One of the most important investor protections in decades took effect on June 9. The new rule, issued by the Department of Labor, sets in motion a seemingly commonsense requirement that those who advise on retirement investments must put their clients’ interests ahead of their own. Yet it marks a revolution in retirement security, the result of an epic seven-year battle between consumer advocates and the financial industry that sunk millions of dollars into white shoe lobbying firms, industry-sponsored studies, congressional campaign contributions, and major lawsuits in an effort to block the rule.
“Investment advisers shouldn’t be able to steer retirees, workers, small businesses, and others into investments that benefit the advisers at the expense of their clients,” Assistant Labor Secretary Phyllis Borzi, who developed the rule, said in 2011. “The consumer’s retirement security must come first.”
The rule, finalized in April 2016, was scheduled to take effect a year later in order to give firms time to comply. It only survived till now thanks to a veto by President Obama of legislation that would have permanently blocked its implementation; Rep. Paul Ryan, who led the charge in Congress, had tarred the rule as “Obamacare for financial planning.”
Since the rule was already final when President Trump took office, it was invulnerable to his day one directive freezing all pending rule making. Nevertheless, within two weeks Trump signed a memo directing the DOL to review the rule and potentially rescind it. In March, before Trump’s labor secretary had even been confirmed, the Department of Labor issued a proposed rule delaying implementation for 60 days — bringing us to June 9 of this year.
In April, Sen. Elizabeth Warren joined consumer groups and the AFL-CIO to unveil a “Retirement Ripoff Counter,” a digital projection tallying the costs to retirement savers of delaying implementation of the rule — which they calculated at $46 million a day. And in late May, Alexander Acosta, Trump’s newly minted labor secretary, announced in the pages of the Wall Street Journal that the administration had exhausted every “principled legal basis” for further delaying the rule. And so it was that key portions of the fiduciary rule finally went into effect last month.
Whether the rule will survive the Trump administration’s deregulatory campaign is an open question.
Albert Young, a floor official with H&R Block Financial Advisors, watches the early numbers on the floor of the New York Stock Exchange, Feb. 29, 2008.
Photo: Henny Ray Abrams/AP
Like the dozen or so others gathered for the chicken noodle casserole at Johnny’s CharHouse that cold day in January 2007, Stephen Wingate, then 59, had received an invitation in the mail to learn more about financial planning for retirees. “I was interested in trying to get my affairs in order because I was getting closer to retirement,” said Wingate, who’d begun putting away money in 1986 when he was a supervisor at Ideal Industries, a local company that manufactures wire connectors, hand tools, and other equipment. “I’d been saving 10 percent of my income right along.”
He liked what he heard from Jack W. Teboda that evening in Sycamore, Illinois. A handout described Teboda as an adviser who employed conservative strategies and chose investments “that are best suited for my clients.” His two-page bio ended on a personal note. His wife of 30 years had been his high school sweetheart, and they attended the Harvest Bible Chapel in nearby Elgin. “Our relationship with God is the most important aspect of our lives,” it read.
But it was Teboda’s seemingly prudent investment strategy that attracted Wingate most. “What he basically promised was safety,” he said. “He said he could offer us financial peace of mind.”
Sitting beside his wife in Teboda’s office later that month, Wingate moved his entire retirement account of $282,000 from IRAs that had been invested in plain-vanilla Vanguard and Janus mutual funds into two risky, real-estate investment trusts, known as REITs, that invested in and operated commercial properties.
The funds that Wingate liquidated had annual fees of less than one-half of 1 percent. Andrew Stoltmann, the Chicago lawyer who will represent Wingate in an upcoming arbitration against Teboda and the broker-dealer he is registered with, said that the REITs that replaced them, which were highly illiquid and not publicly traded, offered Teboda a 7 percent commission off the top, immediately zapping more than $20,000 from Wingate’s savings.
As he signed the stack of documents, Wingate says he asked about a disclosure that said he could lose some or all of his money, but Teboda was reassuring. “He said, ‘Don’t pay attention to that because they all say that,’” said Wingate. In one of the documents that Wingate signed, Teboda had written that one reason the REITs had been chosen was to “minimize risk.”
It didn’t turn out that way.
Wingate was thunderstruck three years later by news that the private market value of one of the REITs, Behringer Harvard REIT I, had dropped from $10 to $4.25 a share.
He fired off an email to Teboda. “How do I recommend your company to others when I am totally disappointed with what you have done with my account?” he wrote on June 28, 2010. “These are my life savings in your hands.”
Teboda said to hang tight, but Behringer Harvard didn’t rebound. Last year, after consulting with a new adviser, Wingate sold both REITs at a loss of $147,000, half the original value of his retirement account. Like other securities linked to real estate, Wingate’s REITs lost value during the collapse of real estate prices during the financial crisis. But even under the best of circumstances, these products were too risky for anyone approaching retirement. A Vanguard stock index fund, by contrast, had almost completely recovered its pre-crash value by the end of 2010.
Wingate’s personal financial crisis was part of a larger public one. According to a 2015 White House report, Americans lose $17 billion a year from their retirement accounts as the result of advice compromised by conflicts of interest. And such advice has always been perfectly legal for financial advisers who were not specifically charged by regulators to put their clients’ interests ahead of their own, a level of care known as a “fiduciary duty.” Many retirement advisers skated by under a lower standard that investment need only be “suitable.”
The Dodd-Frank reforms passed in 2010 tackled some of the blatant investment risks to average Americans. In addition to measures designed to rein in too-big-to-fail banks, the law sought to protect consumers by mandating the creation of a Consumer Financial Protection Bureau, putting new restrictions on the packagers of asset-backed securities, and directing the Securities and Exchange Commission to study whether stockbrokers should be held to a “fiduciary” standard. But it did not target the excessive fees that cut into the returns of the nation’s retirement savers.
The same year that Dodd-Frank was signed into law, the Department of Labor, which has jurisdiction over retirement accounts, unveiled its own draft fiduciary rule. While the SEC dragged its heels, the DOL doggedly pushed its proposal through the federal rule-making process.
Experts say that advice like Teboda’s would have been a violation under the DOL’s new rule. “I don’t see how non-traded REITs as they are currently structured and sold would ever comply with the new DOL rule,” said Micah Hauptmann, financial services counsel at the Consumer Federation of America. Craig McCann, a former economist at the Securities and Exchange Commission who has studied the poor performance and conflicts related to non-traded REITs, said in a 2014 blog post that “No investors should buy these illiquid, high-commissioned, poorly diversified non-traded REITs and no un-conflicted broker would recommend them.”
Photo: Tom Williams/CQ Roll Call/AP
In July 2009, an outspoken former House staffer and public health professor was taking her seat at a daily staff meeting on the fifth floor of DOL headquarters in Washington, D.C. Phyllis Borzi, who had just been sworn in as assistant secretary, charged with running the Employee Benefits Security Administration, had asked her nine office directors to come prepared with a list of their top priorities, the issues they would want on the agency’s agenda if they had her job.
As Borzi listened, most of the directors singled out the same concern: Retirement accounts were hemorrhaging money because of high fees and inappropriate investments, but the agency had limited legal tools to hold the offenders accountable.
The law at the time typically put the fiduciary onus on sponsors of retirement plans, often small employers struggling to set up 401(k)s for their workers. Many of those sponsors, Borzi’s team suggested, were making bad decisions based on the advice of financial experts, resulting in avoidable losses for participants.
“So the employer in many cases was as much a victim of the broker as the employees were,” she said. “They’d paid money to a broker and followed their advice.”
Many of these advisers were free from any fiduciary obligation to their clients thanks to loopholes in the Employee Retirement Income Security Act. That law, known as ERISA, only covered advisers who were giving advice on a regular basis and who had a “mutual understanding” with their client that their advice would serve as the driving force behind investment decisions. One-time consultants advising on which mutual funds to offer in a 401(k) did not have to act as fiduciaries. When their faulty advice blew up, Borzi said, advisers could simply tell her investigators, “‘Yeah, I gave advice, but how could I know they would rely on it?’”
For years, those loopholes hadn’t mattered much, as Americans had relied on employer pensions that provided a steady stream of income in retirement. But by 2013, after decades of corporate cost-cutting, pensions constituted only 35 percent of retirement assets; more than half were in so-called defined contribution plans such as and IRAs and 401(k)s.
Just as investors faced the new challenge of managing their own retirement money, the financial industry was adding complex products like REITs to retirement offerings. Savers like Wingate, trying to sort through the dizzying options, turned to brokers and advisers for help. “I knew I needed a very knowledgeable person handling our retirement money,” Wingate said. “I wasn’t qualified to do that.”
Brokers had an irresistible opportunity to steer naïve clients to opaque products that offered the biggest commissions, said Sarasota investment adviser Raul Elizalde. They were also legally permitted to choose funds whose annual fees were higher than equivalent investments. “The model of the financial industry under the suitability rule is to take it little by little – and many times,” he said.
Perhaps most perilous for the burgeoning ranks of small investors was a shift in the industry’s marketing strategy: Stockbrokers, once understood as salespeople, began to call themselves “advisers,” a title that had been used previously only by so-called registered investment advisers who were required to operate as fiduciaries.
In a rule published in 2005, the Securities and Exchange Commission conceded that investors were confused about the titles that advisers were using and the obligations they were under. Six out of 10 investors had come to the wrongheaded conclusion that brokers had a fiduciary responsibility, the SEC said, citing research by a brokerage firm. The confusion, the SEC said, raised “difficult questions.”
That year the SEC ordered up focus groups of investors. In a typical response, one Baltimore participant said that he regularly received invitations to free dinners from financial people but was clueless as to what their titles meant. “I don’t know if they’re a financial consultant, financial adviser or financial planners,” he said. “How would I even know the difference?”
Despite the conclusions of its own research, the SEC chose to do nothing about the misleading titles. “We are concerned that any list of proscribed names we develop could lead to the development of new ones with similar connotations,” it wrote at the time.
Photo: Spencer Platt/Getty Images
By October 2010, just after Dodd-Frank was signed into law, Borzi and her team had designed a proposed fiduciary rule that would shut down ERISA’s loopholes and introduce a new definition of fiduciary advice. But her first stab at a rule was met by ferocious attacks in comment letters and public statements from the securities industry, afraid it would undermine its commission business, and the insurance industry, concerned the rule would make it harder to sell lucrative annuity products. In the year following the release of the proposed rule, not a single consumer group registered to lobby in support of the rule. But the Chamber of Commerce; industry lobby groups including the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Roundtable; major firms that offer mutual funds and annuities such as Fidelity Investments and Prudential Financial; and major financial firms including JPMorgan Chase, Charles Schwab, and Blackrock sent lobbyists to quash various aspects of it — altogether 37 organizations that cumulatively spent more than $61 million on lobbying that included the fiduciary issue during that period.
“They have more money than God,” Borzi said. “For every 15 or 20 meetings we had with opponents, we would have one conference call or meeting with supporters, and that’s probably overstating the number of supporter meetings.”
By September 2011, the DOL had withdrawn the rule, and she and her staff had regrouped to work on a new version. “We have said all along,” Borzi said in a press release, “that we will take the time to get this right.”
Dodd-Frank had required the SEC to study a possible fiduciary standard, too. As part of that process, the SEC solicited public comment and held sit-down meetings with industry and consumer groups. Of the 111 meetings the SEC held between August 2010 and October 2012, only 31 were with groups promoting stronger fiduciary requirements. The SEC’s 80 meetings with industry included 15 with SIFMA, which represents security firms and banks; eight with the Financial Services Institute, which represents brokers; and 14 with insurance companies and trade groups. After producing a study that recommended establishing a fiduciary standard, the SEC’s efforts stalled. “They had been ‘studying’ the issue for years but never took the next step and actually proposed something,” said the Consumer Federation’s Hauptman.
In the years that followed, Borzi said, as she oversaw the development of a new rule, the disproportionate influence of the financial industry was constantly an issue. As the DOL moved toward a final rule in 2016, the number of organizations registered to lobby against it multiplied. Throughout, consumer advocates, who universally support the rule, have been outflanked.
Of the 98 organizations that declared they lobbied the Senate on the fiduciary rule in 2016, only 11 were unambiguously in favor of the rule. Members of the financial industry prefaced many of their public comments with vague endorsements of a best-interest standard, but these letters typically went on to complain about portions of the rule that didn’t serve their interests.
Those lobbying in favor, including the AARP, the American Association of Justice, which represents trial attorneys, and the AFL-CIO, spent a total of $23.9 million on lobbying during the quarters when they were active on the rule.
By comparison, those who lobbied against the rule, including the U.S. Chamber of Commerce, SIFMA, the Financial Services Roundtable, the American Bankers Association, the Investment Company Institute, Nationwide, Allstate, and Americans for Prosperity, collectively spent $187.3 million in the quarters when they were registered to lobby on the rule. (The filings don’t break down how much was spent lobbying on the fiduciary rule in particular.)
Along with its big spending on lobbyists, the financial industry has also splashed its largesse directly to lawmakers. In a study released in March based on public filings, Americans for Financial Reform found that the financial sector was by far the biggest business category contributing to federal candidates for office and their leadership PACs during the 2015-16 election cycle, spending $1.1 billion.
Among the top 20 contributors? The American Bankers Association, SIFMA, Wells Fargo, New York Life Insurance, and the Investment Company Institute, the trade group for the mutual fund industry — all of which have filed comment letters opposed to the DOL’s rule.
The brokerage industry argues that since the new rule discourages use of the commission-based accounts that are common among small investors, it will effectively cut off average retirement savers from access to investment advice. The insurance industry claims that the rule will impede access to products, including annuities, which provide investors with guaranteed income.
The stakes, apparently, are high. The consulting firm A.T. Kearney calculated last year that it will cost the financial industry as much as $20 billion in lost revenue by 2020 to comply with the rule, in part because it will dramatically reduce the fees the industry collects from investors.
The United States Chamber of Commerce headquarters at 1615 H Street NW, in Washington, D.C.
Photo: APK
While hearings about the rule were in progress in August 2015, a coalition of insurance companies called Americans to Protect Family Security aired a classic scare-tactic television ad that featured a couple heading home in the car after dropping their daughter off at college.
When the wife says that government bureaucrats want to “make it really hard” to get advice from “Ann,” their financial adviser, her husband is indignant. “We’re gonna call our senators,” he says with resolve.
In another ad that month, this one sponsored by the conservative group American Action Network, an investor who can’t get through to a human at his brokerage firm hears the doorbell ring only to discover a drone hovering at his front door. Hanging from the drone is a sign that reads “NOTICE: NO PERSONAL SERVICE FOR YOUR IRA.” The group, founded by Fred Malek, a former assistant to Presidents Richard Nixon and George H.W. Bush, spent $5.6 million during the 2016 federal elections, according to OpenSecrets.
More recently, the U.S. Chamber of Commerce released a slick 20-page report featuring cartoon graphics depicting “Jane,” an investor with a small account, whose broker “Steve” was dumping her because the oppressive new rule would make it uneconomical to advise her. “Sadly,” the caption reads, “Steve’s company no longer allows him to serve accounts less than $25K.” Chamber spokesperson Stacy Day declined to comment, but referred me to an article in which a Chamber executive said small investors will be “dumped from their plans” or subject to high fees “that may not be the right option for them.”
The research behind these claims is sometimes thin. The Investment Company Institute, the mutual fund trade group, filed a comment letter to the DOL this year in opposition to the rule, claiming that it had “informally surveyed” its mutual fund members and discovered that 31 out of 32 funds had either received “orphaned” accounts from brokerage firms or gotten notice about accounts that would be orphaned by the firms that previously held them. An ICI spokesperson said in an email that this would be harmful to investors because they would lose access to financial advice and the convenience of having a single financial institution hold all their funds in one place.
“A lot of the pushback is a little bit too hysterical,” said Charles Rotblut, vice president at the Chicago-based American Association of Individual Investors, a nonprofit that educates investors on how to manage their money. “These are accounts that the investor has likely forgotten about. The loss of access to financial advice is a weak argument because the investor probably wasn’t using the advice anyway.”
As for the risk of modest investors losing access to a brokers’ advice? “I’m not so sure at the end of the day that that’s bad for the investor,” Rotblut said. “In fact, quite the opposite – some of these so-called advisers are just glorified salespeople who’ve passed a regulatory exam.” He recommends that investors consult with an hourly financial adviser instead.
The Chamber of Commerce report, issued in May, outlined “new information” about a wave of class-action litigation expected in response to a provision of the rule that allows investors to bring class-action lawsuits for systemic abuses. The Chamber cited a February report by Morningstar, Inc. in claiming that the wealth management industry would pay between $70 million and $150 million annually in new legal costs. The Chamber never mentioned that the same Morningstar report said the risk of litigation could serve as an incentive for firms “to create and adhere to prudent policies and procedures that protect retirement investors’ best interests.”
Michael Wong, the Morningstar senior equity analyst who authored the report, said in an interview that his estimates could actually be too high. “If no investors are harmed, there is no basis for class lawsuits and class settlements,” he said. “Through many lenses, it looks like the benefits outweigh the costs of this rule.”
The Chamber report also referred to a post by Meghan Milloy, director of financial services policy at the conservative American Action Forum, in which she suggests that most consumer claims are baseless. Citing Milloy, the report said that consumers filed nearly 4,000 arbitration cases last year with FINRA, the Financial Industry Regulatory Authority, alleging wrongdoing by brokers, but that only 158 — about 4 percent — of those cases were decided in favor of the consumer.
But Milloy’s denominator was off by a factor of 10. Only 389 cases were decided by arbitrators in 2016, meaning that those 158 customer wins represented 41 percent of the cases decided by arbitrators. The reference to the 158 customer wins appeared on a FINRA chart which clearly shows that customers had won 41 percent of the cases they brought, out of 389 cases decided, not Milloy’s “nearly 4,000.”
In a telephone interview, Milloy initially said that the FINRA arbitration statistics were evidence of the prevalence of “baseless claims” by investors. When I pointed out her substantial error, she responded that it was “still less than a majority” of cases decided in favor of consumers. She has not corrected her original post, which on June 29 was cited in a letter to the SEC from lobbyist Kent A. Mason of the Washington, D.C., law firm Davis & Harman on behalf of an unnamed “group of firm clients.” Mason told the agency that its role protecting IRA investors would be “reduced dramatically” under the rule.
To boost its claim that the fiduciary rule will hurt average Americans, the Chamber features on its website small business owners who express deep concern over the new standard. The government watchdog group Public Citizen got in touch with some of those businesspeople, only to learn that several had little knowledge of the rule.
One business owner, Richard Schneider of Ellisville, Missouri, was quoted on the Chamber’s website saying that the rule would mean more paperwork and hurt his employees. “The Labor Department should just fix this rule already,” he said. When contacted by Public Citizen to hear more about his views, though, Schneider said he didn’t follow the rule closely.
Another person featured on the Chamber’s site, Jim Dower, runs a nonprofit in Chicago. The Chamber quoted him as saying that the “DOL may have the right intention … but I’m worried they’ll still get it wrong in the end.” When Public Citizen emailed him about his comment, Dower responded, “Who do I call to get this down?” The Chamber has since removed him from its site.
Photo: Win McNamee/Getty Images
In a March 16 letter to the DOL on behalf of unnamed clients, lobbyist Mason slammed the agency for taking “the stunning position that selling is advising.” Yet a study earlier this year by the Consumer Federation of America demonstrates that is precisely the message that the financial industry has been delivering to the public
Even as securities firms assailed the fiduciary rule in the lead-up to its June 9 effective date, they continued to deliver marketing messages suggesting they already were serving clients at the elevated standard. On their websites, firms large and small pledge to variations on the themes of “clients first” and advice given “with our clients’ best interests in mind,” despite allowing brokers to pitch high-commission products or illiquid investments, like the non-traded REITs sold to Wingate, that are ill advised for all but the wealthiest investors.
In a study of 81 non-traded REITs published in 2015, McCann, the former SEC economist, found that REIT investors over the past 25 years would have earned as much or more by investing in U.S. Treasury securities. More than half their underperformance, he found, resulted from the upfront fees charged to investors, which largely went to brokers.
“The entire industry is built around practices that would be a crystal clear violation of a fiduciary duty,” said Wingate’s lawyer, Stoltmann. “There is no faster way to clean up the securities industry than imposing a mandatory fiduciary rule.”
Opponents of the DOL rule suggest that improved disclosure would solve many of the problems the rule was designed to fix. But Anthony Pratkanis, a professor of psychology at the University of California, Santa Cruz, who has studied the characteristics of financial fraud victims, said that’s nonsense: “Consumers and investors do not read disclosures. Period.” Multiple studies have shown that even the people who do read them don’t understand them, he said.
A 2012 report from the SEC found that investors often don’t even understand the information they get from brokers about their trades: Only 53 percent of respondents in an online survey of 1,200 investors could correctly identify a trade confirmation as having been for a stock purchase.
Nevertheless, President Trump’s new secretary of labor, Alexander Acosta, has publicly opposed the rule based on an argument that the government should trust in investors’ “ability to decide what’s best for them.”
White House National Economic Council Director Gary Cohn, one of Trump’s closest advisers, has gone further. “We think it is a bad rule,” he told the Wall Street Journal. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”
Illustration: Ben Jones for The Intercept
After five more years, four more days of public hearings, thousands of comment letters, and hundreds of meetings, mostly with industry representatives, the DOL finally published its new rule on April 8, 2016. It took the U.S. Chamber of Commerce and eight other business organizations less than two months to file suit against the agency, saying it had exceeded its authority.
In February, a Dallas federal judge ripped apart their arguments in an 81-page opinion denying summary judgment. To a complaint that the DOL had violated the freedom of speech of insurance agents and brokers, Chief Judge Barbara M.G. Lynn of the Northern District of Texas said, “At worst, the only speech the rules even arguably regulate is misleading advice.” The Chamber and the other litigants have appealed.
Just days before that ruling, on February 3, President Trump signed his memo in the Oval Office directing the DOL to review the rule. He then handed his pen to Rep. Ann Wagner, the Republican from Missouri, standing just to his right, and suggested she say a few words. Wagner isn’t the top recipient of Wall Street money in Congress, but support from the sector looms large for her, and she has returned the favor, sponsoring bills to rein in the power of the DOL and the SEC. According to the online publication Investment News, in a 2015 speech to insurance professionals, Wagner said that if efforts to kill the rule fail, “By God we’ll just defund them.”
Explore Trump’s executive orders by clicking on the above image.
In a draft bill in early July, Wagner proposed that the rule be eliminated and replaced with a new standard of conduct that would require investment recommendations to “be in the retail customer’s best interest.” But Wagner’s bill lacks the protections of the DOL rule and fails to adequately address the “complex web of toxic financial incentives” that lead to bad advice, according to a July 11 letter to members of the House Financial Services subcommittee from the Consumer Federation of America.
In the 2015-16 election cycle, insurance companies, securities firms, and commercial banks were the top three industries backing Wagner’s campaign, donating more than $549,000. The two firms that gave the most were Jones Financial Companies, a brokerage firm, and the insurance company Northwestern Mutual. Both wrote to the DOL to oppose the rule. Over the last two election cycles, the financial industry contributed more than $1.1 million to her campaigns.
There in the Oval Office, she referred to the executive order as “my baby,” claiming that the edict would help “low- and middle-income investors and retirees.” It was, she said, a “big moment” for Americans who invest and save. A Wagner spokesperson did not respond to requests for comment.
Three months later, in a May 22 Wall Street Journal op-ed, Acosta said that the DOL should examine ways to revise the rule and open up yet another comment period. Acosta’s arguments, said Barbara Roper, director of investor protection at the Consumer Federation of America, were “straight from the talking points of industry.” A DOL spokesperson declined to comment.
Acosta’s op-ed appeared just weeks before the House Financial Services Committee passed the Financial CHOICE Act, an omnibus bill designed to roll back many of the Dodd-Frank reforms. The bill would repeal the DOL’s fiduciary rule and block the DOL from promulgating a new one until at least 60 days after the SEC issues a final fiduciary rule of its own.
On June 1, shortly before the CHOICE Act passed the full House, the SEC suddenly woke up from its slumber. Trump’s new SEC chairman, Jay Clayton, released a request for public comment about the standards of conduct expected of investment advisers and brokers, asking for feedback about possible investor confusion over “the type of professional or firm that is providing them with investment advice.”
“The timing of the request is troubling,” said Stephen W. Hall, legal director at Better Markets, a nonprofit that promotes financial reform. “It appeared after years and years of SEC inaction, but just as the DOL rule came under fresh scrutiny by the new administration.”
In his request for comment letters, Clayton noted that Acosta wanted the two agencies to work together to analyze the standards of conduct for brokers and investment advisers.
Ben Edwards, associate professor of law at the University of Nevada, Las Vegas, said that a new fiduciary rule from the SEC could give Acosta the legal ammunition he needs to scrap the DOL’s rule. “An SEC rule would materially change the regulatory environment,” he said, because it could provide “a basis to question the need” for a DOL rule. That would be a win for the insurance industry in particular, Edwards said, because the SEC’s authority “does not ordinarily extend to insurance products.”
Judith Burns, an SEC spokesperson, declined to comment.
Lisa Donner, executive director at the consumer advocacy group Americans for Financial Reform, worries that the DOL rule, just weeks after taking effect, is already “in danger of being undone.” On June 29, the undoing began, with a request for comment from the DOL asking whether the remaining aspects of the rule, which as of January 2018 would require legally enforceable contracts between clients and any brokers who receive commissions, should be further delayed.
Wingate, now retired, said the catastrophic loss to his retirement account has been “really rough” on his wife, who at 69 continues to work as a nurse to compensate for the lost savings. To make ends meet, they sold the family vacation condo in Florida earlier this year. “It was a real strain on our marriage,” Wingate said.
On Saturday mornings at 7 a.m., Wingate’s former adviser, Teboda, has a radio show on Chicago’s AM 560. On a recent Saturday, Wingate said he listened in frustration as he heard the adviser describe himself as a fiduciary who had clients’ best interests at heart. “My wife said, ‘I can’t take it anymore, so please turn it off.’” On Teboda’s June 17 show, he similarly referred to his “fiduciary firm” several times, noting that he worked in clients’ “best interest.”
Wingate and his lawyer, Andrew Stoltmann, say they will face off in November against Teboda and the broker-dealer he was formerly registered with, ProEquities, at a FINRA arbitration hearing. ProEquities spokesperson Eva T. Robertson and Teboda declined to comment, but ProEquities said in its answer to Wingate’s complaint that he is a sophisticated investor who was able to “talk intelligently” with Teboda.
While they await their day in Finra’s closed-door court, the battle over the kind of advice Teboda got will go on. “It’s a profoundly broken system,” said Donner of Americans for Financial Reform. “If there wasn’t so much money at stake for people making money off the broken system, it would not have taken seven years to get this rule done.”
This article was produced in partnership with The Investigative Fund at The Nation Institute.
Stealing retirement fortunes from old people is relatively easy and legal if you are a wealth advisor. Often a spouse will die leaving the other spouse in a state of shock and sole owner a small fortune. The elderly person is already beginning to lose their wits and having difficulty making decisions. She seeks professional help, perhaps through a lawyer. She is steered to a wealth manager/advisor that assures her that he and his company (a prominent bank) puts her best interest first and will help her in the future if she needs help paying bills or wants to move to assisted living, they will even help sell her house. He recommends giving most of the money away to charity to avoid paying taxes on the estate when she passes. (Old people hate estate taxes.) Because she already has too much money. they recommend consolidating all the wealth and investing it so there are minimal gains, but enough to pay fees to preserve principal. The wealth manager has a charity for whom he manages money and recommends the victim leave 90% of the estate to the charity. The victim is sworn to secrecy to preserve harmony in the family while she is living. She is also told that the heirs would probably not spend the money in a way she approves so it is best to give it to charity now, or direct it’s distribution in the will. The goal is not to steal the money like a common crook, it is to steal the management of the money with a goal of retaining management long after the person passes. The rightful heirs get a token inheritance. while a person is living and saving, the same scenario exists, the fight over money management and retention of gains. In the scenario above, my mother received reams of paper listing the 100 investments she owned. Many of the funds were not publicly traded, some gained, some lost but in the end, the total gain was enough to cover costs. I spoke to her former advisor at Fidelity, he said “Why do you need 100 investments to make no money?”
Change the way we conduct business in politics
Why do they even bother to pass such a law ? The whole world knows that it is exactly what they do and get away with it. We are all witnesses to the 2008 meltdown. Not one single advisor got charged for running the scams.
Financial advisers rarely have any structured method of assessing the risk and cost of an investment, and then applying that to the client’s requirements – in a way that’s easy to understand.
For that reason alone, I never use one – only going to my accountant to find out about the tax implications of different types of investment.
Here in Australia, financial advisers don’t have a good reputation, mainly because up until quite recently they didn’t have to disclose their commissions from each product they advised clients to buy.
As one who worked in the financial industry for 20 years (half of my long career) there is one thing you learn very quickly when exposed to the ongoing fraud and corruption that is internal to many of these organizations; never, ever invest with an individual financial adviser as they are always outside the rules of the game.
There is no need to worry about what the idiotic Trump administration is going to do or not do since there are safe ways to invest your money as long as the economy remains in somewhat of a stable form; if not there is no investment that can save you unless the management of that investment has access to foreign financial markets where monies can be easily transferred into.
In short, anyone who moves there funds out of such institutions as reputable mutual funds is asking for trouble down the road. The reason for this is that because of the mutual fund turmoil in the 1970s they are now restricted to very strict financial laws, which is what saved most of them in the 2008 crash. Those funds that were legally, highly speculative were subjected to the same turmoil as the hedge funds and large investment houses such as Lehman Brothers.
However, investment in reputable, conservative funds that such companies as Fidelity, T. Rowe Price and many others offer is the best way to invest monies for the long term, period! Anything else in this economy is a dangerous move and those who make such moves will eventually pay a terrible price…
You have no concept of the actual issues. I see you interviewed no one that could explain them, of course you didn’t. Nor did you interview any of the people who had a low-cost mutual fund, but is being thrown into high-cost accounts that the costs are going to go up as the class actions start. I hope in the future writers are held to some sort of ethical standard to cover topics fully, and just like the Fiduciary Rule that the public consumers can call a class action suit against you for your writing done a decade earlier. How honestly can you waste so much time writing and not understand the topic from any other side that socialism is good?
Obvious troll is obvious.
If we are going to have capital offenses, we can start with these.
Truly important for all Americans to read and understand. I spoke with my own plan manager about the RULE, and was stunned when she said it really did not impact how she advises me or others, and that she feels she is regulated by common sense advice more than this kind of rule. I am very, very concerned about the RULE being undermined and destroyed, since its destruction would literally curtail the requirement to consider and advise based upon the client’s absolute short and long-term best interests. If it is your money, it matters what the considerations and advice are. If it is not your money – not so much. Easy for my financial advisor or any other to “think” it is an unimportant RULE. I beg to differ with her.
ANY TIME I see that the US Chamber of Commerce and Americans for Prosperity are behind, in support of any action, I KNOW that I had better pay attention, and that I am about to be a target of their support of legislation to UNDERMINE me, my money, my family, our futures. There is NO question to me of their thieving intent. NONE. I have a right to my opinion of them and it has not changed in all the years I’ve been watching what they support and what they try to undermine. The proof is in following the REPS and SENATORS they are constantly working with. The Government we see today has more money coming at it from these ALEC related groups than one can wrap a mind around. They and the REPS who cater to them, disgust me.
Conned=corporations=liars that lend money=the mob=a dystopian future like Palestine’s open-air prison confines. Banksy’s latest, before his Brexit installation near the “Chunnel” entrance –
In Palestine, welcome to the “Walled Off Hotel” – http://www.telegraph.co.uk/news/2017/03/03/walled-hotel-banksy-opens-dystopian-tourist-attraction-bethlehem/
The greatest, “the satan” of all corporate weasels is “CONSUMER”. The “its” (corporations) have corrupted American English, sooooo much – that even well-meaning use “it”, ad nauseam.
YES! I was ripped-off by Prudential-Bache in ’83, while still under the ‘blissfully ignorant” influence of the “its” that the banksters have perfected. YES! ripped, baybeeee! Until We the People, you, me, the “Berners”, the Greens and the still unaware, but pissed Indys – GET TOGETHER – and oust the “its”in the Dems party – and take on the mob who have our government.
So, lesson learned: PUSH BACK against corrupt “it” weasel language: Choice vs, Rights. Jobs vs. green jobs. Government vs. rule by “its” . Right vs. wrong. Liberal vs. conservative.
We have been conned. This article needs more people vs. The State reflection
If the securities industry is already operating at the elevated level of the fiduciary rule, as it claims in the article, what’s their problem with codifying the conduct? If the industry is indeed looking out for the best interests of its clients, how is so much investor money disappearing? It seems to me that investor losses are a pretty accurate indicator that the industry’s claim of already adhering to “elevated” standards is disingenuous at best.
It’s obvious that the investment industry wants to capitalize on the plight of average wage earners who, through the loss of employer retirement plans, have been forced to enter the investment industry as amateur free agents, creating a classic fox-guarding-the hen house scenario for the outmatched little guy, who has to trust in an agent who isn’t by law required to make investments in the best interests of their clients.
this alone would make me run for the hills:
“His [Teboda’s] wife of 30 years had been his high school sweetheart, and they attended the Harvest Bible Chapel in nearby Elgin. “Our relationship with God is the most important aspect of our lives,”….”
My thoughts exactly pertaining to his last sentence. It highlights the fact that there are millions of evangelicals nationwide, including hundreds of legislators, whose first allegience is to the Bible, not the U.S. Constitution.
I also would not trust anyone who’s most important aspect of their life was a fictional fairy tale of an imaginary friend in the sky.
Donald Trump’s “Newest” Reality Show, it’s called, “The Grifters!”
Starring Donald Trump, his entire Family and all his Friends!
It WON’T be on TV, so you WON’T have the option to change the channel! It WILL be in your “Real Life” so you WON’T miss it!
“The Grifters! The Ransacking of America!”
Brought to you by: The Russian Government and the American Gullibles!
Promoted to you in the “Language of Propaganda” by “MainShitMedia!” (MSM)
And Coming Soon…
“Hawaii (OyHeLie) 45-0!” Starring “Crime Boss” Donald Trump and his Criminal Offspring Children, where the cops kick in the front doors of the Whitehouse and the Lead Detective says, “Book em’ Dano!”
Regards,
KMA
In yet another paroxysm of Trump derision, the Intercept basically lies to its readers here.
Antilla writes:
Antilla goes on to write:
Then an Intercept headline writer informs readers, “Financial Advisers Want to Rip Off Small Investors. Trump Wants to Help Them Do It.”
How low can this so called ‘Journalism’ get?
.
The Intercept isn’t “journalism”. It’s propaganda for the far-left echo chamber.
Yet here you are.
This another “gun free zone” law that has no magic to prevent actual guns from being brought into the zone.
It is also subjective. YOU say REITs are risky, others say they are safe because they are backed by mortgages.
Remember what happened to the boring, stodgy Vanguard stock funds between 2007 and 2009. They lost as much as the REITs.
You won’t take on the evil Fed for making interest rates near zero so you can’t put it in an FDIC insured bank and earn anything.
You also won’t point at the Wall Street and other banksters, but will blame Trump for everything.
I expect the Intercept to blame Trump for the next volcano in Alaska.
You won’t blame the trade policy (I have no idea why you, Hillary, and Wall St. are on the same side) where the blue collar jobs and even white collar jobs (H1-Bs and offshoring are displacing) that had defined benefit pensions disappeared under BILL the rapist CLINTON and BARAK the globalist OBAMA.
A law saying be nice will not be obeyed except by people who are already nice, just like a law banning guns will only be obeyed by the law abiding. Wyoming probably has the most guns per capita, but is constitutional carry and gun crazy. Chicago has banned guns. Chicago has more shootings in one month that Wyoming does in years.
If there was fraud, there are already laws against fraud. You can have more and more laws, but when we won’t enforce the ones we have, like charity fraud against the Clinton Foundation, the laws protecting classified emails against Hillary, laws against… Oh, Bernie’s wife is actually being prosecuted. Imagine that. Well, His wife was a thief, but Hillary stole the primary.
We have no rule of law now. It is disingenuous to nibble at a trivial edge matter when you reject reestablishing the whole as your fellow Glenn Greenwald documents in “With Justice for Some”. I fail to feel ANY outrage when for the last 8 years Obama had been given a pass, as well as Hillary, Comey, Lynch, Patreas, and others.
The DNC itself is being sued by Bernie supporters and you won’t cover it. Corruption is being exposed but you don’t care because it is on the left.
I don’t know how you can find all those GOP specks with all the planks in your and the Democrat’s eyes.
Chicago hasn’t banned guns. It tried to ban handguns but that law was ruled unconstitutional and overturned:
https://en.wikipedia.org/wiki/McDonald_v._City_of_Chicago
same with the ban of gun retailers in the city:
http://www.chicagotribune.com/news/local/breaking/chi-citys-gun-ordinance-ruled-unconstitutional-by-federal-judge-20140106-story.html
I’m pretty on the fence about gun control, I understand both the arguments for and against, but sheesh man, at least make an effort, your brainwashed is showing. There are a boatload of studies that show gun control works, and another boatload saying gun control isn’t effective. As far as I know exactly 0 peer-reviewed articles in good journals have ever shown that gun control INCREASES gun violence.
Now I know you don’t like Hillary, that’s pretty clear, but just take a deep breath, exhale, and remember, we’re all Americans here. Don’t worry about the conservative vs liberal stuff. The problems documented in this article are something we should all be worried about as Americans. The RNC and DNC are worried about themselves, about maintaining as much power as they can. Hitching your own peace of mind to their success is sacrificing your identity as an American first.
You lost me at ‘gun’.
Excellent article – so thankful for accurate reporting on such a pressing topic!
Many investors would benefit by utilizing their state’s Department of Finance to bring actions, rather than hiring attorneys.
But, most people aren’t aware of that option.
It can greatly expedite a case, as it removes the offending company’s ability to “spend-out” the Plaintiff.
I am a licensed NY real estate broker. I understand both sides of this issue. The industry’s objection is at its core is that such regulation makes it much easier for customers of financial advisors to sue for actual and punitive damages which enriches litigators and the cost of which will be passed on to the consumers both squeezing industry income and raising prices passing the amortized cost onto the customer (via higher insurance premiums paid by the industry and/or higher fees).
In real estate practice, we have the same ethical and fiduciary issues but have resolved it (I believe) more fairly and without either enriching trial lawyers or raising the cost of doing business:
That is, all charges, fees, costs, agency, loyalties, potential conflicts and interests of the parties are required by our state licensing agency (NY Dept of State) to be disclosed up front and transparently. Failure to do so can void transactions, incur penalties and risk the suspension or revocation of one’s real estate license. And any such unethical practices may also subject the licensee to litigation for damages.
These rules are repeatedly drummed into new and current licensees by their principal broker or brokerage company and violations are generally dealt with promptly, internally and with zero tolerance (especially since the brokerage firm can also be held liable for such unethical practice.) Therefore as a practical matter, abuse and unethical practices are overwhelmingly ‘nipped in the bud’ and these issues now unregulated in the financial services industry might be most easily resolved by following this example of full transparency and disclosure. This allows the customer to make a fully informed decision as an adult rather than being keep in the dark and then cry ‘foul’.
Thank you for writing this article…..I have lost hundreds of thousands of dollars over the years in greedy advice from Investment brokers who should be called stock and mutal fund sales people. TRANSAMERICA finacial advisors was one of the worst and the agent was what I thought to be a friend. Je made statements like …”Dont worry I will take care of you and put you in an actively managed fund”…..it activley managed any growth I had right into their pockets with a high commission fee of almost 2%…..he relied on my trust and screwed me.for 2 years until I had a friend in the banking industry look at mu account and coached me into an account with Vangaurd at about
.43 % less than half a point and I have already made over $8500 in less than 6 months…..I lost over $8000 in earning potential with TransAmerica Finacial advisors…..bad people.
Financial lobbyists ” Com’on, man, how can we get rich if we can’t pistol whip our clients and steal their money?!!”
The bloated administrative state is not going to protect the savings of small investors such as Mr Wingate. He made the decision to go with a mail-order financial advisor who he gave all his savings to chase higher yields with higher risks. He paid thousands of dollars in fees to his mail-order friend and then lost much of his investment during he real estate crash not due to Mr Teboda. Only a moron would invest all their savings in a risky venture with a mail-order advisor even though most everyone thought the housing market at that time could only go up, Ha
People who worship the ever growing administrative state thrive on the victimhood of fools like Mr Wingate who supply the story about how only the state can protect the poor helpless rubes.
Now that Trump and like minded people are leading the country this overdependence on regulation is being slowly dismantled and little new regulation will be allowed.
In finance elaborate contracts are set up by teams of lawyers when billions of dollars are at stake. However, economists tell me that in the end it still comes down to trust. So Mr. Wingate is not a fool or moron to trust a financial adviser.
Regulation can help people like Mr. Wingate. Financial advisers must be knowledgeable, must work in the interest of the client, must disclose how and how much they are paid, must explain the risks of investments and must refuse high risk investments to people that cannot bear them.
Voting for Republicans is voting for deregulation. Voting has consequences.
Only fools and morons use their junk mail to choose financial advisors. Mr Windgate could have found help through his existing investment fund or other reputable advisors but he wanted those high returns and his timing was unfortunate. He could have taken this investment contract to a lawyer if he didn’t understand he was paying the guy $20k up front along with the other red flags.
Mr. Wingate wasn’t rich enough to be a foolish, unsuccessful businessman, like Trump. Shame on him!
After this immature rant, if anyone ever victimizes you, don’t come crying to the law for help.
And you spelled your name wrong.
Not one single mention of “criminal” or “prosecution” in this article.
That’s the central problem. Look at Enron & Arthur Andersen – at least a criminal prosecution was conducted. But when the criminals are Goldman Sachs, JP Morgan, Bank of America, Wells Fargo, HSBC, Barclays, Fidelity, Vanguard, State Street, Blackrock? No, Obama and Bush gave them a free pass with Congressional approval. All the ‘fiduciary rules’ in the world won’t change a thing if the criminals just pay a little fine and walk away.
It’s like giving a $10,000 fine to a bank robber who stole $50,000. That’s not going to change their behavior.
For the few large banks which were fined, settlements were more akin to a $100-300 fine in your bank robber scenario. In early 2012, for example, JPMorgan Chase paid out $5.29B – a big number, sure, but comprising only about 0.2% of their total assets at the time. A fine of $111.13 on that stolen $50K. Since then, their stock price has more than tripled. Sure glad they learned their lesson.
I work in the litigation department of a Wall Street brokerage. Our firm has been preparing for DOL for a long time. We except an uptick in lawsuits. Many prior lawsuits include ‘fiduciary’ allegations, but that always failed. This ‘could’ change things.
Older people trust that nice young man (or old man) with their money without understanding anything about the securities market. Older women are the most vulnerable, as they have the least knowledge. People have to know that IRAs and 401Ks are not guaranteed. You are gambling – this is not a pension or Social Security. FINRA arbitrations are the route that these lawsuits will take. You have to hire a lawyer for the most part and go ahead against firms, including outside counsel, who have been handling arbitrations for years and are experts.
The DOL rule might give you a leg up in litigation – and if it does, firms will start dropping IRAs or mandating a basic, ‘safe’ low earning investments and nothing else. (which would not be bad!) This rule exposes the real issue with the stock market – it is a casino in which profits are made off the people who have accounts. Commissions and fees are the bread and butter of the retail industry. And they are part of having an IRA.
Deregulating financial advisors is consistent with other government policies, both at the state and federal levels. Years ago, the rules for corporate charters were altered so as to remove any corporate obligation save maximizing profits. Thus one can legitimately ask, “How could one expect a corporation to place the welfare of its customers above its own?” The answer, of course, is that one cannot. For a corporate entity to forgo profits by giving its customers good investment advice would subject them to the jeopardy of shareholder lawsuits, perhaps even criminal penalties.
Although one might argue that individual financial advisors need not be corporations, or even incorporated, the same logic applies. Because, according to our (conservative) Supreme Court, corporations are people and thus, reflexively, people must be corporations.
The astute reader may have noticed that all talk about constitutional amendments and the like for the purpose of assigning personhood only to advanced DNA-based life forms, aka human beings, has ceased. The topic has had its 15 minutes of discussion, the stream of consciousness of the American public, such that it is, has moved on. But alas the only way one could expect legislation mandating corporate consideration of anything but profits would require such an amendment, and reversion of the corporate charter legislation to boot. Ain’t gonna happen.
“Thus one can legitimately ask, “How could one expect a corporation to place the welfare of its customers above its own?” The answer, of course, is that one cannot. For a corporate entity to forgo profits by giving its customers good investment advice would subject them to the jeopardy of shareholder lawsuits, perhaps even criminal penalties.”
My answer to the shareholders is that the good name of the company is at stake and that satisfied customers generate new customers and therefore more income in the long term if not in the short term.
In case you haven’t noticed, long term is no longer fashionable in the business community; it is all about this quarter. It is for that reason that corporate research and development in the US has nose-dived: the bean counters have no way of factoring some future development into the current balance sheet, while the expense shows up immediately.
Corporations spend large sums in advertising to convince the unwary public of their good intentions, but if you look carefully at what they do, it is almost always in contradistinction to what they say.
I know long term is no longer fashionable in the business community. My answer to your question implies that I value long term considerations in business. Don’t you?
This is just another example of the “war” that Trump and Bannon want to wage on Washington. Make the uber rich even richer and kill all the damn n*****s.
The title of this piece is somewhat misleading: “Financial Advisers Want to Rip Off Small Investors. Trump Wants to Help them Do It”. From what I could deduce from the article, Mr. Trump merely wants to let them do it, not help them do it.
Republicans take great pride in allowing retailers to develop innovative ways to defraud investors. This is done via a laissez-faire approach where the government does not try and dictate what form the fraud should take.
Democrats on the other hand, believe that defrauding investors is best done via a public-private partnership.
So the title of the article more closely reflects the Democratic approach than the Republican one.
“I represented all of you for eight years. I had great relations and worked so close together.”
– Crooked Hillary Goldman Sachs Speech
“Well, the math stuff I was fine with up until about seventh grade. But Malia is now a freshman in High School and I’m pretty lost.”
– Dear Leader Obama (presided over the transfer of trillions to Wall St.)
Couldn’t stomach the entire article but the new rule are for retirement accounts only
“The stakes, apparently, are high. The consulting firm A.T. Kearney calculated last year that it will cost the financial industry as much as $20 billion in lost revenue by 2020 to comply with the rule, in part because it will dramatically reduce the fees the industry collects from investors.”
Let that sink in people…
There are numerous resources online to educate yourselves on the investment basics. Or order a ‘Dummy’ book on investing and LEARN. Don’t let these para$iteS near your hard-earned life savings.
In a battle against the Wall St gang, it is impossible for any rational person to believe Republicans will side with small investors.
Don’t kid yourself that either “party” will actually enforce anything on behalf of the little guy.
During the Clinton years, oil was at a low, about $15/barrel. I walk into the offices of AG Edwards, which had a great reputation at the time. I was steered into Goldman Sachs funds.
I was later notified that I was named as a victim of AG Edwards/Goldman Sachs scheme where Goldman gave kickbacks to Edwards for steering folks to Goldman.
Of course there was a lawsuit but no prosecutions, where the result for the little guy was a refund of the consulting fees only, at that over three years so as not to cause any undue punishment to the co-conspirators. Of course, added all up, taking a portion of the many duped investors refunds, the Manhattan lawyers made millions. The refunds were pocket change, less than a sit down lunch.
Seriously after 8 yrs of Dodd Frank financial reform which enacted illogical and unnecessary regulations, growth rate for regulatory restrictions was 38% larger than Bush. Now with GDP 1% or so I know sm business are with Trump not Obama era of regulations
After 8 yrs of Dodd Frank reform which enacted illogical and unnecessary regulations Obamas growth rate of regulations was 38% higher than Bush and with a GDP of approximately 1% sm business tax hikes, EPA Regis Obama care . Trump has finally unleashed sm business
“The group, founded by Fred Malek, a former assistant to Presidents Richard Nixon and George H.W. Bush, spent $5.6 million during the 2016 federal elections, according to OpenSecrets.”
Jeez, is that Fred “the Jew counter” Malek who was born in 1936? How long is that bozo gonna grift, anyway?