Now that the DOL has finally come out with its “new and improved” conflict-of-interest proposal, we can be sure of two things. First, the brokerage industry won this round hands down. They got to keep their commissions, 12b-1 fees and revenue sharing — and for what price? The mere pittance of disclosure.
What’s more, the — albeit loosely enforced — disclosure requirements will, at least on paper, increase the barriers to entry, further solidifying the market prominence of those already in the industry. Finally — and here’s the coup de grâce no one expected — not only do they get to keep their existing fee structure, but they get to call themselves “fiduciaries,” thus removing the one key differentiating factor that traditional RIAs had long (and solely) possessed.
But there is a second result that is guaranteed to come out of the DOL’s proposal. It’s one that falls right into the hands of those who would like to nationalize the retirement industry. The DOL’s (quite frankly) non-event April 14 all but ensures that the two sides in our industry will continue to be pitted against each other. That’s bad for both sides. And, as I implied, that’s good for the cabal that wants the government to take over all retirement plans.
What? You doubt such a group exists? One need only read of the so-called “retirement crisis” in the popular press to understand what is going on. Every article that abuses statistics to promote the idea the 401(k) has “failed” (despite massive evidence to the contrary) indicts the private retirement industry. (That’s us, folks.) Every PBS special that calls retirement “a gamble,” every headline story that decries the “evils” of fees, every puff piece that trumpets the unfairness of the “Romney IRA” takes us further from the concept of personal responsibility and brings us one step closer to legislation designed to offer yet another cradle-to-grave benefit.
Heck, it worked for health care. Why not retirement?
The only difference is, in health care, you didn’t have two different competing service models performing the same service (and you can’t count the insurance companies vs. the doctors because they provide two different services). With health care, the government had to drip, drip, drip the damaging spin to convince people the doctors (or the insurance companies — take your pick) were the bad guys.
In the retirement industry, the government has ready-made allies in the brother vs. brother conflict wrought by the Great Fiduciary Debate. Yes, statists can sprinkle in fresh gunpowder to spark a more heated exchange, but it is the beauty of insiders revealing each others’ best kept secrets that remains the most effective way to discredit the entire private retirement industry.
Not only that, it turns attention away from our nation’s true retirement crisis: the sorry shape of our public retirement system (including Social Security). Based on the pension model, most now agree these legal Ponzi schemes are not sustainable. Yet, ironically, one of the worst state offenders — Illinois — has led the nation toward adopting public retirement plans for private citizens. Why? Because to keep a Ponzi scheme going, you need fresh targets. What better way to extend the terminal life of public pensions than to consume the retirement money of private individuals? The fact that the federal government and various state governments (others are duplicating Illinois’ efforts) will now have a new dependent constituency only makes their re-election more certain.
And when public retirement systems absorb private workers, where does that leave most of the retirement industry? Looking for another job. Based on the way government has come to operate, only the highest campaign contributors will find themselves issued government contracts to run the government’s retirement plan. That’s great if you work for a big firm that’s already knee deep in PAC contributions, but for those independent practitioners, woe be to you. Actually, woe be to the big firms, too, for once you’ve sold your corporate soul to the government devil, you’ll find you’re not as free as you once were.
How do we, as an industry, prevent this dystopian future? Simple. Stop fighting this civil war we, with terrible misguidance, brought upon ourselves. Take the debate back into the arena where we (at least while we still can) make the rules: the marketplace. Let us create a world where both broker and RIA can compete — fairly and honestly — without reliance on government intrusion. Brighter minds than mine can figure out how to do that, but it’s imperative they figure it out — together.
On June 16, 1858, in Springfield, Ill., Abraham Lincoln, referencing Mark 3:25, famously said, “A house divided against itself cannot stand.” Today our industry stands as a house divided — perhaps purposely — and we waste limited resources fighting each other in an arena not of our making. This must end. This will end.
But let it end in a way that does not destroy our industry.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
