December 14, 2017 03:41 am CST
Know Your Enemy
By Briton Ryle, Wealth Daily

What would you say if I told you there are some investment brokers who don't feel they should put your financial interests above their own?

"Duh, Captain Obvious."

"Is that even legal?"

The fact is, investment brokers are not held to the fiduciary standard. That's reserved for people who manage trusts (in other words, rich people that manage other rich people's trust funds).

For the rest of us — those who have a 401(k) with American Funds, an IRA with Fidelity, or a brokerage account with Ameritrade — the broker you might go to for advice on where to invest your money is only held to a "suitability" standard.

The suitability standard simply means that an investment sold by a broker must be "suitable" for that investor. And frankly, when you read the types of investments that can pass a suitability standard, well, it's not comforting... things like non-traded-REITs, oil and gas private placements, and variable annuities.

High fees (both up front and ongoing management fees) and high commissions do not keep an investment from being "suitable." Inappropriate? Yes. Predatory? Sure. But still suitable...

Barbara Roper, director of investor protection at the Consumer Federation of America, said, “If you want Exhibit A on why we need a fiduciary duty, it can be found in the sale of high-cost, substandard variable annuities when investors would be better off in another investment.”

Any individual investor needs to be fully aware that brokers are just salesmen. They make money based on what they sell you.

And that's exactly why a portion of Wall Street has been fighting the fiduciary standard for years...

All About the MONEY

The fiduciary standard is pertinent for two reasons...

One, individual investors should be aware that the broker they go to for help may not be motivated to offer the best advice.

And two, the Department of Labor is about to re-propose its own fiduciary standard rule that would increase the number of financial advisers who must act in a client's best interest when advising on retirement plans, including brokers who sell individual retirement accounts.

Seems reasonable to me. But the opposition to the fiduciary standard — and the lamebrain excuses that get offered up for why it would be bad — is worth a look, even just for its comic value...

An article from said this:

Critics of a universal fiduciary standard argue that making all securities brokers beholden to the standard of care established under the Employee Retirement Income Security Act would drive the financial services industry away from providing advice to lower- and middle-income Americans.

Why is that? Why shouldn't poor people get decent investment advice? Because they don't pay enough in fees to make it worthwhile?

Financial Advisor ( says:

U.S. Chamber of Commerce President and CEO Tom Donohue said Tuesday the “misguided” rule to impose a fiduciary duty on financial advisors to pension fund participants would make retirement savings much harder for middle-class families.

So it will be harder to save for retirement when you're not paying outrageous fees and sales commissions? Yeah, that makes sense...

And had this chestnut:

Agent and advisor groups lobbied intensely to force scrapping of such a provision, arguing that changing the standard for sale of investment products could effectively eliminate the commission-based model under which they operate. They argued that subjecting them to a fiduciary standard would raise the cost of doing business to prohibitive levels...

Again, opponents to a fiduciary standard seem to agree unanimously that brokers won't make as much money if they have to put their clients' interests above their own.

To me, that boils down to an admission that investors are being taken advantage of.

Know Your Enemy

It's more than a little sad that the rich and powerful will always align to protect Wall Street interests at the expense of regular Americans struggling to save for retirement and earn a better life. But that's the way it is.

Check out this excerpt from a recent Bloomberg article:

On Jan. 23 [2015], five association heads — among them two former governors and an ex-congressman — gathered to tell presidential advisers Valerie Jarrett and Jeffrey Zients that the [fiduciary] rules would throw the retirement system into chaos and harm savers with small balances, according to attendees and people briefed on the meeting.

Again, there's the threat that individual investors have to be gouged by fees in order to get good investment advice.

Right now, Americans have $11 trillion in 401(k) and IRA retirement accounts. Our retirement accounts are one of Wall Street's biggest sources of revenue. Council of Economic Advisers chief Jason Furman estimates that broker conflicts and practices like excessive trading to drum up commissions cost workers as much as $17 billion annually. 

As Bloomberg says:

Much of the finance industry has lined up to oppose the [fiduciary] measure — big banks with brokerages, mutual fund companies that thrive on clients who roll their 401(k) plans into IRAs, insurers selling annuities, and independent brokers and financial planners.

Leaders of the [anti-fiduciary] effort include Fidelity Investments, Morgan Stanley, Bank of America Corp., UBS AG and Ameriprise Financial Inc. They’re working together with the five finance trade groups that met with Jarrett, a senior adviser to the president, and Zients, head of the National Economic Council: The Financial Services Roundtable, the American Council of Life Insurers, the Securities Industry and Financial Markets Association, the Financial Services Institute and the Insured Retirement Institute.

How Will it End?

Marcus Stanley, policy director of Americans for Financial Reform — a coalition of groups that advocates for stronger regulation of Wall Street — told Bloomberg: "Our experience has been that industry dramatically misrepresents the content and the impact of the rule, by making unsubstantiated claims.”

That sounds about right.

Please remember that if you have to speak to a broker about rolling over a 401(k) or IRA, the advice you get may not be in your best interest.

Get a second opinion. Do some Internet searches to get familiar with the specific issues that concern you. There are a lot of resources out there to help individual investors make the right decisions.

Heck, you can even write me with questions you might have. Just send an email to

I'd be happy to answer you right here in a future Wealth Daily article

Until next time,

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Briton Ryle

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