A NY Times offers a glimpse into the finance industry mind, and it’s not pretty.
From the Editorial Board of the NY Times:
You would think the financial industry would be too embarrassed to object to the idea that advisers should act in their clients’ best interests when giving advice and selling investments for retirement accounts. But last week industry groups filed two federal lawsuits against new rules that say just that.
A best-interest standard, also known as a fiduciary duty, would end the common industry practice of steering clients into high-priced strategies and products, even when comparable lower-cost options are available. Such steering generates an estimated $17 billion a year in excessive fees and inflated commissions, a bundle the industry is desperate to preserve.
The groups’ legal arguments are vacuous. For example, the rules require advisers to disclose compensation, incentives or conflicts of interest that might induce them to recommend one strategy or product over another. That is basic disclosure for a fiduciary. But one suit says such disclosure would violate advisers’ right to free speech by forcing them to discuss things they would rather not discuss.
The lawsuits also argue that the rules, issued by the Labor Department in April, are based on a misinterpretation of the law on fiduciary duty. That is a stretch. It ignores the fact that earlier interpretations, advanced during the deregulatory heyday of recent decades, have effectively condoned biased advice and undisclosed conflicts to the detriment of ordinary investors. It also ignores a provision in the Dodd-Frank financial reform law of 2010 that specifically called for regulators to study such problems and issue new rules to rein in brokers and investment advisers.
The lawsuits are flawed, but they still pose a threat. They could delay the rules’ phase-in, which is set to begin next April. . .