Remember When Trump Moved to Revoke Dodd-Frank Investor Protections

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When the Trump administration was in power, they moved to revoke protections for individual investors.

This was no surprise.

An announcement that the Trump administration was moving to revoke safeguards meant individual investors would have more trouble saving for retirement and making higher-return investments.

That announcement culminated from hundreds of millions of dollars spent on lobbying by key financial industry elements promoting legislative, regulatory, and legal campaigns designed to denigrate any benefits to investors.

This included a decades-long powerful campaign by well-financed financial trade groups, using weak and false arguments about the burden of regulation, higher compliance expenses, and making financial advice inaccessible to low-income clients to derail any pro-investor actions from the U.S. Department of Labor or any other agency at the state and federal levels.

…the financial services and global banking industry are broken and have an inbred, institutionalized distain for their own customers.

What’s more, those actions were not isolated. They were part of the ongoing campaign to ignore any admission that the financial services and global banking industry are broken and have an innate, institutionalized disdain for their customers.

This is why Dennis Kelleher, president and CEO of Better Markets, a watchdog group that advocates for stricter financial regulations, said “The top line is that the Trump administration is probably the most anti-investor and consumer protection administration in decades, if not ever.  It’s hard not to concede that investor and consumer protections are not a priority for this administration.”

Trump-Proof Your 401(k) by Asking These Questions To Your Advisor and Employer

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As noted in the pro-investor book, How 4019(k) Fees Destroy Wealth and What Investors Can Do To Protect Themselves, So with that in mind, here is a simple checklist of things to ask for and see when dealing with advisors to make sure they understand that you now that new DOL fiduciary regulations are in the pipeline.

  • Learn to identify conflicts-of-interest in financial relationships, including those affecting your 401(k) at work;
  • Remember that managing fees and expenses are the most important factors under an investor’s direct control. They must be managed for long-term financial success;
  • Follow the “one-strike and you’re out rule” when dealing with your financial advisor. Financial mistakes are too expensive for all investors, and for retirees, they represent money that can never be recovered. If your advisor loses money by investing in inappropriate funds, fire them.
  • Ask your financial advisor if they adhere to the fiduciary standard. Ask them what it means to them, and then have them put that claim in writing.
  • Ask your advisor if their firm or the funds in your portfolio are managed by global banks, wirehouses, or insurance companies, such as AG Edwards, Edward Jones, JPMorgan Chase, Principal Financial, Bank of America, Merrill, CitiBank, Oppenheimer, Principal, Hancock, etc., that contribute to lobby against the fiduciary standard. If they do, look for another firm or work with a Registered Investment Advisor (RIA) who explicitly says they adhere to the fiduciary standard. Don’t even consider investing with a firm that uses your money to generate fees and revenues diverted to lobbyists working against your best interests.
  • Don’t invest in fund companies that employ mutual fund wholesalers. Wholesalers are used in a national sales force and are among the most highly paid jobs in the mutual fund industry, with an average salary of $165,000, according to Simply Hired. Wholesaler expenses are used to increase assets under management but do nothing to boost the return on your mutual funds. On the contrary, they often decrease returns. Wholesalers only add to your expense ratio; they do not add one penny to your total net return.
  • Ask your advisor when your mutual fund last reduced its fees. Funds that grow in asset size reach a more efficient scale of economy and are cheaper to manage, especially with the decreasing technology costs. If your fund is growing in assets and has not made a corresponding decrease in its total expense ratio, ask why those savings are not being passed along to shareholders.
  • When meeting with your financial advisor or human resources person to discuss your 401(k), don’t be afraid to record the conversation and take notes.

These may be tough questions, but no one will be more concerned about your money than you. Take the needed steps to protect it. If not, you have no one to blame but yourself.

A Once-in-a-Lifetime Marketing Opportunity for RIAs

While the Trump administration is unequivocally bad news for individual investors, it presents a unique opportunity for Registered Investment Advisors (RIAs) and others who support plain-old disclosure and transparency with their clients.  If you are a financial professional who believes in fair play and full disclosure, market yourself as being on the same side as your clients. Make yourself distinct from the big banks, insurance companies, and wirehouses that push proprietary funds and conflicts of interest. In this case, good marketing is good education, but you have to make yourself distinct.

Who Speaks For Individual Investors?

Since the financial services industry lobby is the largest and wealthiest in Washington, it should not be surprising that Trump’s actions continue to tilt the field against individual investors.  The problem is that this is a near-permanent situation.

Sadly, few in Congress and few lobbying groups advocate for investors, so any temporary gains, such as the DOL’s historic pro-investor 401(k) disclosure regulations and even Dodd-Frank and the Volker Rule, could be considered temporary, pro-investor aberrations.  As things stand today, the financial services industry lobby has targeted all of these regulations because they interfere with the ability of advisors to make easy money and for the large firms to avoid expensive class action lawsuits. These pro-investor rules are reviled in Washington: they are pro-individual investors. Revoking these protections means average people will have less money in retirement while their advisors will have more.

But things should get worse. Under Trump, the SEC will become a captive, defanged, rubber stamp regulatory agency. It will effectively disappear and move at an intentionally slow pace, so critics will die of boredom as it slogs through its regulatory minutia. The DOL will also be hampered.  And even state financial regulators (yes, they do exist) will continue to be ineffective against the financial services industry. Yet from its muck, many SEC staffers will continue to collect their salaries and emerge clean and into the better-paying private sector jobs as lobbyists and securities attorneys.

This is part of the price investors pay for what is touted as investing in one of the world’s most highly regulated financial markets.

The big question is: Who benefits from the regulations? It certainly is not the individual investor.

And for those who think this is a one-off event from the Trump administration, it’s clear more bad actions that threaten the retirement security of Americans are on the horizon.

 

 

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