.
I THINK I SHARE A LOT OF THAT
PERSPECTIVE.
THE REASON I THINK THAT THIS
CONFLICTED ADVICE ISSUE HAS
BECOME SO SALIENT.
THE MIDDLE CLASS RELY ON THEIR
RETIREMENT SAVING TO FUND THEIR
RETIREMENT.
YOU KNOW A MUCH SMALLER PORTION
OF MIDDLE CLASS BABY BOOMER WILL
BE RELYING ON SOME KIND OF
PENSION.
INSTEAD WILL RELY ON WHAT THEY
SAVED.
WE NO LONGER TALK ABOUT
TRANSFERS AMONG THE RICH WHEN IT
COMES TO CONFLICTED ADVICE BUT
TRANSFERS FROM THE MIDDLE CLASS
TO THE RICH AND THIS BECOMES A
BIGGER I THINK MORE PRESSING
SOCIAL PROBLEM.
BUT THERE'S ANOTHER SOCIAL
PROBLEM WHICH IS WE DO NOT -- WE
HAVE IN A RETIREMENT SAVING
PROGRAM THAT'S DESIGNED TO
BOLSTER THE RETIREMENT SAVING OF
THE MOST WELL OFF.
THAT DOESN'T HAVE TO DO WITH
CONFLICTED ADVICE.
THAT'S THE TAX PREFERENCES THAT
WE HAVE SET UP FOR RETIREMENT
SAVINGS.
WE KNOW FUND RETIREMENT SAVINGS
THROUGH GIVING YOU KNOW
ESSENTIALLY A MATCHING GRANT TO
PEOPLE WHO SAVE FOR RETIREMENT
AND THAT MATCHING GRANT A
FUNCTION OF YOUR HIGHEST
MARGINAL TAX RATE.
IF YOU ARE RICH YOU GET THE
BIGGEST GRANT AND IF YOU ARE
POOR YOU GET ZERO.
THAT'S OUR RETIREMENT SAVING
PLAN.
THAT'S TERRIBLE.
I THINK WE EVEN KNOW NOT ONLY IS
TERRIBLE BECAUSE IT'S PUTTING
MORE FEDERAL DOLLARS TOWARDS
RICH PEOPLE'S RETIREMENTS SAVING
BUT IT ALSO ACTUALLY DOESN'T
REALLY WORK.
IF WE TRY TO SPEND TAX DOLLAR TO
INCREASE RETIREMENT SAVING.
WE KNOW TAX PREFERRED ACCOUNTS
IS LIKE THE LEAST EFFECTIVE WAY
WE COULD DO.
WE NEED TO BE INCENTIVIZING
PEOPLE ON THE MARGIN.
WE NEED TO BE INCENT SIENGZ
PEOPLE WHO DON'T HAVE RETIREMENT
SAVING.
WE DON'T NEED TO BE DOING DOLLAR
FOR DOLLAR MATCHING OF THE VERY
RICHEST PEOPLE.
THAT'S A DIFFERENT ISSUE THAN
CONFLICTED ADVICE BUT VERY MUCH
A REAL ONE.
WE HAVE A SYSTEM.
IN A COUNTRY WHERE THE MAJORITY
OF PEOPLE CAN'T COME UP WITH
$400 TO GET THROUGH AN
EMERGENCY.
RELIES ON THEM TO TAKE MONEY OUT
OF THEIR PAYCHECKS TO FUND THEIR
RETIREMENT.
HOW EFFECTIVE DO YOU THINK THAT
WORKS FOR THAT PORTION OF THE
POPULATION?
I MEAN, YOU KNOW BARB AND
BETSEY ARE RIGHT.
OUR PROBLEM EXTENDS BEYOND
CONFLICTED ADVICE.
WE SORT OF AN INSTITUTIONALLY
TERRIBLE SYSTEM.
ONE KIND OF MODERATING FACT AND
IT'S NOT FULLY MODERATING BUT
THE FACT FOR A LOT OF MIDDLE
CLASS HOUSEHOLDS, YOU KNOW THEIR
HOMES PROVIDE YOU KNOW SOME
ELEMENT OF RETIREMENT SECURITY
AND SO EVEN IF THEY MAY NOT HAVE
ASSETS.
THEY HAVE THEIR HOUSE.
BUT OF COURSE THAT'S CHALLENGES
AND RISK AND DIFFERENT
POPULATIONS, BUILT EQUITY IF
THEIR HOMES AT DIFFERENT RATES
OR DEPENDING ON HOW THEY ARE
ABLE TO TIME THE CYCLONE YOU
KNOW THE AVAILABILITY OF CREDIT
IS PRO CYCLICAL.
WHO GETS ACCESS DURING BOOM
TIMES WHEN RETURNS ARE LOW.
IT'S LOW INCOME PEOPLE.
WHO SORT OF SLEPT IN.
THERE'S A LOT OF CHALLENGES AND
PROBLEMED WITH THAT.
FOR A LOT OF PEOPLE WHO DON'T
HAVE ACCESS TO PENSIONS AND YOU
KNOW D.C. PLANS AND OTHER
EMPLOYER BASED SAVING THEY HAVE
THEIR HOME AND PART OF THE
CHALLENGE ANY SORT OF HELPING
HOUSEHOLDS BUILD SECURE
RETIREMENT IS THAT THE SOLUTION
DOESN'T HAVE TO BE REALLY,
REALLY MULTIPRONGED.
THAT REMINDS ME ABOUT WHAT I
THINK IS MOST IRONIC THING ABOUT
THE REGULATORY ENVIRONMENT
AROUND RETIREMENT NOW WHICH IS
THAT AT THE TIME THAT YOU KNOW
THE DOL RULE IS BEING VACATED,
THE CURRENT ADMINISTRATION ALSO
DECIDED TO VACATE THE DOL
GUIDANCE WHICH SAID STATE COULD
START TO SET UP RETIREMENT PLANS
FOR PEOPLE WHO DIDN'T HAVE THEM
THROUGH THEIR EMPLOYERS AND THEY
DIDN'T NEED TO WORRY ABOUT THE
RISK OF FIDUCIARY STANDARD.
ALL OF A SUDDEN LIKE THE CURRENT
ADMINISTRATION SUPER CONCERNED
ABOUT FIDUCIARY STANDARDS IF WE
ARE TALKING ABOUT A STATE TRYING
TO GET ACCESS TO RETIREMENT
SAVING TO POOR PEOPLE.
JUST NOT SO KRNED ABOUT PEOPLE
GETTING IT THROUGH FINANCIAL
ADVISORS.
WHY THE APPARENT DIFFERENCE OF
OPINION?
WELL, BECAUSE A LOT OF YOU KNOW
THE FINANCIAL SERVICES INDUSTRY
THOUGHT THEY WOULD LOSE OUT TO
THE STATE PLANS AND IT WOULD BE
THE STATE PLAN WOULD DIVERT
PROFITS FROM THE STATE.
THE VIEW ON WHERE THE FIDUCIARY
DUTIES SEEMS TO BE ALWAYS SIDES
WITH IS FINANCIAL SERVICES
INDUSTRY GOING TO MAKE MORE
MONEY OR LESS MONEY OFF THIS AND
GO INTO WHATEVER DIRECTION
MEANS MORE MONEY FOR FINANCIAL
SERVICES.
TURNS OUT FINANCIAL INCENTIVE
MATTER.
WHO KNEW?
[LAUGHTER]
I WILL NOW RAISE A SAD TOPIC
WHICH IS IRA PROJECT WHICH SOME
OF US WORKED ON WHICH IS NOW
DEFUNCT.
IN FACT I'M READING ABOUT IT.
IT LOOKS THOSE WHO AT MIRA
ACCOUNT HAVE BEEN ROLLED OVER TO
ROTH IRA WITH THE PRIVATE FUND
RETIREMENT CLEARINGHOUSE LLC.
WHAT DID WE DO WRONG?
WHAT COULD WE HAVE DONE
DIFFERENTLY AND IS THE
GOVERNMENT POTENTIALLY THIS NEW
ANCHOR BY WHICH WE ARE TRYING TO
ENABLE THOSE HALF OF AMERICANS
WHO HAVE NO SAVINGS AS A STARTER
RETIREMENT PRODUCT.
STARTER SAVING PRODUCT.
THIS WAS ACTUALLY ONE OF MY
BIGGEST CRITICISMS.
WE TALK ABOUT RETIREMENT TO
PEOPLE WHO HAVE NO CONCEPT THEY
WILL EVER REACH RETIREMENT.
SHOULD WE HAVE THOUGHT ABOUT
RENAMING IT AND CALLING IT
SOMETHING DIFFERENT?
GENERALLY THE IDEA OF USING THE
FEDERAL GOVERNMENT NOT TO
MENTION YOUR POINT ABOUT THE
AUTO ENROLLMENT PROGRAM AT THE
STATE LEVEL BUT USING GOVERNMENT
AS NOT ONLY THINKING ABOUT THE
TAX CHANGES THAT WOULD BE
WARRANTED TO MAKE THIS MORE
EQUITABLE.
BUT GOVERNMENT AS A WAY TO
ANCHOR FACILITY, SAVINGS FOR AT
LEAST THE SORT OF MID TO LONGER
TERM.
I MEAN WHAT WE DID WRONG.
WE LOST AN ELECTION.
BUT BEYOND THAT, I DO THINK
THERE'S A FUNDAMENTAL FLAW IN
ALL OF THESE APPROACHES TO GO
ABOUT WHAT WE WERE TALKING ABOUT
BEFORE THAT RELY SO HEAVILY ON
PEOPLE COMING UP WITH THE MONEY
TO SAVE -- COMING UP WITH THE
MONEY TO SAVE NOW FOR RETIREMENT
THAT THEY CAN'T IMAGINE GETTING
TO.
AND THERE MAY WELL BE SOME
DIFFERENT MESSAGING YOU CAN DO
AROUND THAT.
THAT HELPS WITH THAT.
CFA HAS A PROGRAM THAT WE
SPONSOR CALLED AMERICA SAVES.
DESIGNED TO GET LOW AND MODERATE
INCOME PEOPLE TO SAVE AND BUILD
WEALTH.
IDENTIFY A GOAL, SET A PLAN.
SAVE FOR THAT PLAN.
AND A TREMENDOUS AMOUNT OF
THOUGHT HAS GONE INTO THE
DEVELOPMENT OF MESSAGING IN THAT
HOW DO YOU ENCOURAGE PEOPLE TO
THAT.
I RECOMMEND IT AS IF YOU ARE
INTERESTED IN SEEING SORT OF
PROGRAM OUT THERE THAT CAN BE
EFFECTIVE, BUT I DO THINK
THERE'S A FUNDAMENTAL PROBLEM AS
LONG AS WE RESTRICT OURSELVES TO
THINKING ABOUT THIS IN TERMS OF
HOW ARE WE GOING TO HAVE HAVE
PEOPLE WHO DON'T HAVE ENOUGH
MONEY TO FIX A FLAT TIRE IF THEY
GET ONE.
START SAVING TOWARD RETIREMENT.
IT'S NOT GOING TO WORK.
IF I COULD PICK UP ON THAT A
LITTLE BIT.
I THINK WE'VE LEARNED JUST YOU
KNOW BASED ON SORT OF BETTER
DATA AND MEASUREMENT OVER THE
LAST FEW YEARS THAT YOU KNOW
PEOPLE HOUSEHOLDS HAVE LOT OF
MONTH TO MONTH VOLATILITY.
THE STARTER CHALLENGE BEYOND
RETIREMENT AND HOW GREAT LIFE
WILL BE AND THE GOLDEN YEAR IS
MANAGING THROUGH THAT.
SORT OF VOLATILITY.
TO ME THAT'S LIKE THE BASIC YOU
KNOW SORT OF FIRST ORDER OF
PROBLEMS.
HOW DO YOU HELP HOUSEHOLDS
BUDGET SO THAT THEY DON'T HAVE
THESE LIKE FINANCIAL EMERGENCIES
AND SORT OF HAVE THIS LIQUID
SAVING OR BUFFER SAVING THEY CAN
TAP INTO FOR EMERGENCIES.
AND YOU KNOW, THAT'S SOME
COMBINATION OF POLICIES AND
BUDGETING TOOLS AND YOU KNOW
CERTAINLY THERE'S A RULE FOR
TECHNOLOGY.
AND STUFF LIKE THAT.
BUT I DON'T SEE US REALLY
CRACKING LIKE THE RETIREMENT NUT
UNTIL WE SORT OF SOLVE THAT
BASIC BUDGETING ISSUE.
I APPLAUDED AMBITIONS
ASSOCIATED WITH THAT PROGRAM.
BUT I HAD -- THE CONCERN IS THAT
LOW-INCOME PEOPLE ACTUALLY NEED
THE MONEY NOW.
AND IF THEY DON'T NEED IT.
FLEXIBILITY OF 115 AGI.
RIGHT.
YES.
LOW-INCOME PEOPLE THERE IS THIS
WHOLE ISSUE OF TRYING TO GET
PEOPLE TO SAVE NOT FOR
RETIREMENT BUT FOR THE RAINY DAY
WHICH WE KNOW THE COMING.
BUT I THINK ABILITY THINKING
ABOUT PRODUCTS THAT HELP YOU
KNOW LEARN TO BUDGET AND LEARN
TO SAVE.
IS FIRST PLACE TO GO.
THE OTHER THING WE NEED TO
RETHINK.
WHAT DO WE NEED.
WHO NEEDS WHAT TO TOP OFF SOCIAL
SECURITY?
SOME PEOPLE DON'T NEED A LOT OF
ADDITIONAL SAVINGS IN ADDITION
TO SOCIAL SECURITY.
IF WE HAVE A ROBUST SYSTEM.
SOME OF THESE REFORMS HAVE TO BE
THOUGHT ABOUT IN TERMS OF THAT
BROADER PICTURE OF HOW ARE
WE -- HOW ARE WE MANAGING
RETIREMENT SAVING.
HOW MUCH DO WE SPEND.
HOW MUCH WILL GO THROUGH TAX
PREFERENCES AND HOW MUCH GOES
THROUGH SOCIAL SECURITY
SPENDING.
I'M WONDERING WHAT ROLE DO
YOU FEEL THE EDUCATIONAL
COMMUNITY SHOULD PLAY GOING
FORWARD IN FACILITATE FINANCIAL
LITERACY IN GENERAL?
SO THIS ACTUALLY SORT
OF -- WHEN I RETIRE MY NEW PET
PROJECT.
THE LEADING CAUSE OF DROPOUTS IN
COLORADO WHERE I LIVE.
I LIVE IN TOWN WHERE 35% HIGH
SCHOOL DROP OUT RATE.
STUDENTS CAN'T GETTEN A
NONCOLLEGE PREP DIPLOMA WITHOUT
PASSING ALGEBRA AND WE CAN'T
TEACH IT SO THEY CAN PASS.
FOR A NON COLLEGE PREP HIGH
SCHOOL GRADUATE COULDN'T WE HAVE
A BASIC CONSUMER FINANCIAL MATH
CLASS TEACHING YOU KNOW MATH CON
KREMENTS AROUND PERCENTAGES ON
LOANS.
I MEAN, SO WHICH ISN'T SO MUCH
INVESTMENT CONCEPT BUT THE BASIC
CONSUMER LITERACY ISSUE.
I THINK AT LEAST AT LEAST IN OUR
SCHOOL SYSTEM IN COLORADO AND
I'M SURE THERE ARE OTHERS THAT
DO A BETTER ELSEWHERE.
THERE'S VERY LITTLE THOUGHT
GIVEN TO THAT.
AND BY THE WAY IT MIGHT HAVE
SOME ADDED BENEFITS BECAUSE SOME
OF THE WORST VICTIMS IN OUR
CURRENT RETIREMENT SYSTEM ARE
TEACHERS IN 403-B PLANS HIGH
COST ANNUITIES TAKING EXPENSES
THAT ARE SO HIGH THEY ARE EATING
UP ALL OF THE POTENTIAL RETURNS.
SO WE'RE TAKING PEOPLE WHO ARE
UNDERPAID, WHO ARE GOING INTO
THEIR OWN PRIVATE SAVING TO BUY
SCHOOL SUPPLIES FOR CLASSES AND
PUT THEM IN THE WORST -- THEM
IN THE WORST RETIREMENT.
CAN I ADD ONE THING.
THE FINAL SORT OF SEGMENT OF
THIS IS INTERESTING ON POLICY
QUESTIONS.
THAT GO BEYOND JUST THE
FIDUCIARY DUTY AND SO FORTH.
AND CONSISTENT BETTER MARKET
CORE MISSION ONE THING THAT
WE -- THAT WE SHOULD ALWAYS BARE
IN MIND IS, NOTHING IS GOING TO
HARM INVESTORS, AMERICANS AT
EVERY LEVEL, ESPECIALLY AT THE
LOW END AS MUCH AS THE KIND OF
ECONOMIC UPHEAVAL THAT CAME
ABOUT IN 2008.
AND IT'S A SOBER REMINDER THAT
ALL OF THESE PROBLEMS YOU KNOW
REQUIRE DIFFERENT POLICIES
SOLUTIONS BUT YOU CAN'T REALLY
MAKE ANY HEADWAY UNLESS YOU
ENSURE THE STABILITY, THE
FUNDAMENTAL STABILITY OF THE
FINANCIAL SYSTEM AND THAT'S WHY
WE MUST NOT FORGET THAT LESSON.
WHY WE PROTECT INVESTORS WE HAVE
TO FIGHT AGAINST DEREGULATION ON
THE DODD FRANK REFORMS.
THAT'S WHY IT IS SO KEY.
CAN WE ACKNOWLEDGE OUR
PANELIST THANK YOU FOR YOUR
TIME.
[APPLAUSE]